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Original research on over 1,300 companies, with a total market capitalization of USD 17.16 trillion, including over 400 Chinese-listed stocks. It provides thought-provoking thematic analysis, differentiated trading ideas and coordinated global views.
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February 22, 2023 APAC Quantitative & Systematic Strategy: China mutual fund positioning - 2022 review The rising impact of domestic mutual funds will continue to be one of the most important stories in the region. Monitoring sentiment and positioning of domestic funds is increasingly important to the China investment process. As of end-2022, we estimate there were 10,000+ funds, with funds holding ~17.6% of A-share free float. Despite a weak overall 2022, we estimate that most types of equity funds saw inflows in 4Q22. Latest positioning of domestic funds. Based on latest disclosures, we find that onshore mutual funds are underweight value and are overweight high beta, high volatility and growth stocks. Compared to Northbound investors, domestic fund managers are overweight small caps, high volatility stocks and underweight value and dividend stocks. For the quarter, funds added to positions in I.T., Industrials and Staples, while reducing Financials. |
February 21, 2023 CS Energy Team is back on the road as China’s border restrictions are lifted; in the coming weeks we will publish a series of takeaways to share our on-the-ground findings. We start off with our China xEV Battery Materials Tour in the week of 13 Feb. According to the industry players’ feedback, opportunities for Electrolyte lies in new solute LiFSI, Separator companies diverge in price-cut prospect. |
February 20, 2023 China Cosmetics Sector: CS monthly online tracker Jan-2023: Sentiment to gradually pick up Weakness in Jan across brands due to an early Chinese New Year (CNY) and spending shift. Jan saw weakness across brands, likely due to an early CNY: (1) traffic shifting to offline from online, (2) spending shifting to holiday-related categories (dining, apparel, F&B, among others), and (3) a lack of pent-up demand (front-loaded during 11.11). Skincare sales on Taobao/Tmall further declined 41% YoY in Jan (-22% YoY in Dec-2022). Color cosmetics also declined by 40% YoY in Jan, further widening from Dec (-35% YoY). We expect industry YoY decline to narrow from the bottom in Jan-2023, both in online and offline, as (1) the early CNY effect is fading out, and (2) higher consumption sentiment—CQi Consumer Sentiment Index picked up to 62.6 from 59.5 a month ago. |
February 15, 2023 China Sportswear Sector: CS monthly online tracker Jan-2023: Softening but not concerning China sportswear online sales momentum softened in Jan-2023, which should be a combined result of consumption spending shift to offline channels and other categories (dining, F&B), given an early Chinese New Year (CNY) in 2023. The aggregated sportswear sales on Taobao, Tmall, and JD declined 28% YoY (Dec: -10% YoY). That said, we are not concerned, as the soft online sales can be offset by strong offline sales: “foot traffic saw robust double-digit growth during the CNY period, and some customers canceled online order”, said distributors. Momentum might continue to soften in Feb (on YoY basis) due to the calendar shift. We estimate 2M23 industry retail sales to see mild single-digit growth. Retail sales, inventory, and discounts should see sequential improvement from Mar-2023. Stronger growth can be expected in 2H23, as the industry turns more positive on store opening and order placement. |
February 11, 2023 China Industrial Laser Sector: Turn more positive on demand recovery Post CNY-to-date, the industrial laser demand has been robust due to more optimistic business outlook, especially by small businesses who suffered the most from macro headwinds in 2022. The recovery is likely earlier than market had expected. We are positive on the sustainability of the recovery. We believe the key drivers of industrial laser demand in 2023 include (1) back-loaded demand after underinvestment during 2H21-2022, (2) China’s fast growing new loans bode well for demand recovery, (3) current downcycle has extended for 17 months. |
February 10, 2023 China Market Strategy: How to position post new year rally? Since late 2022, China has exited its Zero Covid strategy very rapidly, ahead of market expectation. Credit Suisse CQi’s monthly survey of consumer sentiment echoed our tracking of mobility, high-frequency data, and on-the-ground observations. The demand recovery pace and sustainability post the CNY holiday, in our view, should be closely watched. The Chinese authorities are also doubling their efforts to boost consumption. To push the market further, we may need more decisive measures in the next few months, especially during the 'Two Sessions' in Mar. Such a policy relay can facilitate continuing economic (largely consumption for this year) recovery, before the post-Covid-19-exit pent-up demand gradually fades away. |
February 8, 2023 China Healthcare Sector: China read-through of selected global pharma/biotech catalysts in 2023 More than 30 global pharma/biotech catalysts have high/medium implications for Chinese companies. We summarize nearly 50 global pharma/biotech catalysts in 2023 and evaluate their potential implications for Chinese pharma/biotech, based on the importance of the catalysts and their potential impact on the competition and commercial landscape in China (if the drug is licensed-in to China by Chinese companies). Among them, we think 14 key catalysts could have high implications or be the important China read-throughs, suggesting Chinese pharma/biotech companies are more closely connected to global biotech than ever before. |
February 3, 2023 China Market Strategy: China’s reopening tracker (2) - Spring is coming! For the first time in three years, the fear of Covid-19 has abated in China now. The 2023 CNY (Chinese New Year or Spring Festival) saw a strong travel recovery on pent-up demand. The domestic tourism revenue recovered to 73% of 2019's level, with traffic reaching 89%. The relaxed outbound travel requirements have also boosted demand for the destinations favoured by the Chinese people. We saw a strong consumption recovery with consumer sector revenue in the 2023 CNY holiday up 12.4% vs 2019. Movie box office was the second-best in history and hotel RevPAR also posted a strong recovery. Our tracking of mobility, high-frequency data, and on-the-ground checks confirmed the nation-wide recovery. On the policy front, the Chinese authorities are also doubling their efforts to boost domestic consumption, which will enhance investors’ confidence in China’s economic growth this year, in our view. |
