Zhitong Hong Kong Stock Analysis | Enhanced Rate Cut Expectations Continue to Rebound: How to View Cambricon's Decline

[Market Analysis]

U.S. stocks always seem to be supported by some force at critical moments. Last night, the U.S. December CPI rose 2.9% year-on-year, in line with expectations; however, the core CPI was 3.2%, which was 0.1% lower than market expectations. The expectation for interest rate cuts has increased, with traders anticipating the Federal Reserve's first rate cut to be moved up from September to July.

All three major U.S. stock indices rose nearly 1.9%. Under the expectation of interest rate cuts, gold and commodities became active again. Today, the consumer-oriented Lao Pu Gold (06181) broke its peak again during trading, closing up nearly 5%. The aluminum sector performed even stronger, with companies like China Hongqiao (01378) and China Aluminum (02600) both rising by 5%.

The Hong Kong stock market remains stable. With the expectation of interest rate cuts, the pressure has eased, and the external environment has finally calmed down a bit over the past two days, with no negative news emerging. Therefore, continued upward movement is quite reasonable, with the Hang Seng Index closing up 1.23% today.

However, the A-share market did not perform well today. It initially showed strong momentum in the morning but then fell sharply. If it weren't for capital support, it could have dropped significantly.

The main factor affecting market sentiment is Cambricon (688256.SH), which fell nearly 15% today, dragging down the STAR Market and affecting many stocks. There are various opinions on the reasons for the decline, with some questioning its excessive rise, having increased 20 times over more than two years. Others are skeptical about its performance, arguing that it is losing money, with annual revenue only over 1 billion, while its market value exceeds 250 billion. Both points have merit, but they may not be the fundamental reasons for the decline. Regarding the rise, who says that once a stock is high, it can't rise further? There are many stocks with much larger increases still rising. As for performance, this particular stock is not primarily driven by performance; there are others with better performance. This stock has gained traction mainly as a banner for counteraction, with exaggerated comparisons to NVIDIA being very appealing, but such comparisons are definitely not valid, as they are not on the same scale.

The main reason for the decline lies in restrictions, as its chip manufacturing is done by TSMC and SMIC. Due to the tightening of U.S. policies, TSMC may not dare to continue manufacturing for Cambricon, leaving only SMIC to produce. The problem is that SMIC's capacity is relatively limited, with Huawei's Ascend 910C taking up a large portion, leaving insufficient capacity for Cambricon. This means that it will be very difficult for Cambricon to break through, and its growth logic is constrained. This should be the main factor behind its decline.

From this logic, SMIC (00981) is developing better than Cambricon. Today, SMIC (00981) rose 7% earlier, reaching a new high of 39.8 yuan, but was also affected, closing down over 3%, mainly due to emotional impacts. The outlook is not pessimistic; based on TSMC's optimistic expectations, the chip industry remains worth watching. With SMIC facing obstacles, capital has shifted to chase lower-priced Hua Hong Semiconductor (01347). Although this logic is slightly off, mature chips still have significant development space, as sectors like consumer electronics and automotive are growing rapidly, with today's rise exceeding 4%.

Today, there are reports that Trump is considering issuing an executive order to pause the TikTok ban for 60 to 90 days after taking office. Two insiders revealed that TikTok CEO Zhou Shouzi has been invited to attend Trump's inauguration on January 20 It seems that the United States will not ban TikTok this Sunday (January 19), otherwise, the grand occasion of Trump's inauguration would not be visible on TikTok, and the CEO of TikTok has also been invited, which would be quite embarrassing if a ban were to occur. It is estimated that this matter will be delayed for a while, and the subsequent results may not be so smooth.

Data shows that due to multiple factors such as tax periods, cash withdrawal demands from mainland residents, and local bond issuances, the weighted average quotes of DR001 and DR007, which reflect the interbank market funding prices, have remained high. Reports quote industry insiders analyzing that considering the liquidity gap at the beginning of the year and seasonal factors before the Spring Festival, the People's Bank of China may take measures such as lowering the reserve requirement ratio in the near future to ease funding pressure. The probability of a reserve requirement ratio cut before the Spring Festival is relatively high, which will stimulate related varieties, such as construction machinery, see sector focus for details.

