The Economist Erdogan hammers Turkey China's stockmarket rally Netanyahu's hubris Signals intelligence Trump-style MARCH 29TH-APRIL 4TH 2025 100/100 JAMESSUCKLING Y It takes time to become an icon Imported by Laurent-Perrier US - www.laurent-perrier.com PLEASE ENJOY CHAMPAGNE RESPONSIBLY Nº26 The Economist March 29th 2025 THE LEASE VE the state of the station of the station of the subje Grand Siècle Laurent-Perrier Contents On the cover Is Elon Musk remaking America's government, or breaking it? Leader, pag ...

30 March 2025 | 1:02PM BST Metals Comment: China Metals/Mining Field Trip: No Steel Production Cuts Yet, Overcapacity Spreads To Alumina We recently traveled to China with a group of international investors where we visited companies in Beijing, Tangshan, Ganzhou and Shenzhen across the steel, copper, aluminium, power (thermal, renewables) and construction sectors, including visits to six private steel mills, rare earth magnet and battery (LFP) plants. The focus of our trip was the outlook for China commodi ...

Summary of Conference Call Notes Industry Overview - **Industry**: Hong Kong/China Leisure & Lodging - **Key Companies**: H World Group Ltd (HTHT.O), Atour Lifestyle Holdings Ltd (ATAT.O), Jin Jiang International Hotels (600754.SS), BTG Hotels Group Co Ltd (600258.SS) Core Insights and Arguments 1. **4Q24 Results Expectations**: Slightly better than market estimates due to stronger hotel demand in late December, but guidance for 1Q25 is expected to be lower due to recent weak data [1][3] 2. **RevPAR Growth Adjustments**: - Industry RevPAR growth forecast for 1Q25 revised down from +1% YoY to -2% YoY based on recent performance [3] - Specific company adjustments include: - H World: EPS estimates down by 1-2% [3] - Atour: 1Q25 RevPAR growth assumption lowered from -2% YoY to -6% YoY [22] - Jin Jiang: 1Q25 RevPAR growth assumption lowered from -2% YoY to -5% YoY [25] 3. **4Q24 Performance Metrics**: - H World expected to report 6% YoY revenue growth, with adjusted EBITDA growth of only 1% YoY when excluding impairment losses [8] - Atour projected to show strong revenue growth driven by retail, with core net income growth of 37% YoY [8] - Jin Jiang anticipated to face revenue decline exacerbated by rising costs and RevPAR underperformance [8] - BTG expected to report a 4% YoY decline in revenue for 4Q24 [8] 4. **Operating Leverage and Margin Pressure**: High operating leverage in the hotel industry continues to pressure margins, with fixed costs growing YoY [6] 5. **Market Sentiment**: Guidance and trends for 1Q25 and 2025 will significantly influence market sentiment, with March 2025 showing disappointing results despite a low base [6] Additional Important Insights 1. **Price Target Adjustments**: - H World price target lowered from US$46.00 to US$45.00 due to reduced 1Q25 RevPAR estimates [3][21] - No changes to bull and bear case scenarios for H World [21] 2. **Earnings Preview**: - H World’s total revenue for 4Q24 expected at Rmb5,859 million, with a profit after tax of Rmb875 million [10] - Atour’s total revenue for 4Q24 expected at Rmb1,970 million, with a core net income of Rmb294 million [13] - Jin Jiang’s total revenue for 4Q24 expected at Rmb3,332 million, with a net profit of Rmb78 million [16] - BTG’s total revenue for 4Q24 expected at Rmb1,802 million, with a net profit of Rmb37 million [17] 3. **Future Projections**: - H World’s adjusted EBITDA for 2024E projected at Rmb6,288 million, with net income of Rmb3,856 million [20] - Atour’s adjusted EBITDA for 2024E projected at Rmb1,643 million, with net income of Rmb1,239 million [23] - Jin Jiang’s total revenue for 2024E projected at Rmb14,123 million, with net income of Rmb1,079 million [28] - BTG’s total revenue for 2024E projected at Rmb7,691 million, with net income of Rmb758 million [27] Conclusion The conference call highlighted a cautious outlook for the Hong Kong/China leisure and lodging industry, with several companies adjusting their revenue and profit expectations downward for 1Q25. The impact of operating leverage and rising costs continues to pressure margins, while market sentiment will be heavily influenced by upcoming guidance and performance trends.

