Information Technology Industry
Attention: 1) Three leading optical module companies have released their performance forecasts, with all achieving significant growth, in line with or exceeding market expectations. The demand guidance for optical modules from overseas giants in 2025 is gradually being implemented, and the usage of optical modules next year is expected to exceed market estimates again. 2) China Telecom has launched a new round of server procurement, with an expected purchase of 13,135 inference and training servers, which are expected to be all domestically produced AI chips. Currently, domestic communication AI chip manufacturers are progressing smoothly, with government and operator customers having started large-scale purchases, and internet companies have also begun verification and testing, which is expected to drive an increase in domestic chip shipments this year. 3) The high demand for domestic AI chips led by Huawei will bring a strong demand for high-speed connectors, with the ratio of high-speed connectors to optical modules being approximately 1:1. In addition, the network architecture of Huawei's next-generation chipset may change, which is expected to bring more backplane connector demand. At the same time, the next-generation chip will generate a demand for 800G optical modules, and the value of high-speed connectors will increase accordingly. It is recommended to pay attention to Huawei's connector suppliers.
Event Review and Outlook:
Electronics Sector: The performance recovery of the electronics sector in Q2 is obvious, and we continue to be optimistic about the AI and demand recovery industry chain. TSMC announced its performance for Q2 2024, with revenue of $20.82 billion, a year-on-year increase of 32.8%, and a sequential increase of 10.3%. Among them, the revenue from high-performance computing increased by 28% month-on-month, accounting for 52% of the total revenue, and DCE increased by 20% month-on-month. It also predicted that the revenue for Q3 2024 will be between $22.4 billion and $23.2 billion, a year-on-year increase of 32%, and a sequential increase of 9.5%. The gross margin for Q3 is expected to reach the midpoint of 54.5%, and the capital expenditure for 2024 will be increased to $30-32 billion, with 70-80% used for advanced processes, and the capacity of COWOS will more than double in 2024 and 2025. The import of semiconductor equipment in China continues to grow, with an import amount of $18.21 billion from January to May 2024, a year-on-year increase of 64.4%. The third quarter is the peak season for electronic shipments, and the new Apple iPhone 16 series has already started to prepare for shipment. Smartphones, IoT, servers, and others are expected to form a demand resonance in the second half of the year, driving the utilization rate of the industry chain to increase. TSMC stated that the growth driver for Q3 2024 comes from the demand for smartphones and the sustained high demand for AI. We believe that as the electronics enter the peak season for shipments in the third quarter, the demand for AI cloud computing power is strong, and Nvidia's B-series chips are actively prepared for shipment, which is expected to be shipped in large quantities in the fourth quarter. AI empowers consumer electronics, which is expected to bring new replacement demand, and we continue to be optimistic about the AI-driven, consumer electronics innovation/demand recovery, and the industry chain benefiting from independent control.
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Computer Sector: Since the beginning of the year, the performance of the computer industry has been at the bottom, and the institutional holdings in the second quarter have decreased month-on-month, returning to a historical low. Recently, we have observed an increase in the activity of the sector, which may be due to the previous pullback, reflecting to a large extent the investors' risk preference decline and the expectation of not high operating performance, and the chip structure has been further optimized. Under the background of reform expectations, the demand for G-end and large B-end may also have the opportunity to bottom out and warm up, but the strength is unknown. The attention to information creation, vehicle-road cloud, intelligent driving, etc., has also increased. We believe that the sector may have the opportunity to build a double bottom again and start a new round of upward trend. From the perspective of industry operations, although it is not strong, the overall revenue is still in the warming channel since the beginning of last year, and the profit side, excluding the special circumstances of a few companies, is also in the stage of net profit margin repair and elasticity release. We expect that the overall operating situation for the whole year will be gradually improved, with the second half of the year being stronger than the first half, and the possibility of the profit side being stronger than the revenue side is greater, depending on the macro environment and the rhythm and direction of policy efforts. For the sector where the valuation elasticity contributes to the market value fluctuation far greater than the fundamental elasticity, facing the computer sector where the holding ratio has returned to a low level again, we are not pessimistic. It is expected that in 2024, the central government, central enterprises, key industries, and overseas demand will all have the ability and space to exert efforts. The improvement of demand, coupled with the improvement of the cost side, will gradually reflect the profit elasticity. It is believed that demand improvement can focus on leading enterprises, look forward to marginal innovation, focus on overseas mapping, and focus on the improvement of liquidity, which can focus on Hong Kong stocks.Media Sector: Focus on gaming targets with low valuations, improving performance margins, and high certainty; the summer season heats up with a rich lineup of scheduled films, and we are optimistic about the subsequent performance; pay attention to the AI main line.