Tesla's refreshed Model Y has attracted industry attention. It is said that orders are quite hot, as the Model Y has not undergone major changes since its launch in 2019. The new Model Y adds comfort features such as heated front and rear seats, front seat ventilation, and ergonomic headrests. The price has also increased by 12,600 to 13,600 yuan, with a starting price of 263,500 yuan. However, due to Tesla's advanced urban intelligent driving not yet entering China, and the need to pay extra for selecting intelligent driving, the final sales performance needs to be observed. Domestically, there is no fear; brands like XPeng, Leapmotor, and ZEEKR have all responded to Tesla's "despite comparison" slogan with their own challenges.

Lei Jun reiterated that the Xiaomi YU7 is expected to be launched in June-July, and the new car is undergoing final testing. If one is particularly anxious and cannot wait for the YU7, the Model Y is also a good option.

January's stock pick is Yongda Automobile (03669): successfully undertaking brands such as Huawei (Aito and HarmonyOS), Xiaomi, and ZEEKR, among which it has cooperated with Huawei Smart Selection since 2021 and currently has opened a total of 7 AITO (3) and HarmonyOS (4) outlets. It is expected that by the end of 2024/first quarter of 2025, the number of Huawei stores under its umbrella will increase to 15/30, providing favorable conditions for revenue and profit growth. At the same time, the company has also been actively repurchasing shares in the past few days. According to the resolution of the repurchase authorization, the total number of shares that can be repurchased is 193 million shares, and 36.69 million shares have been repurchased so far, accounting for 1.9036% of the shares issued when the repurchase authorization resolution was passed. Today, it surged over 11%.

The shortcomings of Tesla's new model in intelligent driving have sparked market enthusiasm for lidar, as the core of autonomous driving is lidar. Leading company Suoteng Juchuang (02498) surged nearly 13% today. The development of new energy vehicles has reached a point where the market is starting to vote with funds. If varieties that have been on a downward trend continue to weaken, conversely, those with competitive potential can rise against the trend.

XPeng Motors (09868) stands out particularly, with XPeng's two new cars in 2024 doubling in stock price. XPeng Motors will launch a large number of new products after the Lunar New Year, which can support its sales growth in 2025. New products include the revamped G6, G8, P7i, X9, as well as Mona Max, the all-new BEVG7, and a new EREV model that may be launched in the second half of the year XPeng aims to deliver 350,000 vehicles this year. Today it surged nearly 7%. There is also BYD Company Limited (01211), whose exports remain a focus, with Brazil being a priority, ASEAN currently, and Europe in the future.

According to a news release from the Ministry of Commerce on January 15, the Ministry of Commerce and four other departments issued the "Implementation Plan for New Purchase Subsidies for Mobile Phones, Tablets, and Smart Watches (Bracelets)," clarifying the types of subsidies and subsidy standards. Individual consumers purchasing mobile phones, tablets, and smart watches (bracelets) among these three types of digital products (with a single sales price not exceeding 6,000 yuan) can enjoy new purchase subsidies. Each person can receive a subsidy for one item per category, with the subsidy ratio being 15% of the final sales price after deducting all discounts from production, circulation, and mobile operators, with a maximum of 500 yuan per item. Notable performers include QiuTai Technology (01478) and Hisense Home Appliances (00921).

On January 7, TCL Electronics' Thunderbird brand launched a new AI photography glasses product, Thunderbird V3; the company plans to introduce a new smart glasses product, X3Pro, in the second quarter of 2025. Guotai Junan pointed out that Thunderbird Innovation is incubated by TCL Electronics, with the core team coming from TCL, DJI, Meta, and ByteDance, showing significant innovation advantages. The firm believes that considering TCL Electronics is overall entering a profit recovery phase, and with the company holding an 11.5% stake in Thunderbird Innovation, its AI glasses business market share is leading and is expected to fully benefit from the AI industry explosion. Today it also rose over 7% due to policy stimulus.

