Intelligent Hong Kong Stock Analysis | Fed Rate Cut Stimulates Financial Industry, "Black Myth: Wukong" Ignites Gaming Industry

[Market Analysis]

A-shares have finally shown some improvement, with a trading volume close to 600 billion. Large funds launched a fierce offensive in the morning, while the Hong Kong stock market index fell by 0.02%, but the overall market structure is still favorable.

In the US, the July seasonally adjusted CPI year-on-year rate was 2.9%, falling for the fourth consecutive month, returning to the "2% level" for the first time since March 2021, below the market's expectation of 3%. The July seasonally adjusted core CPI year-on-year rate was 3.2%, also falling for the fourth consecutive month to the lowest level since April 2021, with a monthly rate of 0.2%, all in line with market expectations. This data essentially confirms that the Fed will cut interest rates in September without suspense. However, whether it will be a 25 basis point cut or a larger 50 basis point cut remains uncertain, likely depending on weekly jobless claims and the August non-farm payroll data to be released on September 6. The uncertainty in the rate cut amount is due to the lack of significant gains in the US stock market, indicating lingering doubts.

For the domestic market, regardless of the rate cut amount, the initiation of rate cuts is positive news. Real estate stocks naturally responded positively, with Agile Group (03883) announcing a mid-term profit turnaround due to substantial debt restructuring gains, leading to a direct increase of 26.40% in its stock price.

The more significant stimulus is seen in banking stocks, with China Merchants Bank (03968) and Postal Savings Bank of China (01658) both rising by over 2%; brokerage stocks that have been inactive for a while, such as Orient Securities (03958) and Haitong Securities (06837), also rose by over 2%. Insurance stocks like Ping An Insurance (01339) saw the combined premium income of its three major subsidiaries reach 468.045 billion yuan in the first 7 months, a year-on-year increase of 3%, breaking through an important resistance level today.

In theory, with the financial sector performing well, the index should rise. However, the main reason for the lackluster performance is the drag from several major internet giants.

On August 13, Valve released the latest weekly sales chart on the Steam platform (August 6 to 13, 2024), with "Black Myth: Wukong" winning the global weekly sales championship. As a flagship domestic game, "Black Myth: Wukong" had exceptionally strong pre-sales, with sales exceeding one billion yuan. In China, the game garnered 3.067 million views on Bilibili and Weibo within just two hours, with over 40,000 comments; internationally, the trailer released simultaneously on YouTube by well-known gaming accounts like IGN and Playstation also accumulated a total of 141,000 views. It is reported that the development cost of this game is expected to exceed 400 million yuan, with a pre-sale price of 268 yuan for the base version. It is set to be officially released on August 20. The high popularity indicates an increasing recognition of Chinese culture and reflects cultural confidence. It is expected to have a significant positive impact on the gaming industry. In recent industry news, 105 domestic online games were approved for release in July, including miHoYo's "Star Rubble Land," Tencent's mobile game "Dark Zone Breakthrough: Infinite," G-bits' "Sword Legend," and 37 Interactive's "Infinite Dreamland." China Literature (00136), backed by Tencent and owning numerous high-quality film and game IPs, saw a more than 5% increase today. NetEase (09999): According to data released by Sensor Tower, NetEase's mobile game "Endless Hegemony" had 4.14 million downloads in the first two weeks on the Apple iOS system in the Chinese market, comparable to the performance of Tencent's mobile game "Dungeon & Warrior" at its launch Institution bullish on the mobile game "Eternal Reincarnation" as the next hit after "Egg Party". It rose by 3.89% today.

On August 15th, Huawei announced a price adjustment for the Mate 60 series, marking the first price reduction since its launch in August last year. By the end of June this year, total sales of the Huawei Mate 60 series had exceeded 10 million units. The reason for the price reduction: on one hand, to continue capturing market share, and on the other hand, new products are coming out. Huawei's three-fold folding screen phone is expected to be released in September, with a significant increase in the hinge component. In 2023, the company's revenue from precision structural components is expected to grow by over 30% year-on-year, with hinge products achieving large-scale shipments and becoming a major growth engine for the precision structural components sector, which will continue to be introduced into more projects in the future. It rose by 3.86% today, driven by the launch of new smartphones in the mobile and AI PC segments, stimulating the chip packaging business of ASMPT (00522), which continued to strengthen, rising by another 4.7%. According to data from the General Administration of Customs, China's electronic cigarette exports in June 2024 amounted to USD 1.0 billion, up by 5.9% year-on-year, continuing the positive trend, mainly due to an increase in export quantity, although the average price decreased year-on-year, it improved month-on-month. SMIC International (06969) rose by 3.61%.

Continuing to monitor the position changes of overseas giants, documents released on Thursday showed that as of the end of the second quarter, Berkshire Hathaway's US stock holdings were valued at USD 279.69 billion, a decrease of USD 52.1 billion from the end of the first quarter (USD 332 billion). In the second quarter, Berkshire Hathaway reduced its holdings in a total of 10 securities, with the most drastic cut being Apple Inc., directly reducing its holdings from 789 million shares to 400 million shares. In addition, the US cloud computing company Snowflake, and the media group Paramount Global were the only two stocks that Berkshire Hathaway completely divested during the reporting period. On the buying side, Buffett continued to increase his holdings in Occidental Petroleum in the second quarter, as well as the "mystery holding" revealed for the first time last quarter, Aon Insurance. He initiated positions in two new companies, Ulta Beauty, the largest beauty retailer in the US, and aerospace and electronics company HEICO.