Internet: Focus on companies with improving fundamentals and overseas expansion logic. 1) ① Film and Television: From July 1st to 20th, the domestic box office reached 3.349 billion yuan, an increase of 162.5% compared to the same period in June. "The Silent Murder" and "Catching Dolls" were released in July, catalyzing the heat of the summer season. Maoyan predicts the total box office for each to be 1.43 billion and 3.71 billion yuan, respectively. ② Gaming: We believe that from the pace of game license issuance, the overall regulatory attitude towards the gaming industry is still encouraging a healthy and positive development. The current gaming market has entered an era of stock competition, showing a pattern of the strong getting stronger; the valuation of A-share blue-chip companies is relatively low. It is recommended to focus on leading companies and those with strong performance margins and high certainty or strong performance. ③ Although AI has not yet had a significant impact on the performance of media and internet companies, the management has been applying or developing AI. The development of the AI industry will bring opportunities, and we should pay attention to the application of AI and the emergence of blockbusters. Publishing companies have stable main business performance and operating cash flow, and there is potential for expansion and development in the education business in the future. Although some listed companies in the broadcasting and television sector have suffered losses, the leading companies are stable, with high cash reserves, and we believe that the potential value of the network assets of the broadcasting and television sector is yet to be explored. 2) Based on a comprehensive analysis of fundamentals and liquidity, we believe that the Hong Kong Internet is expected to show a sustained trend.
For a detailed interpretation, please click to read the report below:
"Information Technology Industry Weekly Report: AI continues to iterate, focusing on investment opportunities in hardware and application landing."
Photovoltaic and Wind PowerAttention:
Photovoltaic and Wind Energy: Photovoltaic and wind power maintain strong growth in domestic new installations in June; component and inverter exports continue to grow on a monthly basis in June; Jiangsu Province releases the "Notice on High-Quality Distributed Photovoltaic Grid Integration and Absorption (Draft for Comments)"; Canadian Solar's semi-annual performance forecast exceeds expectations; Sungrow signs a 7.8GWh Middle East energy storage order and announces a share repurchase plan; Jinko and TCL Zhonghuan announce investment in Saudi production capacity; Tesla signs a 15.3GWh energy storage order; six photovoltaic glass kilns are cold repaired in July, with a total capacity of 3,500 tons/day (about 3% of the production capacity); Xinyi Solar Energy signs a strategic cooperation agreement with the government of Dalate Banner and plans to build four 1,500-ton/day photovoltaic glass production lines.
Power Grid: On July 16, the first batch of material (converter valve) for the 24-year Saudi Central and West HVDC converter station project of China Electric Power Equipment was won by Sinotrans Puri (a subsidiary of State Grid Nanrui) and Rongsheng Huike, each winning two packages; from January to June of the 24th year, the power grid project completed an investment of 254 billion yuan, a year-on-year increase of 23.7%.
Hydrogen Energy and Fuel Cells: The "Action Plan for Low-Carbon Transformation and Construction of Coal Power (2024-2027)" was issued; Chengdu will promote 500 hydrogen vehicles in 2024, provide subsidies for the operation of fuel cell commercial vehicles, and exempt tolls for passing city-managed highways; the pilot project of Huadian Shandong Weifang hydrogen production and hydrogen refueling integrated station started; Germany allocated 4.6 billion euros to support 23 hydrogen production (1.4GW), storage (370GWh), and transportation projects (2000 kilometers of hydrogen pipeline and the use of LOHC to transport 1800 tons of hydrogen annually).
