CICC: Can the Hong Kong stock mobile phone chain stay true and surprise in the era of Apple AI?

According to the financial news app Zhitong Finance, CICC released a research report stating that hardware manufacturers are actively exploring new computing platforms and human-computer interaction methods from the cloud to the edge. Both the capital side and the fundamentals are at a new cyclical starting point. AI catalysis may drive the industry chain to welcome the Davis double; in the AI era, the Hong Kong stock mobile phone chain focuses on acoustic, heat dissipation, optical, appearance parts, and terminal brands and other segmented links. In summary, the team is optimistic about Apple's entry into the edge AI innovation, driving interactive innovation, functional upgrades/appearance changes, and closed-source ecology to resonate again. Android manufacturers may also enter the market simultaneously. From the second half of 2024 to 2025, Apple and Android industry chains may usher in a period of shared prosperity, and the Hong Kong stock mobile phone chain is expected to deeply participate in the innovation wave.

In the era of edge AI, the innovation of interaction methods, functional upgrades/appearance changes, and closed-source ecology complement each other and are expected to drive a new replacement cycle for mobile phones. Looking back from 2007 to 2010, from the release of iPhone 1 to iPhone 4, Apple's innovation in "interaction methods" was one of the main reasons for its large user base; from 2010 to the present, Apple has continuously promoted users to upgrade their phones in years of innovative changes through its "closed-source ecology" and "functional upgrades/appearance changes". Looking ahead to the era of edge AI, CICC is optimistic about Apple's entry into edge AI innovation, driving interactive innovation, functional upgrades/appearance changes, and closed-source ecology to resonate again. Android manufacturers may also enter the market simultaneously. From the second half of 2024 to 2025, Apple and Android industry chains may usher in a period of shared prosperity, and the Hong Kong stock mobile phone chain is expected to deeply participate in the innovation wave.

Reasons

From the cloud to the edge, hardware manufacturers are actively exploring new computing platforms and human-computer interaction methods. As of 1Q24, NVIDIA's data center quarterly revenue and the ratio of capital expenditure & operating cash flow of the four major CSP manufacturers (Microsoft, Google, Amazon, Meta) reached 50.9%/22.8%. CICC is optimistic that the large AI investments on the cloud side will drive the formation of a new computing platform of "cloud infrastructure + edge AI". Considering that 54% of the global population (4.3 billion people) own smartphones, CICC sees AI phones as another important hardware monetization interface after AIPC, and new interaction modes may iterate and transform synchronously.

Both the capital side and the fundamentals are at a new cyclical starting point. AI catalysis may drive the industry chain to welcome the Davis double hit. In terms of valuation, according to Bloomberg's expectations, Apple's forward one-year PE valuation is slightly higher than the median of the past two years, showing that investors' attention to edge AI has gradually increased after WWDC 24; at the same time, at the Hong Kong stock level, with the emergence of the trend of edge AI industry, the valuation level of the Hong Kong stock consumer electronics industry chain (forward one-year PE) has continued to recover since June to 17x, at a new cyclical starting point; from a fundamental perspective, CICC sees that the production capacity, inventory, and profitability of mainland China's fruit chain companies have been at a low level since 2020. CICC is optimistic that edge AI is expected to bring a new replacement cycle, and recommends investors to wait for the AI to push the inflection point of terminal pull to appear In the era of edge AI, the Hong Kong stock mobile phone chain focuses on acoustic, heat dissipation, optical, appearance parts, and terminal brands. In the article "In the Apple AI era, how to grasp the investment opportunities in the fruit chain?" CICC summarized the AI upgrade trend of iPhone components (Chart 10 in this article). Focusing on the Hong Kong stock mobile phone chain, CICC believes that the upgrade of AI functions will drive new hardware parameter changes. The Hong Kong stock mobile phone chain has good competitive advantages and industry position in some tracks, and it is recommended to pay attention to the potential revenue growth and elasticity brought by AI innovation.

Profit Forecast and Valuation

CICC maintains the earnings forecast, rating, and target price of covered companies unchanged. In the era of edge AI, CICC recommends focusing on the Apple industry chain, with Android expected to closely follow. Regarding the Hong Kong fruit chain, CICC recommends focusing on companies such as: High Wealth Electronics, Hongteng Precision, AAC Technologies, Sunny Optical, BYD Electronics, etc.; for A-share fruit chain related companies, CICC recommends focusing on: Luxshare Precision, Pengding Holdings, Lens Technology, Crystal Optoelectronics, Hua Hong Semiconductor, Industrial Fulian, Lingyi Intelligent Manufacturing, Lante Optics, Sunway Communication, Zhuhai GYLED, GoerTek, Anjie Technology, Desay Battery, Xinwanda, etc.

Risks

The progress of AI algorithm technology and application landing is slower than expected, and the demand for intelligent terminals in consumer electronics is sluggish