Summary of Hunan Yuneng New Energy Battery Material (301358.SZ) Conference Call Company Overview - **Company**: Hunan Yuneng New Energy Battery Material - **Ticker**: 301358.SZ - **Date of Report**: March 17, 2025 Key Financial Metrics - **2024 Net Profit**: Rmb594 million, down 62% YoY [1] - **4Q24 Net Income**: Rmb103 million, up 2% QoQ and 165% YoY [1] - **Unit Gross Profit (GP) for LFP Cathode**: - 2024: Rmb2,372/t, down 60% YoY [1] - 4Q24: Rmb2,122/t, up 1% QoQ and 50% YoY [1][3] - **Final Cash Dividend**: Rmb0.157/share, down from Rmb0.418/share in 2023, maintaining a 20% payout ratio [1] Sales and Production - **LFP Cathode Sales Volume**: - 2024: 711kt, up 40% YoY [2] - 4Q24: 233kt, up 40% QoQ and 67% YoY [2] - **Output Volume**: 735kt in 2024, up 46% YoY [2] - **Utilization Ratio**: 101% in 2024, compared to 90% in 2023 [2] - **High Energy Density Products Sales Volume**: - 2024: 159.3kt, 22% of total sales [2] - 4Q24: 105kt, 45% of total sales [2] Expenses and Impairments - **Impairment Loss**: Rmb117 million in 4Q24, up from Rmb8 million in 3Q24 [4] - **SG&A Expenses**: Rmb151 million in 4Q24, up 36% QoQ and 49% YoY [4] - **R&D Expenses**: Rmb85 million in 4Q24, up 12% QoQ and 30% YoY [4] Cash Flow and Gearing - **Net Gearing**: 52% in 2024, up from 24% in YE2023 [9] - **Operating Cash Flow (OCF)**: -Rmb1,042 million in 2024, compared to Rmb501 million in 2023 [9] - **Free Cash Flow (FCF)**: -Rmb3,414 million in 2024, worse than -Rmb2,188 million in 2023 [9] - **4Q24 OCF**: -Rmb796 million, compared to -Rmb499 million in 4Q23 [9] Valuation and Investment Outlook - **Target Price**: Rmb66.3, implying a 65.2% expected share price return [7][10] - **Expected Total Return**: 65.7% [7] - **Current Trading P/E**: 16.0x for 2025E [10] Risks - **High Risk Rating**: Despite a high risk rating, the company is believed to be at the trough of the cycle with an improving competitive landscape expected in 2025E [14] - **Key Downside Risks**: - Lower-than-expected LFP cathode shipments [14] - Worse-than-expected unit GP for LFP cathode [14] - Higher-than-expected expenses [14] Conclusion - Hunan Yuneng's financial performance in 2024 reflects significant challenges, particularly in profitability and cash flow. However, the company shows potential for recovery with increased sales volume and a positive outlook for unit gross profit in 2025. The investment recommendation remains a "Buy" based on expected improvements in the competitive landscape and financial metrics.

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the global rates market, focusing on the U.S., Canada, Germany, the UK, and Japan, with insights into central bank policies and macroeconomic indicators. Core Insights and Arguments 1. **U.S. Yield Response**: The U.S. yield response to weaker risk sentiment is contained, reflecting a balance between growth and inflation trade-offs, with a bearish shift in yields abroad [1][2][5] 2. **FOMC Expectations**: The upcoming FOMC meeting is critical, with expectations of a potential upward shift in inflation forecasts and a downward adjustment in growth forecasts [2][5] 3. **German Fiscal Package**: A fiscal package in Germany has been agreed upon, which may lead to lower uncertainty regarding fiscal loosening, but further catalysts are needed for higher yields [1][20] 4. **Bank of Canada (BoC) Actions**: The BoC cut rates by 25 basis points due to trade uncertainties, indicating a dovish tilt in economic risks [15][17] 5. **UK Economic Outlook**: UK yields remain stable, with the BoE expected to maintain a gradual approach to rate cuts amid rising inflation expectations [22][29] 6. **Japanese Monetary Policy**: The BOJ is expected to keep policy steady, with potential for future tightening depending on wage growth trends [25][29] Additional Important Content 1. **Market Liquidity**: There is limited evidence of deterioration in market liquidity despite recent risk asset weakness, with overall stress levels remaining benign compared to previous episodes [12][13] 2. **Global Spread Dynamics**: Spillovers from U.S. swap spreads to other G4 markets are noted, with tighter spreads observed across Bunds, Gilts, and JGBs [10][12] 3. **Investment Recommendations**: Recommendations include front-end steepeners in Canada, Bund steepeners in Germany, and JPY swap steepeners to hedge against potential market volatility [17][21][25] 4. **Yield Forecasts**: The forecast for G10 10-year yields indicates a gradual increase, with U.S. yields expected to reach 4.45% by Q1 2025 and German yields settling north of 3% over time [30][31] This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future expectations of the global rates market.