Hotspot Interpretation:
Photovoltaic & Energy Storage: Photovoltaic demand and exports are booming in June, and the structural high growth of emerging markets continues; large energy storage orders are signed, and the delivery of orders in hand is accelerated, the global competitive landscape is significantly excellent, and the performance realization ability of leading enterprises is expected to continue to exceed expectations. We continue to firmly believe in the long-term realization certainty and the possibility of exceeding expectations in large energy storage, as well as the emerging market elasticity and the sustainability of marginal improvement in the fields of distributed, household, and micro energy storage; the short-term supply and demand gap in the main and auxiliary material industry chain of components continues to narrow, and the expectation of component production recovery growth in August and September is strong, and we once again suggest paying attention to the leading auxiliary materials.Power Grid: On July 16, the bid announcement for the converter valve procurement of the Saudi Central South and Central West HVDC transmission station project in 2024 by China Electric Power Technology and Equipment was released. Both Zhongdian Puri (a subsidiary of Guodian Nanrui) and Rongxin Huike won two packages each. This project will build four ±500 kV flexible DC transmission converter stations in the capital of Saudi Arabia, Riyadh, the southern city of Jizan, and the western city of Jeddah, with a total transmission capacity of 7 million kilowatts, which can meet the electricity needs of 13 million people, and is planned to complete system debugging by the end of 2026. It is expected to drive domestic production capacity exports of over 10 billion yuan, strengthen the interconnection of the grid in Saudi Arabia, enhance the stability of the main grid in Saudi Arabia, and at the same time lay the foundation for the development and utilization of new energy such as solar energy in central and surrounding areas of Saudi Arabia.
Wind Power: Dongfang Cable's nearly 2 billion yuan overseas submarine cable order has been finalized, which, in terms of both scale and customer level, has verified the company's growing competitiveness in the overseas submarine cable field and is expected to lay a solid foundation for the company's further expansion in overseas markets. In addition, the landing of Dongnan's overseas large orders further strengthens the logic of the potential supply chain bottleneck in the overseas submarine cable and pile foundation segments mentioned in our previous weekly report. It is expected that the demand for orders in related segments will overflow to domestic enterprises, continuously boosting the valuation and performance of the sector.
Hydrogen Energy and Fuel Cells: For the first time, the production and sales of FCVs broke through the thousand mark in the off-season, and green hydrogen demonstration projects are gradually being realized; coal-fired green ammonia blending demonstration policies have been introduced, starting from demand to create mature application scenarios, driving the cost of hydrogen and ammonia to decline and forming an industrial chain, increasing the potential market for green ammonia, which is beneficial to integrated operators.
For a detailed interpretation, please click to read the report below:
"Power Equipment and New Energy Industry Weekly Report: Photovoltaic June Domestic and Foreign Demand Strong, 'Storage Inversion' Expected to Continue to Exceed Expectations"Computer - DRG/DIP 2.0
Attention: On July 23, 2024, the National Medical Insurance Bureau issued the "Notice on the Grouping Plan of Disease Group and Disease Type Points Payment 2.0 Edition and Further Advancement of Related Work", which formulated the DRG/DIP 2.0 version plan. It requires that the new DRG/DIP payment areas launched in 2024 directly use the 2.0 version, and the rest of the areas complete the group switching work before the end of the year. In addition, the "Notice" also requires improving the settlement and clearing level of medical insurance funds, strengthening the collection and feedback of expenditure method opinions, and exploring the inclusion of out-of-area medical expenses into the DRG/DIP management category, etc.
Hotspot Interpretation:
From the perspective of grouping methods, the new plan is more adaptable to clinical complexity. The adjusted 2.0 version of DRG grouping includes 409 core groups (an increase of 33 groups from before) and 634 sub-groups (an increase of 6 groups from before), focusing on adjusting 13 disciplines with concentrated clinical opinions, and refining groups with higher resource consumption. The number of 2.0 version DIP disease libraries has been streamlined, with the core disease types reduced from 11,553 groups to 9,520 groups, which can cover more than 95% of the discharged cases; the disease type structure has been optimized, such as the addition of 1,100 new disease types due to adjustments in related surgical operation rules.
