Zhitong Hong Kong Stock Analysis | The Indian stock market is in trouble again, controlled nuclear fusion is on the rise

[Market Analysis]

As expected, Hong Kong stocks should have moved upward today, breaking away from the platform, but the actual performance was disappointing, with a decline of 0.53%. The A-share market also did not gain momentum, making the situation more complex, especially with a trading volume of only 119.3 billion, indicating a clear lack of liquidity.

Yesterday, it was mentioned to pay attention to the routine press conference of the State Council. Overall, there were no outstanding highlights from this meeting. The Ministry of Commerce issued a notice on several policy measures to promote stable growth in foreign trade. These measures include expanding the coverage and scale of export credit insurance; increasing financing support for foreign trade enterprises; optimizing cross-border trade settlement; promoting the development of cross-border e-commerce; and expanding the export of specialty agricultural products and other goods. These measures provide some stimulus to foreign trade-related stocks, mainly including Shenzhou International (02313) and JNBY (03306), which have shown relatively stable performance in recent days.

When it comes to overseas expansion, the most aggressive player is POP MART (09992). In recent years, it has been rapidly expanding overseas, and the key is its replicability, which has led to significant growth. Looking at the financial report: POP MART's revenue grew by 120%-125% year-on-year, with revenue from mainland China increasing by 55%-60%, and revenue from Hong Kong, Macau, Taiwan, and overseas growing by 440%-445%, far exceeding expectations. In terms of products, the latest AI toy BubblePal was officially launched in July, with sales continuing to grow, and many innovative highlights are expected in the future with AI empowerment. Today, it rose by 4.63%, reaching a new high for the year.

Additionally, Guotai Junan (02611) and Haitong Securities (06837) jointly announced the proposed merger and share exchange between the two parties. Guotai Junan Securities provided updates on the proposed merger, including the issuance of A-shares and H-shares, major transactions, special authorizations, and related transactions. Both stocks saw slight increases, but did not boost the sentiment of securities-related stocks.

The U.S. stock market always has someone paying "special attention" at critical points. For example, Federal Reserve Governor Lisa Cook stated on Wednesday that, as overall inflation in the U.S. continues to decline, wages and the labor market are gradually cooling, and in this context, further interest rate cuts may still be appropriate. The reason why the U.S. stock market can maintain a long bull trend, aside from the seven major tech giants generating profits, is largely due to the careful nurturing by the Federal Reserve. Moreover, the U.S. stock market carries a significant amount of institutional funds, including the assets of most high-ranking officials in the U.S., which creates substantial vested interests. Therefore, when it goes down, there will always be ways to bring it back up.

For instance, regarding India, on Wednesday local time, the U.S. Department of Justice announced that Gautam Adani, chairman of the Adani Group and former Asia's richest person, along with other executives, was indicted in New York for participating in a large-scale bribery and fraud case. Following the news, during Thursday's trading session, Adani Group and its subsidiaries' stocks and bonds plummeted. Adani Enterprises fell by over 20%, marking the largest drop since June 4. The purpose is clear: besides aligning with India, a significant point is to drive Indian capital back to the U.S. However, if internal issues arise in the U.S., it could become problematic Right now, there is a very tricky event. Elon Musk, newly appointed, is ready to take action against federal employees. In an interview, he stated that the government does not need 428 agencies, at most 99. If this is really implemented, the number of layoffs could reach tens of millions. Just think about it, this is not a business; when he took over Twitter, he laid off 6,500 people, which of course had little impact. To move so many people would cause a huge uproar, and the U.S. stock market would directly collapse.

Nvidia's financial report remains impressive, with third-quarter revenue of $35.08 billion, a year-on-year increase of 94% and a quarter-on-quarter increase of 17%, far exceeding the market expectation of $32.5 billion. The data center business revenue, directly related to AI chips, reached $30.8 billion, a year-on-year increase of 112% and a quarter-on-quarter increase of 17%. The median analyst expectation was $33.25 billion, while Nvidia's own guidance was $31.85 billion to $33.15 billion, with the previous quarter showing a year-on-year growth of 122%.

