Zhitong Hong Kong Stock Analysis | The computing power sector stands at the forefront, with funds concentrating on the speculation of new stocks

[Market Analysis]

The Hong Kong stock market was closed for two days during the Christmas holiday and opened today. Its performance mainly references the trends of the A-shares and U.S. stocks, which are relatively calm. The Hong Kong stock market experienced narrow fluctuations today, closing down slightly by 0.04%.

The main focus of the Hong Kong stock market today is on the stocks that have risen in the A-share market over the past two days. For example, Yush Robotics has been quite popular; this topic was mentioned in the last market analysis. At that time, the Hong Kong stock market only traded for half a day, and the momentum was not sufficient. There was no significant reaction in the Hong Kong market, but the A-share market saw frenzied speculation, leading to a surge in many stocks related to Yush, which hit the daily limit. Today, the Hong Kong market also began to catch up, with the newly listed stock this Monday, DOBOT (02432), being particularly active. The company mainly engages in the design, development, manufacturing, and commercialization of collaborative robots. According to a report by ZhiShi Consulting, based on the shipment volume in 2023, DOBOT ranks among the top two in the global collaborative robot industry and is the number one in China, with a global market share of 13%. Today, it surged over 23%. This also boosted UBTECH (09880), as funds tend to follow the trend when they see others rising, mainly due to the premium in the sector.

With the rapid development of AI, the demand for computing power is increasing day by day, and various regions are planning new computing power initiatives. The Shanghai Municipal Government Office issued the "Implementation Plan for Artificial Intelligence 'Molding Shanghai'," which mentions the creation of a super-large-scale autonomous intelligent computing cluster. It aims to achieve a computing power scale of over 100 EFLOPS by the end of 2025 and establish a world-class artificial intelligence industry ecosystem, initially empowering large model training for embodied intelligence and autonomous driving. According to news on December 26, 2024, Henan Province aims to reach a computing power scale of 94E by 2025. In addition to ByteDance's significant investment in AI computing power, Xiaomi is also actively laying out its plans. According to Jiemian News, Xiaomi is working on building a GPU cluster, heavily investing in AI large models. The construction of the GPU cluster by Xiaomi is not solely for training large models; more importantly, it provides a computing power foundation for subsequent terminal/cloud AI applications. This opens up space for the expansion of Xiaomi's future AI applications. Kingsoft Cloud (03896), as the only strategic cloud platform within the Xiaomi & Kingsoft ecosystem, directly brings incremental benefits. At the same time, Kingsoft Cloud also has highlights in computing power. In mid-December, the lighting ceremony for the Kingsoft Cloud Qinghai Intelligent Computing Center was held at the China Telecom (National) Digital Qinghai Green Data Center in Haidong City, marking the official opening of the Kingsoft Cloud Qinghai Intelligent Computing Center. The total investment for this project is approximately 880 million yuan, with a planned 256 computing power server clusters, totaling over 4000P of computing power. The first phase of the computing power project was launched in mid-September this year and has been providing computing power services. As of December, 158 computing power server clusters and intelligent computing center nodes have been put into operation, with a computing power scale exceeding 2048P and an investment of 400 million yuan completed. Today, it surged directly by 37.8%.

From the perspective of computing power, SenseTime (00020) is also noteworthy. As of September 2024, SenseTime's total computing power scale has exceeded 20,000P, with over 54,000 GPUs online, meeting the training and inference needs of trillion-parameter large models. Additionally, it has achieved over 95% efficiency in multi-dimensional heterogeneous mixed training and has realized minute-level fault tolerance, ensuring uninterrupted large-scale training for over 30 days According to a report released by the international authoritative consulting firm IDC, SenseTime's computing power is in the first tier of the domestic intelligent computing service market's GenAI IaaS sector. In the first half of 2024, SenseTime Technology ranked in the Top 3 of the GenAI IaaS market with a market share of 13.3%. Today, it rose over 3%.

The development of computing power relies on servers. In the Hong Kong stock market, the main players are ZTE Corporation (00763) and Lenovo Group (00992). As a telecommunications giant aside from Huawei, ZTE will clearly benefit from the AI boom. Today, it surged over 13%, while Lenovo Group (00992) has another catalyst: it officially announced a partnership with Volcano Engine to integrate the Doubao large model "Super Brain" into its AI desktop assistant Ruyi (AI Stick). This will help boost its PC sales. Today, it also rose over 9%.