In terms of specific implementation and operation, the new plan emphasizes adjustments in combination with local conditions and actual case conditions, and the landing application standards are more flexible. All regions can determine their own grouping rules on the basis of the national consistency of DRG core grouping and the national consistency of DIP disease library grouping rules, in combination with actual situations. For special cases such as long hospital stays, high medical expenses, the use of new drugs and new technologies, and complex critical illnesses, medical institutions can independently apply for special cases for single discussion. In addition, the "Notice" emphasizes that medical institutions should not use the DRG/DIP disease type payment standards as a limit for the assessment of medical staff or link them to performance distribution indicators, which is conducive to further implementation of the payment method reform.The short-term DRG/DIP 2.0 policy will bring the demand for interface renovation, and in the medium to long term, it is recommended to pay attention to the construction of systems related to the transformation of refined hospital management. By the end of 2023, more than 90% of the national comprehensive areas have carried out DRG/DIP payment, including 190 comprehensive areas carrying out DRG payment, 192 comprehensive areas carrying out DIP payment, and 26 provinces have achieved full coverage of all comprehensive areas within the province. In the short term, the new group plan requires all medical insurance bureaus and hospitals in the comprehensive areas implementing the DRG/DIP payment method to upgrade and renovate the existing interfaces to meet the requirements of medical insurance group, settlement, and clearing under the new standards. The relevant construction demand is expected to be concentrated in the next two years. In the medium to long term, the "Notice" emphasizes improving the efficiency of medical insurance fund settlement and allowing prepayment of funds, which helps to alleviate the financial pressure on hospitals; at the same time, the reform of the payment method continues to advance, and the supervision of medical insurance funds is becoming stricter, hospitals are actively transforming to refined management, and they are more motivated to carry out projects with higher budget amounts such as HIS system updates, electronic medical record upgrades, and internal medical insurance quality control.
Click to read the detailed interpretation in the report below:
"Computer Industry Review: The introduction of DRG/DIP 2.0 policy has driven the medical IT to warm up and improve."
A-share investment strategySummary of Previous Reports and Market Focus:
Review of Previous Viewpoints: In the second half of the year, the pressure on China's exports may increase, and there is an expectation for "interest rate cuts as soon as possible". The obvious slowdown in domestic demand and the intensification of deflation are due to the weak "balance sheet" of the private sector, which further enhances the urgency of interest rate cuts. We reiterate: we are looking forward to "interest rate cuts as soon as possible" in China, the sooner in July and August, the better. With the implementation of domestic interest rate cuts, it may be possible to control the current real estate and deflation risks, and then suppress the passive increase in corporate actual financing costs and improve corporate actual returns; as residents and enterprises "are willing to spend money", it is expected that M1 will rise in stages and long-term credit will stabilize in stages. At that time, A-shares can form a "market bottom".
Market Focus: 1. What is the current view of the A-share market? 2. From which dimensions can we compare and learn: the spirit of the Third Plenary Session of the 18th and 20th Central Committees? What guidance does it provide for subsequent investment frameworks and opportunities? 3. With the Federal Reserve's interest rate cut imminent, how much room is there for gold allocation? 4. What should be the operational rhythm of gold stocks? 5. When is gold more expensive than silver, and when does the trend of the gold-silver price ratio reverse, and start to over-allocate silver?
Guidance from the Third Plenary Session of the Central Committee: Comparing and Learning the Key Points of the 2013 and 2024 Third Plenary Sessions
Recently, the 20th Central Committee's Third Plenary Session was held, making a systematic deployment for further comprehensive deepening of reforms, and clarifying the goals and timelines for comprehensive deepening of reforms to promote Chinese-style modernization. Based on the comparison of the content of the Third Plenary Sessions of the Central Committee in 2013 and 2024, we plan to learn the spirit of the meeting from eight dimensions: reform direction, marketization, macro-control, economic engine, opening up to the outside world, domestic demand stimulation, talent training and education, and people's livelihood, in an attempt to find guidance for future investment frameworks and opportunities. In terms of the A-share market, we still look forward to China cutting interest rates as soon as possible before the United States, preferably during the period of July to August. In this way, we may be able to see the "market bottom" as soon as possible and avoid a new round of acceleration in the volatility of A-shares.Comprehensive Discussion on the Trends, Spaces, and Investment Rhythms of Gold, Gold Stocks, and Gold-Silver Price Ratio
We can categorize the "landing" mode of the economy during the Federal Reserve's interest rate cut period into two scenarios: (1) Soft landing, references: 1984, 1995, and 2019; (2) Hard landing, references: 1989, 2001, 2007, and 2020. Among them, in each hard landing scenario, ① the actual unemployment rate in the United States quickly exceeds the natural unemployment rate, and the difference between the two shows a trend of increasing; at the same time, ② the indicator calculated by the Sum Rule also quickly breaks through the threshold of 0.5%. 1. Gold: The start of the Federal Reserve's interest rate cut cycle is favorable for gold prices, and the "hard landing" scenario provides a larger space for gold price increases, which is due to the expectation of a faster and greater pace and intensity of interest rate cuts, as well as the weakening of the US dollar; 2. Gold stocks: The start of the interest rate cut or the "phase high point," and the subsequent space is negatively correlated with the degree of slowdown in the US economy; 3. The silver vs. gold premium is expected to be highlighted after the "liquidity trap."