The AI era is "moving at full speed," and network demand is strong and growing. Although the latest financial report still broke market expectations, compared to the revenue growth rates of over 200% and 100% in the previous two quarters, the third quarter saw a slowdown to 90%. Additionally, Nvidia predicts fourth-quarter revenue to be $37.5 billion (with a fluctuation of 2%), which would further slow the growth rate to 69.7%. As for market concerns about overheating issues in the latest generation of Blackwell architecture chip server racks, coupled with the design flaws reported in March this year that could delay shipments.

Nvidia CEO Jensen Huang also responded, stating that Blackwell architecture chips have been fully put into production. Nvidia's clients, including Microsoft, Oracle, and OpenAI, have begun receiving orders, which are in high demand. It is expected that by fiscal year 2026, "the demand for Blackwell will continue to exceed supply." Overall, there are no major issues; although it once dropped by 5 points, it later recovered. Confidence in AI remains strong, and the frightened Lenovo Group (00992) also rebounded by 2%.

Chip companies highly related to AI are also taking action. According to reports, Jean-Marc Chery, CEO of European semiconductor manufacturer STMicroelectronics (STM), announced a new collaboration plan with China's Hua Hong Semiconductor (01347) on Wednesday local time, stating that they will produce 40-nanometer microcontroller chips in Shenzhen by the end of 2025, emphasizing that local manufacturing in China is crucial for the company's competitive position. A reporter verified the authenticity of this collaboration information with Hua Hong, and an insider confirmed that there is relevant cooperation, but currently, there is no more information that can be officially disclosed. This news indicates two points: 1. A positive outlook on the chip market; 2. Cooperation between European and Chinese companies, which is also a positive signal. China's Hua Hong Semiconductor (01347) rose over 4% today.

Overseas investors are highly enthusiastic about the IPO of Pony.ai, and the company has expanded the IPO size from the originally planned 15 million ADS to 20 million ADS, an increase of 33.3%. At the end of October, Waymo, the autonomous vehicle company under Google's parent company Alphabet, officially announced the completion of an oversubscribed financing round, with a total amount of $5.6 billion Beijing Automotive, which is achieving Level 4 autonomous driving, will hit the streets. Recently, Pony.ai and BAIC New Energy signed a technical cooperation agreement for the development of L4 autonomous vehicles. The two parties aim to promote the large-scale implementation of autonomous driving mobility services with a fully unmanned commercial Robotaxi mass production model, planning to create a fleet of thousands of autonomous mobility service vehicles in Beijing within three years. Currently, both sides have initiated technical breakthroughs in areas such as the development of automotive-grade autonomous driving kits, vehicle production, chassis redundancy safety design, and cabin experience innovation, with plans to complete and launch the first batch of ZhiHoo Alpha T5 Robotaxi models by 2025. Beijing Automotive (01958) rose 3.42% today.

In the nearly one year since the disclosure of Japan's market capitalization management plan, the Tokyo Stock Exchange Index has risen by 34.5%, and the PB level has increased by 11.2%. The increase in net asset value per share is a significant driving force behind the market's rise. Over the past two years, the level of dividends and buybacks in Japanese stocks has significantly increased, and stocks trading below net asset value have shown notable excess returns and stronger valuation recovery momentum.

Market capitalization management is indeed a very effective approach. Today, Beijing Jingcheng Machinery Electric Company (00187) surged over 21%, with this stock having hydrogen energy and robotics concepts. However, in reality, both sectors were relatively quiet today, likely due to speculation around restructuring themes. The actual controller of Jingcheng Machinery is Beijing Jingcheng Machinery Electric, backed by the Beijing State-owned Assets Supervision and Administration Commission. Beijing Jingcheng Machinery Electric currently has over 130 subsidiary companies, 22 important subsidiaries, 25 "specialized, refined, distinctive, and innovative" enterprises, and 3 manufacturing industry champions. However, only Jingcheng Machinery Electric Company is publicly listed, and there is a possibility of asset injection to achieve asset securitization.