Looking at the overseas investment trends of Chinese private equity firms such as Hillhouse Capital and Gaoyi Capital. Data shows that in the second quarter, HHLR Advisors under Hillhouse had a total market value of USD 4.054 billion in the US stock market, with the top ten heavy positions being Pinduoduo, BeiGene, Alibaba, KE Holdings, Legend Biotech, Vipshop, NetEase, ARRIVENT BIOPHARMA, Ctrip, and KINIKSA PHARMACEUTICALS, with 8 of them being Chinese concept stocks. Gaoyi's US stock holdings reached USD 762 million, a 37.68% increase from the USD 554 million market value at the end of the first quarter. The top ten heavy positions are Pinduoduo, Huazhu, NetEase, iQIYI, Meta, Tencent Music, Yum China, ZTO Express, KE Holdings, and Microsoft. Investors can refer to these trends for insights.

Xiaomi founder, chairman, and CEO Lei Jun revealed on Weibo that after a series of production improvement measures, the delivery of Xiaomi SU7 is still accelerating. Starting from 8 p.m. on August 14th, the delivery of Xiaomi SU7 Max has further accelerated, with the delivery period now shortened by 6 weeks compared to previous locked orders; the estimated delivery period for already locked orders of Xiaomi SU7 Max can also be shortened by up to 5 weeks, which will be gradually reflected tonight Xiaomi (01810) rose more than 2%.

[Sector Focus]

This week, the price of silicon materials continued to rise slightly. For example, the transaction price of N-type materials is 39,000-44,000 RMB/ton, with an average price of 41,000 RMB/ton, an increase of 1.49% compared to the previous period. Some enterprises have seen a general increase in new orders. In terms of inventory, out of 19 polysilicon enterprises in August, 14 are under maintenance, with an expected output of 135,000 tons. Downstream silicon wafer production is expected to reach 51-52GW, and there is a possibility of supply-demand balance in August. Industry inventory is around 200,000 tons, showing a significant digestion compared to the peak of 300,000 tons, and the supply-demand situation continues to improve. In terms of demand, domestic installations are picking up in the third quarter, driving demand and improving the component market. Terminal pre-stocking in mid to late September is expected to further boost production scheduling in September, providing strong support for upstream price increases.

Currently, more and more players in the industry chain are unable to sustain loss-making operations, and the turning point for industry clearance is becoming clearer. The above article suppresses the phenomenon of excessive subsidies for investment attraction, and the supply-demand relationship is on the path to improvement.

Main stocks: GCL-Poly Energy Holdings Limited (03800), Flat Glass Group Co., Ltd. (06865).

[Stock Analysis]

China Hongqiao Group Limited (01378): Fundamentals are easy to rise but difficult to fall, valuation level has room for improvement.

The electrolytic aluminum industry is currently at a peak in terms of supply, with capacity almost reaching its limit and limited future incremental capacity. Projects like Guizhou Anshun Aluminum and Aluminum Corporation of China are expected to start production next year, and there are technical renovation projects awaiting resumption in Sichuan, but overall incremental capacity is not significant. In terms of demand, it is currently the off-season, with a relatively weak performance and prices falling to cost support levels, making it difficult to continue to decline. The alumina market has seen a supply shortage this year, mainly due to domestic ore shortages and overseas accidents leading to reduced supply. Reductions in production in Australia and India have had a significant impact on global supply, leading to reduced imports. As a result, alumina prices remain high, with spot transaction prices exceeding $500.

Comment: Over the past 24 years, the prices of the company's two main products, electrolytic aluminum and alumina, have both risen significantly. The average prices of electrolytic aluminum in Q1 and Q2 of 24 were 19,047 RMB/ton and 20,584 RMB/ton respectively; while the average prices of alumina were 3,325 RMB/ton and 3,564 RMB/ton respectively. At the same time, the purchase prices of main raw materials such as coal and anode blocks have decreased. The average prices of Shanxi power coal at the pit mouth in Q1 and Q2 of 24 were 749 RMB/ton and 700 RMB/ton respectively; the average price of prebaked anodes was 4,534 RMB/ton and 4,597 RMB/ton respectively (average price in Q4 of 23 was 4,858 RMB/ton). According to Zhongtai Securities' calculations, the net profit per ton of electrolytic aluminum in Q1 and Q2 of 24 was 1,658 RMB/ton and 2,502 RMB/ton respectively; while the net profit per ton of alumina in Q1 and Q2 of 24 was 356 RMB/ton and 558 RMB/ton respectively. The profits of the company's two main business segments have significantly expanded. The company leads globally in terms of enterprise scale, cost, and profitability in the aluminum industry, with a valuation level indicating a potential increase of 90-128% compared to overseas counterparts.

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