Obviously, 1. With the cooling of US economic data and the dovish remarks by Federal Reserve Chairman "Powell," the Federal Reserve's interest rate cut in September is almost "a foregone conclusion." Considering: ① the US "actual unemployment rate - natural unemployment rate" is trending upward and is close to the level above the "zero axis"; ② the Sum Rule has risen to 0.43%, which is close to the US recession "threshold." Referring to the historical patterns mentioned above, the probability of a "hard landing" in the current US economy is continuously increasing, which means that there is still a large space for the future increase in gold prices. 2. Considering the high probability of a "hard landing" in the US economy, it is expected that: ① gold stocks may see a "phase high point" before the September interest rate meeting; ② but as the US economic data deteriorates further, gold stocks are still expected to reach new highs, and attention can be paid to position control. 3. Wait for the resolution of the US "liquidity trap" and gradually shift from gold to over-allocation of silver.
"Policy bottom - market bottom" firm defensive allocation: Maintain the "large-cap value defense" strategy, it is recommended: ① bank bottom position; ② gold + innovative drugs "offensive"; ③ secondary choice of high dividend.
For a detailed interpretation, please click to read the report below:
"A-shares Investment Strategy Weekly: Comparative Study of the 'Three Mediums' Public Announcement Spirit, Discussion on the Trading Space and Rhythm of Precious Metals"Basic Chemical Industry
Hotspot Interpretation:
The allocation of public mutual funds to the chemical industry has begun to stabilize, and the attention to leading enterprises with risk-avoidance attributes has increased. In the second quarter of 2024, the proportion of public mutual funds allocated to the chemical industry remained at 5.8%, which is relatively high in historical terms. Looking at the style of public mutual funds in the chemical sector, the total market value of the top ten heavy stocks accounted for the proportion of public mutual funds in the heavy chemical industry is still declining, from 45.9% in the first quarter of 2024 to 44% in the second quarter of 2024. However, leading enterprises with strong risk resistance have attracted more attention. The market value of holdings in polyurethane leader Wanhua Chemical, coal chemical leader Hua Lu Hengsheng, and Baofeng Energy has significantly increased in the chemical sector, with the increase in the second quarter compared to the first quarter being 0.66 percentage points, 0.5 percentage points, and 0.74 percentage points, respectively.
In the second quarter of this year, the focus was mainly on the polyester and fluorochemical sectors. Looking at the market value of individual stocks: the top five stocks that received additional positions in the second quarter were Juhua Shares, Tongkun Shares, San Trees, Pechoin, and Baofeng Energy; the top five stocks that received reduced positions were Sailun Tyres, Huaneng Biology, Guanghui Energy, Satellite Chemistry, and Linglong Tyres. Looking at the number of funds held: the top five stocks with an increase in holdings on a quarter-on-quarter basis were Tongkun Shares, Yanhu Shares, San Trees, Pechoin, and Longbai Group. In terms of new and exited heavy stocks: for the new heavy stocks, the top five ranked by the market value of heavy stocks in the second quarter of 2023 were Yichang Yichang, Hai Da Shares, Zhenhua Shares, Hui Feng Shares, and Zhongqi Shares. For the exited heavy stocks, the top five stocks ranked by the market value of heavy stocks before exiting in the second quarter of 2023 were Ming Chen Health, Rongbai Technology, Taihe New Materials, Sanjiao Tyres, and Xiangyuan New Materials.The attention to supply constraints and price increase directions is relatively high, while the demand for risk avoidance has also increased the emphasis on traditional leaders. From the perspective of sub-sectors and performance of benchmarks, the polyester and fluorochemical sectors have seen a more obvious increase in positions; the tire sector's holdings have declined due to the adverse impact of rising sea freight costs. The polyester sector benefits from the price increase, showing a state of not being off-season in the second quarter of this year. The reason is that on the one hand, several large chemical fiber enterprises have coordinated to reduce production, leading to a tightening of industry supply; on the other hand, the decline in overseas inventory and the recovery of the domestic textile industry have both improved the current supply and demand relationship of the polyester filament industry, and the industry's prosperity has also been restored. The fluorochemical sector also benefits from the price increase brought about by the improvement of supply and demand. 2024 is the first year of the implementation of the production quota system for the third-generation fluoro refrigerants in China. With the issuance of production quotas, supply is restricted by production quotas, and the originally severely excessive capacity is eliminated at one time. Driven by the optimization of the pattern and the improvement of downstream demand, product prices have achieved a recovery increase.