The foundation of computing power is optical fiber. From December 26 to 27, the National Industrial and Information Technology Work Conference was held in Beijing. The conference emphasized promoting high-quality development in the information and communication industry, improving the "dual gigabit" network development policy measures, piloting the deployment of 10-gigabit optical networks, and striving to build more than 4.5 million 5G base stations cumulatively. It also called for orderly advancement in optimizing the layout of computing power center construction and accelerating network upgrades to "link computing into a network." Today, Longfei Optical Fiber (06869) surged nearly 15%.

Chips are the core of computing power. NVIDIA recently launched the strongest GPU in history, with the strongest B300 and GB300 computing power and video memory directly increased by 50%, achieving an epic enhancement in model inference training performance while breaking the curse of declining profit margins. Hongteng Precision (06088) is building the world's largest NVIDIA GB200 manufacturing plant in Mexico to help alleviate the enormous demand for NVIDIA's Blackwell platform. Foxconn Chairman Liu Yangwei stated that Foxconn is the first company in the world to ship NVIDIA GB200 AI chips. Moreover, not only chips, but Foxconn will also become the first company to mass-produce and ship key AI components, modules and boards, servers and cabinets, high-performance switches, and even AI data centers equipped with these super chips. Today, it surged 17.76%. This stock was mentioned in this column a few days ago. Bernstein's report pointed out that strong demand in China in 2024 is expected to drive a 10% growth in wafer manufacturing equipment, with a forecast of flat growth in 2025 and a return to 8% growth in 2026. Under the blockade from overseas, domestic substitution is accelerating, with SMIC (00981) and Hua Hong Semiconductor (01347) both rising over 5%.

At the end of the year, companies are intensively sprinting for Hong Kong IPOs. According to the official website of Hong Kong Exchanges and Clearing Limited, as of December 26, 20 companies have submitted prospectuses since December, exceeding the 17 companies in November. More leading companies in the semiconductor, artificial intelligence, and new energy sectors from the mainland will list in Hong Kong, further enhancing the technological content of Hong Kong stocks. Today, Youjia Innovation (02431) successfully landed on the main board of the Hong Kong Stock Exchange. The company covers key aspects of driving experience such as navigation, parking, and in-cabin functions, gradually developing intelligent driving solutions with increasing automation levels from L0 to L4. As of June 30, 2024, Youjia Innovation has entered mass production cooperation with 29 vehicle manufacturers for 94 models, including seven of the top ten domestic sales-ranked vehicle manufacturers The performance is also strong, with the company's revenue compound annual growth rate reaching 64.9% from 2021 to the first half of 2024, and the gross profit margin increasing year by year. Today, it has been enthusiastically pursued by the market, rising over 14%, directly boosting the intelligent driving sector. Especially for those that have just been listed, such as Horizon Robotics-W (09660), which also rose nearly 6%, and Black Sesame Intelligence (02533), which rose over 9%. On December 26, Lang Xianpeng, Vice President of Intelligent Driving R&D at Li Auto (02015), stated in a live broadcast that according to the current end-to-end + VLM system, if Li Auto's intelligent driving capabilities continue to iterate, it is expected to achieve L3 level intelligent driving by 2025. Today, it also rose over 6%.

According to Wind data, dividend ETFs have continued to see net inflows since December, with a total net inflow of 10.833 billion yuan as of December 20, 2024, and the current scale of dividend ETFs is close to 80 billion yuan. From the holder structure, institutional investors dominate, with the proportion of institutional holders in low-volatility dividend ETFs reaching 91.64%. In terms of insurance capital allocation, based on the top ten circulating shareholders of all A-share listed companies in the third quarter of 2024, the proportion of high-dividend stocks held by insurance companies has decreased, indicating that there is still considerable allocation space for insurance capital in dividend assets. Utility stocks continue to strengthen, with Anhui Wantuo Expressway (00995) rising over 5% today, directly breaking its peak. China Merchants Port (00144) also shows stable performance.