Summary of Futu Holdings Conference Call Company Overview - **Company**: Futu Holdings - **Industry**: Online Securities Brokerage - **Market Cap**: US$16.7 billion as of March 14, 2025 - **Current Price**: US$118.47 - **12-Month Rating**: Buy with a price target of US$136.00, revised from US$130.00 [6][28] Key Points and Arguments 1. Growth and Client Acquisition - Futu Holdings expects strong growth momentum in Q1 2025, with improvements in client acquisition, net inflow of client assets, and trading volume driven by AI-led market rallies and increased demand for Hong Kong IPO subscriptions [3][12] - The company aims to acquire 800,000 paying clients in FY25, with expectations of exceeding this target, as indicated by UBS estimates of 820,000 [2][4] 2. Market Conditions and Trading Volume - Concerns were raised regarding potential downward pressure on trading velocity due to a bearish US market, which has seen the Nasdaq100 and S&P500 decline by 6.2% and 4.1% year-to-date, respectively [2] - The US market (excluding Chinese ADRs) contributes 60-70% of Futu's trading volume, highlighting the importance of US market conditions to the company's performance [2] 3. International Expansion and Brand Awareness - Futu plans to accelerate its overseas expansion in 2025, particularly in Hong Kong and Malaysia, which contributed to about half of the new paying clients in Q4 2024 [3] - Increased participation in Hong Kong IPO subscriptions is expected to benefit Futu as the market leader [3] 4. Crypto and AI Initiatives - Futu has received conditional approval for a crypto trading service in the US, set to launch in 2025, and will continue to enhance user experience through investor education in Hong Kong and Singapore [3] - The company is leveraging AI to improve operational efficiency and client servicing capabilities, including automatic interpretation of announcements and financial results analysis [3] 5. Operational Expenses and Headcount - Futu targets a customer acquisition cost (CAC) of HK$2,500-3,000 in FY25, with a projected low- to mid-single-digit year-over-year growth in headcount [3] 6. Impact of Interest Rate Cuts - For every 25 basis points cut in interest rates, Futu estimates a negative impact on pre-tax profit (PBT) of HK$96-120 million, which is about 1-2% of UBS's FY25 PBT estimate [3] Financial Projections - Revised client AUM estimates for FY25/26/27 are HK$966 billion, HK$1,162 billion, and HK$1,393 billion, respectively, up from previous estimates [4] - EPS projections for FY25/26/27 have been lifted by 3% to US$6.8, US$8.5, and US$11.4, respectively [4] Valuation Metrics - Price-to-Earnings (P/E) ratio for FY25 is projected at 19x, with a new price target of US$136.00 [4] - The forecast stock return is estimated at 14.8%, with no expected dividend yield [9] Risks - Key risks include lower-than-expected international expansion, adverse market conditions, and increased regulatory scrutiny on mainland China operations [11] Conclusion Futu Holdings is positioned for growth with a strong client acquisition strategy and expansion plans, although it faces challenges from market conditions and regulatory environments. The company's focus on technology, particularly in AI and crypto, may provide additional avenues for growth and operational efficiency.

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Chinese equity market** and its performance, particularly focusing on the **MXCN** and **CSI300** indices, as well as macroeconomic indicators affecting these markets [1][2][3]. Core Insights and Arguments - **Market Performance**: MXCN was flat at -0.3%, while CSI300 gained 1.6% amid US market selloffs, indicating resilience in the Chinese market despite external pressures [1]. - **Economic Forecasts**: US economists have lowered the 2025/26 GDP growth forecasts, raising the recession probability from 15% to 20% due to higher baseline tariffs. In contrast, China's high-tech manufacturing sector is expected to contribute an average of 1.0 percentage point to annual GDP growth from 2025 to 2029 [1]. - **Inflation Trends**: China's CPI inflation fell to -0.7% year-on-year in February, influenced by the earlier Lunar New Year holiday [1]. - **Investment Inflows**: Southbound inflows reached US$7.9 billion this week, with a total of US$48 billion year-to-date, indicating strong interest from foreign investors [3][40]. - **Sector Performance**: Energy and dividend-yielding sectors outperformed, while Real Estate and New China sectors lagged behind [8]. The earnings growth forecast for MXCN and CSI300 is 8% and 15% for 2025, respectively [9]. Additional Important Insights - **Policy Changes**: The CSRC has released new rules regarding bankruptcy and restructuring for listed companies, which may impact market dynamics [4]. - **AI and Tech Sector**: The AI sector has been a significant driver of market performance, with EPS upgrades for offshore-listed tech companies [25]. The optimism surrounding AI is expected to continue influencing earnings revisions positively [27]. - **Valuation Metrics**: The forward P/E ratios for MXCN and CSI300 are 11.6x and 13.0x, respectively, suggesting potential undervaluation compared to historical averages [2][58]. - **Global Fund Allocations**: Global fund allocations to Chinese equities are at historical lows, with only 6.6% of mutual funds allocated to China, indicating potential for future growth as allocations normalize [35][38]. - **Retail Sentiment**: Retail risk appetite has improved but remains below exuberant levels, suggesting cautious optimism among investors [51]. Conclusion The conference call highlights a complex interplay of domestic growth prospects, external economic pressures, and sector-specific performance within the Chinese equity market. The focus on AI and tech sectors, along with significant foreign inflows, suggests a potential for recovery and growth in the coming quarters, despite the challenges posed by global economic conditions.