Investment Advice
Overall, the industry currently has a general level of demand support, but there is still supply pressure. It is expected that most industries will take a long time to bottom out. Due to factors such as profitability and energy consumption, future capacity will be cleared, and leading enterprises will further improve their market share and profitability. Therefore, it is recommended to focus on leading enterprises with risk resistance capabilities. In terms of sub-sectors, it is recommended to focus on the refrigerant sector with a continuously optimized supply pattern, the polyester sector with improved supply and demand margins, the synthetic biology sector with growth potential on the demand side, and the tire sector that achieves global substitution through going overseas.
For a detailed interpretation, please click to read the report below:
"Special Research Report on the Basic Chemical Industry: The demand for risk avoidance is rising, and it is recommended to focus on the leading roll kings."
Emerging Market DemandCore Perspective:
Global Green Transformation Accelerates, the Inevitable Surge in Photovoltaic and Wind Power Installations Leads to a 1-10 Explosion in Large-scale Energy Storage Demand.
1) Australia: Unstable power grid coupled with accelerated energy transition, creating a huge demand for energy storage. The Australian electricity market is highly volatile, with frequent occurrences of negative electricity prices, which creates favorable conditions for the profitability of energy storage. Against the backdrop of accelerated energy transition, the demand for short-term energy storage of less than 4 hours in Australia has exploded. From the second quarter of 2023 to the first quarter of 2024, the investment in Australian energy storage power station projects has exceeded 1 billion Australian dollars for four consecutive quarters. According to data from Australian transmission operators, the scale of expected and planned energy storage projects is close to 80GW. Among them, the large-scale energy storage projects planned to start commercial operation in 2025 and 2026 are 4GW/8GWh and 6GW/15GWh, respectively, indicating a huge demand for energy storage.
2) Middle East: The "Vision 2030" key projects in Saudi Arabia and the accelerated promotion of energy transition, along with Israel's multiple rounds of bidding, demand a high level of prosperity. Saudi Arabia: The "Vision 2030" has released four 100% renewable energy projects, and the energy storage demand for the early stages of these projects has reached 2.7GWh. It is expected that there will still be tens of GWh of energy storage demand to be tendered as subsequent projects progress. In 2023, Saudi Arabia announced that it will tender 20GW of renewable energy every year thereafter. With the grid expansion unable to be implemented in a short time, the demand for large-scale energy storage on the grid side has exploded. The Ministry of Energy has formulated a 24GWh energy storage system tender plan for 2024-2025, of which 10GWh is expected to be launched in the second half of 2024. Israel: Affected by geopolitical factors, Israel basically has no power grid interconnection with neighboring countries. Against the backdrop of the increase in the proportion of photovoltaic installations, the stability of the power grid is affected. Since 2020, the Israeli government has launched multiple rounds of energy storage bidding, with a total scale of about 6.3GWh.3) Latin America: Chile has a strong demand for large-scale energy storage, and attention is being paid to the progress of Brazil's large-scale energy storage policies. Chile: After a large-scale addition of wind and solar power installations in 2021-2022, the amount of abandoned renewable energy has grown rapidly, with the rate of renewable energy abandonment reaching 13.7% from January to May 2024. To alleviate the pressure of energy abandonment, the demand for large-scale energy storage in Chile has surged. As of May 2024, Chile has 1.2GW of energy storage projects under construction, with nearly 10GW of reserve projects. In 2024, Chile passed the DS70 Act, which determined the profitability model for energy storage power station projects. The energy storage capacity factor of the Act is much better than that of mature large-scale energy storage countries such as the UK, and the implementation period is 10 years, which is expected to stimulate the acceleration of demand release. Brazil: Brazil's wind and solar power installations are growing rapidly, and the urgency of energy storage demand is gradually increasing. In the past two years, the National Electricity Agency has held several seminars to study the current situation and supervision of energy storage; the reserve capacity auction in August may consider including energy storage projects, and relevant revenue guidance documents are expected to be introduced before the end of the year.