Speaking of Auto Street (02443), this stock had a strong rally earlier. At that time, I mentioned the need to be cautious about risks, and the second wave of momentum should wait for the listing of restricted shares, which is now approaching. The company will face the unlocking of 550 million shares on November 27 (next Wednesday), accounting for 66.1% of the total share capital, hence the preheating, with today's rise of nearly 40%. Everyone should pay attention to managing the rhythm.

【Sector Focus】

The AI industry is bringing explosive growth in electricity demand, with nuclear power seen as one of the key directions. According to the latest analysis by Goldman Sachs of 697 funds with total assets under management exceeding $30 trillion, U.S. fund managers have been aggressively buying stocks of nuclear power companies in the third quarter to seize the opportunity. On Goldman Sachs' "Hedge Fund VIP List," the most favored stocks by fund managers are listed.

Under the "nuclear power boom," several nuclear power concept stocks have already made it onto this list. For example, Vistra Corp (VST), which currently has about 6.4GW of nuclear power installed capacity in the U.S., owns the Comanche Peak Nuclear Power Plant in Texas, the Beaver Valley Nuclear Power Plant in Pennsylvania, and the Perry and Davis-Besse Nuclear Power Plants in Ohio; another independent power company, Talen Energy Corp (TLN), also made the list in the third quarter. Talen Energy's Susquehanna Steam Electric Station in Pennsylvania has a generating capacity of 2.7GW, making it one of its core assets Ultraman leads the AI Manhattan Project, OpenAI reveals: suggests the government spend hundreds of billions to compete in AI infrastructure to prevent China from catching up.

The logic of speculating on nuclear power is essentially the end of speculating on AI. Correspondingly, the hot topic in the A-share market is controllable nuclear fusion, which is a highly promising future energy form and one of the 'keys' for humanity to solve energy problems. Related stocks in the A-share market have seen limit-up increases.

The main related varieties in the Hong Kong stock market include: Shanghai Electric (02727), Dongfang Electric (01072), China General Nuclear Power (01816), China General Nuclear Mining (01164).

【Stock Picking】

Air China (00753): Profitability gradually stabilizing, strong demand during peak travel season

In the first three quarters, the company achieved operating revenue of 128.15 billion yuan, an increase of 21.50% year-on-year; net profit attributable to shareholders of the listed company was 1.362 billion yuan, an increase of 72.06% year-on-year. In the third quarter, operating revenue was 48.63 billion yuan, an increase of 6.03% year-on-year; net profit attributable to shareholders of the listed company was 4.144 billion yuan, a decrease of 2.31% year-on-year.

Commentary: The company's profitability is stabilizing and recovering due to: 1) Pressure from wide-body aircraft. Considering the merger with Shandong Airlines, the company's fleet size has increased by 14% compared to 2019, with ASK growth of 5%. The North American routes have only recovered 20%, leading to a relatively slow recovery of wide-body aircraft turnover. The surplus of wide-body aircraft has shifted to domestic routes, which not only increases domestic supply pressure but also leads to high unit costs.

1. Seasonal supply and demand pressure. In 2024, the demand during peak and off-peak seasons is clearly differentiated, with strong demand during peak travel seasons, while off-peak seasons still face supply and demand pressure. The company is firmly promoting a price stabilization strategy. Due to the impact of travel expense control on business travel demand, domestic passenger revenue in the first half of the year was nearly 6% lower than in 2019, and overall seat revenue was only 1% higher, making it difficult to transmit high oil price pressure.

Aviation still has long-term logic. Before 2019, passenger load factors were high, but profitability was significantly lower than that of overseas airlines due to non-marketized ticket prices and rapid fleet growth. In recent years, ticket prices have become basically marketized, and fleet growth has also significantly slowed down. As supply and demand recover, an upward shift in profitability is expected. The market is concerned about the recovery of aviation demand and supply. China's aviation consumption is still in its early stages, characterized by low frequency and low penetration, indicating a huge long-term space, and the impact of economic fluctuations may be relatively limited. Meanwhile, international capacity increases will continue to digest excess capacity from the supply side, promoting the industry's supply and demand to recover beyond expectations.

Overall, Air China's high-quality route network continues to optimize, and short-term pressures do not change its long-term value. As supply and demand recover, the upward shift in profitability will exceed expectations.

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