There are two major heavyweight news in the military industry direction. On December 26, the day of the Great Man's Memorial Day, the sixth-generation aircraft developed by Chengfei, which has no duck wings and no vertical tail, successfully made its maiden flight. Although there is no official confirmation that this aircraft is the prototype of the sixth-generation aircraft, the shockwave has quickly spread overseas. Only China, the United States, and Russia have the independent capability to produce fifth-generation aircraft, while other countries' sixth-generation aircraft are still at the drawing board or theoretical stage, our sixth-generation aircraft has already made a significant lead in test flights, marking the world's first test flight of a sixth-generation aircraft. The main features of the sixth-generation aircraft include excellent stealth, super high-speed cruising, super high flight altitude, super large operational radius, and large payload capacity. In the naval sector, on the morning of the 27th, the launching ceremony for the first ship of the 076 amphibious assault ship, independently developed and built by China, was held at the Shanghai Hudong-Zhonghua Shipbuilding Company. This type of ship is the world's first amphibious assault ship to use electromagnetic catapult technology, capable of launching helicopters, carrier-based fighter jets, and various types of fixed-wing drones, comparable to a small aircraft carrier. Military stocks such as AVIC Industry (02357) and China Shipbuilding Defense (00317) have shown some unusual movements.

【Sector Focus】

On December 27, the People's Bank of China, the Ministry of Agriculture and Rural Affairs, and the Financial Regulatory Administration jointly held a meeting to promote financial services for rural revitalization. The meeting emphasized the need to provide financial services to ensure stable production and supply of important agricultural products such as grain, focusing on major projects such as high-standard farmland and water conservancy construction, and modern facility agriculture. It called for increasing medium- and long-term credit investment in agricultural and rural infrastructure, enhancing support for major agricultural scientific research projects and leading enterprises, coordinating support for key areas such as county-level wealth creation industries and rural construction, and improving the adaptability of credit products in the "three rural" fields. It aims to continuously consolidate and expand the achievements of poverty alleviation and actively plan for a normalized financial assistance mechanism after the transition period ends Explore differentiated financing service models, increase the supply of credit loans, and promote mortgage loans for agricultural facilities and live livestock. Implement entrepreneurship guarantee loans and microcredit policies for poverty alleviation to support farmers in increasing their wealth and income. Strengthen institutional and mechanism innovation, deepen financial technology empowerment, and improve a rural financial service system that is hierarchical, complementary in advantages, and orderly competitive. Improve the multi-level agricultural insurance system, implement grain planting insurance well, continuously promote precise insurance and claims in agricultural insurance, and enhance the protection capacity of agricultural insurance.

With the support of credit, agricultural stocks may bring opportunities, main varieties: Sinochem Fertilizer (00297), China Heart-to-Heart Fertilizer (01866), First Tractor (00038).

【Stock Picking】

Shenzhou International (02313): Nike's financial report brings new expectations, will continue to build overseas production capacity in 2025

Nike's second-quarter revenue was USD 12.35 billion, expected USD 12.13 billion; gross profit margin 43.6%, expected 43.1%; inventory USD 7.98 billion, expected USD 7.65 billion; overall Nike brand revenue USD 11.95 billion, expected USD 11.64 billion. Nike is Shenzhou International's largest customer, accounting for 31.1%.

Commentary: Shenzhou International is the main beneficiary of international brands' restocking in the second half of the year, with an expected 8% revenue growth in the second half, mainly due to the recovery of Puma's orders and double-digit order growth from Adidas, Lululemon, and domestic sports brands. The improvement in Nike's financial report brings new expected catalysts for the company's performance. The company's share within major customers continues to increase overall, and as the industry's supplier concentration rises, the company's market share is expected to have further room for growth. In addition, the company has strong comprehensive competitiveness and continues to diversify new brand collaborations, further driving the company upward. In terms of new brand customers, the company has successfully taken over orders from several well-known brands, such as Anta's sub-brand FILA, and established cooperative relationships with new customers like POLO (RALPH LAUREN), Lululemon, and Lacoste. As cooperation with new customers deepens, the long-term growth potential of orders is optimistic.

Production capacity: Actively promote recruitment in 2024, and continue to build overseas production capacity in 2025, continuously strengthening the advantages of the industrial chain. 1) To meet the growing demand for orders, the company has increased recruitment efforts since 2024, actively improving capacity utilization and expanding overseas capacity. The number of employees at the new garment factory in Cambodia has reached the planned scale (18,000) and efficiency continues to improve, while the number of employees at the garment factory in Ho Chi Minh City, Vietnam has increased by 2,200 since the beginning of the year; 2) Acquired the Xining factory in Vietnam to enhance fabric supply capacity. Revenue is expected to grow steadily in 2024, and the restoration of profit quality will drive rapid growth in net profit. Overall, it is estimated that the company's revenue is expected to grow steadily by over 10% in 2025.

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