4) India: The proportion of renewable energy is increasing rapidly, and the demand for energy storage is about to explode. As of March 2024, renewable energy accounts for 28.9% of India's power capacity. The rapid growth of renewable energy installations poses a significant challenge to the stability of the power grid. The Central Electricity Authority of India predicts that the demand for battery energy storage will be 8.7GW/34.7GWh by 2026-2027, but as of March 2024, India's battery energy storage installation is only 0.2GWh. To stimulate the development of domestic battery energy storage, the Indian government has released a framework for energy storage development, launched a 4GW project subsidy plan, and initiated several rounds of large-scale energy storage project bidding through state-owned enterprises. From the bidding results of the photovoltaic storage projects of Indian state-owned enterprises in July, the hybrid electricity price of photovoltaic storage has approached the parity of thermal power, and the demand for energy storage in India is about to explode under the background of the rapid increase in the proportion of new energy.
Household Energy Storage: Continuous cost reduction promotes the penetration of photovoltaic storage, and multiple factors help the demand in emerging markets to continue to grow. According to World Bank statistics, in 2023, middle-income countries accounted for 67% of the overseas population, but their inverter consumption only accounted for 30-40% of overseas demand. Since 2023, the decline in component and battery prices has exceeded 50%, which is expected to drive the rapid penetration of photovoltaic storage systems into middle-income countries. In the short term, affected by factors such as frequent extreme weather, the demand for off-grid in several countries has been rapidly released since the beginning of the year; in the long term, the sustainability of household energy storage demand in emerging markets will mainly be reflected in the demand for energy storage formed by grid constraints and the increase in market penetration rate after the cost per kilowatt-hour has an advantage.
Investment Recommendations and Valuation
The demand for energy storage in emerging markets around the world is about to explode from 1 to 10. We focus on two main investment opportunities: 1) Large-scale energy storage: We are optimistic about leading companies with rich overseas project experience, strong financing and delivery capabilities. 2) Household energy storage: The market is fragmented and highly dependent on local channels. Companies with channel advantages and first-mover advantages are expected to benefit fully.Click to read the detailed report below:
"Emerging Market Demand Special (Part II): Acceleration of Global Green Transformation, Explosive Demand for Energy Storage in Emerging Markets"
Suteng Ju Chuang
Company Profile:
A global leader in LiDAR technology, with a full-stack solution capability. The company started with self-developed robotic LiDAR and entered the automotive-grade market, possessing a full-stack LiDAR solution from hardware to software. In 2023, the company achieved a business income of 1.12 billion yuan, a year-on-year increase of 111.2%, and achieved an adjusted net loss of 430 million yuan (net profit was affected by non-cash items such as share-based payments and the fair value changes of financial instruments issued to investors, amounting to about 3.85 billion yuan), a year-on-year reduction in losses of 22.9%. The company went public on January 5, 2024, raising about 877 million Hong Kong dollars, with an issue price of 43 Hong Kong dollars.Investment Logic:
Automotive LiDAR is irreplaceable, has low penetration, and offers a large market space. Manufacturers with cost advantages are more competitive, and product prices are expected to bottom out and rebound. LiDAR is irreplaceable in ADAS systems that demand high precision and safety of information. We anticipate that with the increasing popularity of autonomous driving, the market size in China is expected to reach 10.3 billion yuan by 2026, and the global market size is expected to reach 11.4 billion yuan. The company is a world-class LiDAR and solution provider in terms of sales revenue, fixed orders, and SOP (25 models), maintaining a leading position in market competition and having cost advantages. It is expected that the market share will further increase in the future.
Based on "technical barriers + large customer base + mass production capabilities," the company is evolving from a LiDAR leader to an AI + robotics platform-level enterprise. The company's core advantages are: 1) It has a full-stack LiDAR solution from hardware to software, with a fast product iteration speed; 2) It has a diverse and large customer base including automotive manufacturers and robots in logistics, cleaning, and other fields; 3) It has the mass production capability of self-built factories in three locations. The company has completed the full-link solution layout of "chip + hardware + AI software" around LiDAR, established the "Divine Machine Super Computing Center," and its core technology reserves are highly compatible with AI robots.
For a detailed interpretation, please click to read the report below:
"Suteng Juchuang Company In-depth Research: The Rapidly Rising LiDAR Giant: Gathering the Momentum of Intelligent Driving and Creating the Forefront of Perception"
Top GroupPerformance Brief:
In the second quarter of 2024, the company achieved a revenue of 6.539 billion yuan, an increase of 39.36% year-on-year and 14.96% quarter-on-quarter; the net profit attributable to the parent company was 807 million yuan, an increase of 25.31% year-on-year and 25.12% quarter-on-quarter. The net profit margin was 12.34%, a decrease of 1.38 percentage points year-on-year. In the first half of 2024, the company achieved a revenue of 12.227 billion yuan, an increase of 33.47% year-on-year. The net profit attributable to the parent company was 1.452 billion yuan, an increase of 32.72% year-on-year. The net profit margin was 11.88%, a decrease of 0.07 percentage points year-on-year.