Summary of NetEase (NTES.O) Conference Call Company Overview - **Company**: NetEase, a leading online games company in China, ranks second in terms of online games revenue and is involved in e-commerce and other internet-related areas [15][16]. Key Discussion Topics 1. **Performance Update of Recently Launched Games**: - Management highlighted the success of newly launched games, including **Fragpunk**, which became a top 10 free-to-play game on Steam with over 100,000 concurrent users [8]. - **Overwatch** has shown improved performance due to enhanced localization efforts, although its contribution remains smaller compared to other Blizzard titles [8][9]. - **Where Wind Meets** achieved a cumulative user milestone of 30 million, doubling its previous count [8]. 2. **Game Pipeline and Publishing Strategy**: - Management noted that promotional campaigns closer to game launches are more effective, leading to a strategic adjustment in the pace of new game launches [7]. - Upcoming titles include **Destiny** and **Marvel Mystic Mayhem**, with ongoing development for other large-scale projects [8]. 3. **Existing Game Performance Highlights**: - Existing titles continue to perform well, contributing to expected online game revenue growth in 2025 [9]. - Management observed a longer deferred revenue cycle for PC games compared to mobile games [9]. 4. **Comments on Costs and Margins**: - Channel costs are negotiated on a game-by-game basis, with top games achieving a favorable cost mix of 30% on Android platforms [10]. - Management plans to focus on long-term operations for titles like **FWJ** to stabilize and reactivate the existing gamer base [10]. 5. **Sales & Marketing (S&M) and R&D**: - S&M expenses are stable at 13.4% for 2024, with increased spending for new titles [11]. - R&D remains consistent, with a focus on hiring new talent and maintaining operational capabilities in game development [12]. 6. **AI Adoption**: - NetEase is focusing on AI applications in gameplay, such as AI NPCs in **Justice Mobile**, enhancing user experience through memory integration [13]. Financial Highlights - **Market Cap**: US$66,254 million [2]. - **Current Price**: US$102.80 with a target price of US$118.00, indicating an expected return of 14.8% [2][6]. - **Earnings Projections**: - 2023A Net Profit: RMB 32,608 million with a diluted EPS of RMB 50.135 [5]. - 2024A Net Profit: RMB 33,511 million with a diluted EPS growth of 3.4% [5]. - 2025E Net Profit: RMB 35,242 million with a diluted EPS growth of 5.7% [5]. Risks - Potential risks include unexpected slowdowns in core titles, declines in game rankings, and a slowdown in advertising demand [18]. Conclusion - NetEase is positioned as a defensive play with stable gaming earnings, strong cash flow, and consistent shareholder returns, supported by a robust game pipeline and strategic marketing efforts [1][16].

