Zhitong Decision Reference | Hong Kong stocks will mainly focus on adjustments

[Editor’s Market View]

In December, the Federal Reserve is expected to lower interest rates by 25 basis points without any surprises; however, Powell unexpectedly made hawkish remarks. According to the latest dot plot, the number of interest rate cuts by the Federal Reserve next year has been significantly reduced. The strengthening of the US dollar has put pressure on Hong Kong stocks. The Hang Seng Index fell below the short-term moving average last week.

This week, as we enter the Christmas holiday, overseas funds will generally be on vacation, so Hong Kong stocks will mainly focus on consolidation. Meanwhile, the tightening of domestic regulations will further suppress market sentiment.

Current market hotspots mainly revolve around self-controllable chips and AI applications, with actions from major companies like ByteDance and Tencent directly triggering market enthusiasm. Concepts such as WeChat mini-stores, computing power, AI glasses, etc., are gaining attention.

Looking ahead this week, the Ministry of Commerce stated that it will expedite the formulation of relevant policies for "two new" next year. The market has the highest expectations for mobile phone subsidy policies, so we will see when they can be implemented.

According to the latest report from Reference News, the President of Kyrgyzstan announced that the China-Kyrgyzstan-Uzbekistan railway will commence construction on December 27. Zaparov stated, "The China-Kyrgyzstan-Uzbekistan railway project, which has been on paper for decades, is finally going to be implemented," so we will observe the actions of related state-owned enterprises.

The annual meeting of the China Robotics Network will be held in Shanghai on December 26, during which GAC's humanoid robot new products will be heavily launched. The 2024 Meituan Robotics Research Institute Academic Annual Conference will be held in Shenzhen on December 27. Robotics can be a focus.

[This Week's Golden Stock]

KINGSOFT (03888)

The company announced its third-quarter results for 2024, with revenue of approximately 2.915 billion yuan, a year-on-year increase of 42% and a quarter-on-quarter increase of 18%. Operating profit was approximately 1.144 billion yuan, a year-on-year increase of 204% and a quarter-on-quarter increase of 44%.

KINGSOFT's third-quarter performance was solid, exceeding market expectations by 13%. Among them, game revenue increased by 78% year-on-year, while enterprise software business revenue remained stable, supported by the recovery of domestic personal subscriptions and institutional authorizations, with a year-on-year revenue increase of 10%. Additionally, the company's net profit during the period was also 14% higher than market expectations. KINGSOFT Cloud's third-quarter performance was robust, surpassing market expectations.

In Q3 2024, public cloud revenue reached 1.18 billion yuan, a year-on-year increase of 15.6%; AI revenue reached 360 million yuan, accounting for 31% of public cloud business revenue. The expansion of AI business has further diversified the company's customer and industry distribution. The proportion of the company's gaming business has exceeded expectations, mainly due to the outstanding contribution of "Dust White Forbidden Zone" and the successful launch of "Jian Wang 3: Wujie," as well as the continuous growth of personal and institutional user subscriptions for domestic office software.

WPS AI has entered the overseas public testing phase, and its enhanced product features are expected to provide lasting value enhancement for office business, with the scale of paid users and ARPU likely to achieve double growth. With the increase in cloud usage, especially the AI demand related to WPS Office, Xiaomi's Internet of Things, smartphones, and electric vehicles, it is expected that the revenue contribution from KINGSOFT and Xiaomi will increase from about 20% in 2024 to over 40% in 2027, driving the company's annual compound revenue growth rate to reach 13% from 2025 to 2027 【Industry Observation】

Recently, the Premier conducted research in Hangzhou, where he visited the Future Technology City Exhibition Hall in the West City Science and Technology Innovation Corridor and the Zhijiang Laboratory to understand the progress of key scientific research projects. He pointed out that innovation is the primary driving force for development, and we must actively embrace the wave of technological change, achieve more original and leading results, strengthen the status of enterprises as the main body of innovation, create a good innovation ecosystem, accelerate the transformation of scientific and technological achievements, and promote the integrated development of technological innovation and industrial innovation. During the research, he tried on Rokid smart glasses, with Rokid founder Misa (formerly head of Alibaba's M Studio) providing an introduction.

Recently, the smart glasses sector has seen intensive catalysts:

(1) On December 19, Shanjijia Technology officially launched its AI smart glasses for payment, with a starting price of only 999 yuan, and the whole device weighs about 50g (the user's perceived weight is only about 30g), with a battery life three times that of mainstream products;

(2) On December 17, Meta announced on its official website that it would add real-time AI and real-time translation features to Ray-Ban smart glasses;

(3) From December 27 to 29, Shenzhen will host the International Eyewear Expo, where innovative technology companies like Thunderbird Innovation are expected to successively release AI smart glasses before the New Year, and tech giants such as OPPO, vivo, Huawei, Tencent, and ByteDance are actively laying out AI glasses projects.

In the Hong Kong stock market, AAC Technologies Holdings Inc. (02018) has already supplied Shanjijia, and Sunny Optical Technology Group Co., Ltd. (02382) will not be absent in this field in the future.

【Data Monitoring】

The Hong Kong Stock Exchange announced that the total number of open contracts for the Hang Seng Index Futures (December) is 100,526, with a net open interest of 32,591 contracts. The settlement date for the Hang Seng Index Futures is December 30, 2024. From the distribution of bull and bear certificates for the Hang Seng Index, at the 19,721 point position, the concentration area for bull and bear certificates is close to the central axis, with the Hang Seng Index seeking balance around 20,000 points. The uncertainty of the Federal Reserve's policy in 2025 is increasing, and the market is paying more attention to the support of the Hang Seng Technology Index, with a bullish outlook for the Hang Seng Index in the short term.

【Editor's Remarks】

Since November, the profit expectations for overseas Chinese-funded stocks for this year and next year have been revised downwards, with the EPS for the internet and pharmaceutical sectors in 2024 being revised down by 3% and 9% respectively from the peak in September, while the profit expectations for high-dividend sectors such as insurance, telecommunications, and transportation remain robust. Currently, until the two sessions next year, the market is entering a policy window period, and overseas liquidity may become the anchor point for the short-term market rhythm.

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