Operational Analysis:
Revenue: The main drivers of the company's revenue growth are: 1) The continuous expansion of the customer base for high-value intelligent electric vehicles, with the expected main contributors being the AITO M9, Xiaomi SU7, and BYD; 2) The orders for automotive electronics products have begun to increase in volume, with the closed air suspension system and smart electric door system achieving rapid growth after mass production; the revenue from interior, lightweight, and thermal management has been steadily increasing; 3) The first factory of the first phase of the Mexico project has started production.Profit End: Net profit exceeds expectations, mainly due to 1) economies of scale leading to cost reduction and efficiency improvement; 2) synergistic effects brought by platform enterprises; 3) non-recurring contributions of approximately 100 million in profit.
Subsequent Outlook: 1) The air suspension and smart electric door system have begun to increase in volume and will achieve rapid growth subsequently. 2) Overseas factories are gradually established, and the ball joint forged aluminum control arm has won a BMW project order, laying the foundation for expanding the European market. We expect that Tesla's humanoid robot will be released in the second half of 2024, and the company, as a leading company in rotary and linear actuator technology, is expected to win orders and gradually open up growth space during the mass production process of humanoid robots.
For a detailed interpretation, please click to read the report below:
"Top Group: Mid-Year Performance Exceeds Expectations"
Arista Corporation
(Note: The original text does not provide the full context for the company name "Arista", so it is translated directly as "Arista Corporation". If there is a specific company name in Chinese that should be translated, please provide it for an accurate translation.)Performance Brief:
On July 15th, the company released the 24H1 mid-year performance forecast. The company is expected to have a net profit attributable to the parent company of 610-680 million yuan in the first half of 24H1, an increase of 19.90% to 33.65% year-on-year, and an expected net profit attributable to the parent company excluding non-recurring gains and losses of 590-660 million yuan, an increase of 18.96% to 33.07% year-on-year. For the second quarter alone, the expected net profit attributable to the parent company is 301-371 million yuan, a sequential increase of -2.3% to +20.4%, and the expected net profit attributable to the parent company excluding non-recurring gains and losses is 295-365 million yuan, a sequential increase of -0.2% to +23.5%.
Operational Analysis:
Thanks to the increased market share and market growth in the high-speed switch market, the company's revenue increased by 48.6% and 33.8% year-on-year in 2022 and 2023, respectively. The company already has a high market share in the high-speed switch market, and the future growth space is limited. Coupled with the product replacement cycle, the company's guidance for 2024 revenue growth is 12% to 14%. In the first quarter of 2024, the company's revenue was 1.57 billion US dollars, an increase of 16.3% year-on-year. According to Broadcom's performance meeting in June 2024, Broadcom expects the shipment of the 51.2T switch chip Tomahawk5 and the Jericho3 chip used for GPU interconnection to double in 2024, and the switch iteration is expected to drive the company's growth.
The company's guidance for long-term revenue distribution shows that 60-65% comes from data centers, and 40-45% comes from super-large cloud vendors. With the ecosystem advantage brought by the EOS system, the company's revenue growth is rapid compared to its competitor Cisco. From 2019 to 2023, the company's revenue increased from 2.411 billion US dollars to 5.86 billion US dollars, while Cisco's operating revenue increased from 51.55 billion US dollars to 57.23 billion US dollars. In the market for data center Ethernet switches with a speed of 100G and above, the company has gradually become the industry leader, with a market share of 45% by port number in 2023, which is twice that of Cisco. We believe that the company, with its software ecosystem advantage and the use of commercial chips for faster iteration speed, is expected to maintain a competitive advantage over Cisco in the high-speed switch market. At the same time, the company, with its software and hardware delivery form, has stronger profitability than pure hardware delivery white-label switch manufacturers.
For a detailed interpretation, please click to read the report below.In-Depth Analysis of Arista Corporation: Leader in High-Speed Ethernet Switches, Poised to Benefit Greatly from AI Ethernet Networking Trends
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