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **China Financials** sector, particularly regarding **consumer credit growth** and regulatory impacts on lending practices [1][5]. Core Insights - **Interest Rate Flexibility**: Reducing restrictions on interest rates can enhance both supply and demand for consumer credit. High rates negatively impact borrowers, while excessively low rates can limit banks' risk absorption capabilities. A balanced approach could allow banks to cater to a broader range of borrowers [2][8]. - **Regulatory Environment**: Qifu Technology Inc (QFIN) is expected to benefit significantly from a supportive regulatory environment, which may include a more favorable stance on loan rates below 24% and increased collaboration opportunities with smaller banks. This is anticipated to lead to higher loan volumes [3][8]. - **Consumer Credit Demand**: There is an expectation of a positive feedback loop in consumer credit demand, particularly following a decline in household debt-to-asset ratios since 2018 and an increase in savings rates in 2024 [2][3]. Company-Specific Insights - **QFIN's Performance**: In 2024, QFIN demonstrated its ability to improve its take rate despite a weak macroeconomic backdrop. Analysts express confidence that this improved take rate can be sustained, with potential upside in loan volume [3][9]. - **Valuation Methodology**: The valuation for QFIN is based on a dividend discount model (DDM), with a projected dividend payout ratio starting at 25% in 2024 and gradually increasing to 80% over the long term [9]. Financial Projections - **Loan Growth and Yield**: Projected loan growth for QFIN is estimated at 7% by 2030, with a yield on loans expected to be 4.9% by the same year. The cost of equity (CoE) is projected at 17.0%, with a growth rate (g) of 3% [10]. - **Implied Price-to-Earnings Ratio**: The implied P/E ratio for QFIN is estimated at 6.6x for 2025 [10]. Risks and Opportunities - **Upside Risks**: Potential for stronger-than-expected margins and take rates, improved customer lifetime value (LTV) optimization, and better risk performance [11]. - **Downside Risks**: Risks include weaker margins and take rates, poor customer LTV optimization, and deteriorating risk performance [11]. Additional Considerations - **Market Sentiment**: The National Financial Regulatory Authority (NFRA) is encouraging financial institutions to enhance consumer credit offerings, which is expected to support market sentiment and modestly boost loan demand [8]. - **Risk Management**: While there is encouragement for credit growth, it is emphasized that this will not lead to irrational growth at the expense of risk management, as risk controls remain a priority [8]. This summary encapsulates the essential insights and projections regarding the China Financials sector and Qifu Technology Inc, highlighting the interplay between regulatory changes, market dynamics, and company performance.

Summary of CATL (300750.SZ) Conference Call Company Overview - **Company**: CATL (Contemporary Amperex Technology Co., Limited) - **Ticker**: 300750.SZ - **Market Cap**: Rmb1.1 trillion / $158.8 billion - **Industry**: Battery manufacturing, specifically for electric vehicles (EVs) Key Financial Results - **2024 Revenue**: Rmb362.0 billion, down 10% year-over-year (YoY) - **2024 Net Profit**: Rmb50.7 billion, up 15% YoY - **4Q24 Revenue**: Down 3% YoY - **4Q24 Net Profit**: Up 14% YoY - **Dividend**: Cash dividend of Rmb25.4 billion for 2024, implying a payout ratio of ~50% [1][3] Core Insights 1. **Unit Gross Profit (GP) Weakness**: The decline in unit GP for 4Q24 is attributed to product mix volatility, with expectations for recovery in subsequent quarters as the product mix improves [2][20]. 2. **Sustainable Dividend Policy**: The company is expected to maintain a ~50% payout ratio, significantly higher than the historical average of 10% since its listing [3]. 3. **Stock Performance Drivers**: - Strong monthly battery shipments are correlated with share price performance. - Anticipated unit GP expansion supports the thesis of CATL's battery superiority. - Increased demand for new energy vehicles (NEVs) in Europe is expected to bolster CATL's high-margin overseas market [4][30][41]. Earnings Forecast Adjustments - **Revised Net Profit Forecasts**: Decreased by 4%/5%/5% for 2025-2027 due to US tariffs and increased R&D expenses, yet still 19%/34%/42% above Visible Alpha consensus [5][48]. - **Target Price**: Adjusted to Rmb367 from Rmb378, reflecting a P/E of 21x/15x/12x for 2025E-2027E, compared to a historical average of 33x [17]. Market Dynamics - **Product Mix Changes**: The product mix has shifted, impacting unit GP, with a notable increase in battery inventory to 106 GWh by the end of 2025 [19]. - **Export VAT Rebate Changes**: The reduction in export VAT rebate from 13% to 9% has inflated costs but had minor implications on overall performance [18][20]. - **European Market Outlook**: Despite regulatory uncertainties, CATL management remains optimistic about demand growth in Europe, anticipating a recovery in BEV penetration [41][43]. Financial Metrics - **Revenue Growth**: Expected to rebound with a forecast of Rmb477.9 billion in 2025, representing a 32% growth [15]. - **EBITDA Growth**: Projected to grow from Rmb77.5 billion in 2024 to Rmb107.9 billion in 2025 [15]. - **EPS Growth**: Expected to increase from Rmb11.58 in 2024 to Rmb17.51 in 2025 [15]. Conclusion - CATL is positioned for recovery in unit GP and revenue growth, supported by strong demand in the battery market and strategic adjustments in product offerings. The company's commitment to a sustainable dividend policy and optimistic outlook for European NEV demand further enhance its investment appeal.