In the innovative drug sector, January's golden stock, Kexin Pharmaceutical (02171), surged nearly 10% today. The company is currently exploring the development of CAR-T drugs for the treatment of solid tumors and developing universal CAR-T drugs. On December 20, 2024, Kexin Pharmaceutical announced that the Claudin18.2 CAR-T injection, Shurujiaolun, achieved preliminary positive results in the key Phase II clinical trial for gastric cancer in China.

【Sector Focus】

According to a research report from Xiangcai Securities: In December 2024, the operating hours of Komatsu excavators in China reached 108 hours, a year-on-year increase of 19.5% and a month-on-month increase of 2.5%, reaching a three-year high. Medium and large excavators are the main support for Komatsu's domestic market share, and the operating hours exceeding 100 reflect a recovery in the medium and large excavator market, corroborated by a year-on-year increase of 18% in domestic medium excavator sales and a 20% increase in large excavator sales in December. The recovery in the domestic medium and large excavator market is mainly benefiting from a significant recovery in downstream infrastructure payment and construction.

According to data from the China Construction Machinery Industry Association, in December 2024, a total of 19,400 excavators were sold in China, a year-on-year increase of 16%. Looking ahead to 2025, favorable factors include continuous improvement in infrastructure construction and funding. The recovery in the domestic medium and large excavator market is driving the continuous optimization of the sales structure of major manufacturers, and profitability is expected to enter an upward channel.

With the expectation of interest rate cuts and reserve requirement ratio reductions, the construction machinery sector is expected to benefit significantly, with major varieties including Zoomlion Heavy Industry Science and Technology Co., Ltd. (01157), SANY International (00631), and China Longgong (03339).

【Stock Picking】

Zoomlion Heavy Industry Science and Technology Co., Ltd. (01157): Excavator sales are expected to continue to grow, and the proportion of overseas revenue is rapidly increasing. According to data from the China Construction Machinery Industry Association, in 2024, a total of 201,131 excavators were sold, a year-on-year increase of 3.13%; among them, domestic sales were 100,543 units, a year-on-year increase of 11.7%. In 2024, excavator sales ended three consecutive years of decline, with domestic market growth "stopping the decline and rebounding," and overseas sales maintained above 100,000 units for three consecutive years.

Commentary: Excavator sales are expected to continue to grow. The company's profitability is leading, with gross margin and net margin for the first three quarters of 2024 at 28.4% and 9.1%, respectively, an increase of 0.6 percentage points and 1.1 percentage points year-on-year. In the first three quarters, the company's concrete machinery exports grew rapidly, with a significant increase in overseas market share, and the penetration rate of electric mixer truck models rose to over 50%; the overall market share of construction lifting machinery ranks among the top, with the market share of 25-55 ton core truck cranes ranking first in the industry and the market share of crawler cranes over 1,000 tons also ranking first in the industry; the market share of construction lifting machinery remains the largest globally, with a rapidly increasing proportion of overseas revenue.

The company's emerging sectors continue to grow rapidly, with a significant improvement in industry position. As of the end of September, the revenue share of the company's new sectors, including earthmoving, high-altitude machinery, agricultural machinery, and mining, has exceeded 50%, further optimizing the product structure. Overseas business is diversifying: in the first three quarters, the company achieved rapid growth in emerging potential markets such as South America, Africa, and South Asia; in traditional markets such as the European Union and North America, it also achieved rapid growth.

The localization layout overseas is becoming increasingly complete. As of the end of September, the localization rate of overseas business reached approximately 90%. The company continues to pay dividends and values shareholder returns. Recently, Zoomlion released 24 construction machinery products at a major customer communication and technology launch event in the Saudi market. Zoomlion stated that it is continuously increasing its investment scale and construction efforts in the Saudi market, and has now achieved full coverage of the main market in Saudi Arabia.

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