January 20, 2023 China Shipping Sector: 2023 Outlook: Tanker – Better for longer In 2023, the divergence among sub-sectors in Shipping sector should widen. Tankers should sustain its structural upcycle, dry bulk might be range-bound on demand uncertainties, while container shipping's downward pressure likely continues. Tanker should be a core beneficiary of: (1) a full playout of Russian oil rerouting; (2) potential start of global oil restocking; (3) China's pro-growth strategy & reopening demand; and (4) IMO environmental regulations further tightening supply. |
January 18, 2023 Global Industrial Automation: 2023 outlook for China, Japan, Europe and the US We estimate +4% growth for the China automation components market in 2023 after +3% in 2022 (+2%/-3% for 2023/22 for the OEM automation components market, which is more relevant to Chinese automation companies). We believe that Covid-19 restrictions and a supply chain shortage have disrupted growth in 2022 and the resultant backlog of some overseas brands should help support growth in 1H23. With the shaved growth in 2022, we believe the downside risk in 2023 is also shaved and we expect the existing order backlog + healthy new energy market + potential for recovery of the traditional end-market to support growth in 2023. |
January 17, 2023 China Healthcare Sector: A tale of 7 Covid antivirals to compete in China in 1H23 We estimate the China market size of Covid small molecule drugs in 2023 could reach Rmb25.5bn, significantly higher than our estimate before 'reopening'. For our grey-sky and blue-sky scenarios, the market size could be Rmb11.9bn and Rmb43.6bn, respectively. We expect 7 Covid small molecule antivirals in the China market by the end of 1H23, which is making competition tough in terms of market share. As more domestic Covid antiviral drugs are expected to enter the market, we expect a much lower pricing of domestic Covid drugs compared to imported drugs. |
January 11, 2023 China Semiconductor Sector: A greener world powered by better power discrete—IGBT and SiC MOSFET Despite decelerating growth from a high base, we expect the global IGBT market to grow at a 13% CAGR in 2023-25E, driven by automotive’s 16%. Further, we expect automotive SiC MOSFET at a 39% CAGR in 2023-25E, assuming SiC migration from 12% in 2022 to 20% in 2025E. We expect China IGBT suppliers to expand share, especially in EV IGBT, backed by their improving technology offerings and also increasing China wafer capacities. China suppliers have grown the global IGBT market share from 4% in 2020 to 9% in 2022, and we expect it to increase to 13% by 2024E. We also expect China SiC suppliers (chip and module) to grow their share, from 4%/5% global share in 2021/22 to 12% by 2024E. |
January 11, 2023 Asia Semiconductor Sector: 2023 Outlook - Resetting to lower trough before driving into rebound We expect a cautious outlook for 1Q23 and 2023, with front-loaded declines reflecting still-weak consumer tech demand, rising semi inventory, broadening softness to server and industrial and downstream cuts to deplete their own high inventory. We see 2H recovery catalysts from leaner inventory, easing inflation, lower BOM costs from panels/memory and now depreciating USD, China’s normalization and recent push-outs on mature foundry and memory. |
January 6, 2023 China Healthcare Sector: 2023 Outlook - Dawn is finally upon us, but sunny days are slow to come We believe the China healthcare sector will continue to recover in 2023 following the rebound in 4Q22 but at a moderate pace. We expect a few healthcare-specific drivers in 2023, including marginal improvement of regulation, hospital traffic improvement post 'reopening', innovation/globalization, and more domestic substitution for upstream products. We prefer the pharma, biotech and healthcare services sub-sectors in 2023, as their growth trajectories are better supported by innovation, less GPO pressure and improved hospital traffic post 'reopening'. |
January 5, 2023 China Utilities and Renewables Sector: 2023 Outlook - Growth to accelerate driven by cost reduction In 2023, we expect cost reduction to be the key driver of demand recovery and earnings growth for China utilities and renewables companies. For renewables, both solar module and wind turbine costs are set for 20-30% YoY decline, thanks to polysilicon supply debottlenecking for solar and declining wind turbine tender prices. We believe renewable operators are best positioned to benefit from the declining costs, with both capacity boost and margin expansion. Downstream solar module companies should also benefit from the demand acceleration. We are negative on coal-fired IPPs due to coal cost pressure and increasing competition. City-gas is one of the very few sub-sectors in the utility space that could benefit from the China reopening (+7% national demand in 2023 vs -1% YoY in 2022, per CSe). After the share underperformance in 2022, the dividend yield appeal (6% on average) of HK utilities have meaningfully improved. |
January 5, 2023 Asia Technology Strategy: 2023 Outlook - A deeper 1H bottom to set-up a mild recovery We expect demand weakness to persist in 1H setting up a trough in earnings and FAB utilization in 1H23. We would be buyers on weakness with a leaner channel, China reopening, easing inflationary and comps toward 2H23 into 2024. For consumer tech and commercial market, we expect pace of declines to moderate, with smartphones stabilizing in 2023 from a 10% YoY decline in 2022 and pace of PC decline to high single digits. Automotive, cloud/AI and industrial may decelerate but still offer stronger content drivers. We forecast a moderate downturn followed by a mild recovery and prefer tech companies positioned for share gain opportunities to outperform a weaker tech cycle. We also would see cyclical opportunities through the 1H23 bottoming process. |
January 5, 2023 China Internet Sector: 2023 Outlook - Multiple tailwinds for sector recovery After a challenging 2022, we see the China internet sector as attractive with several tailwinds in 2023: (1) Undemanding valuation: Some of the names are even trading below their cash value or implying a very depressed valuation for core franchise. (2) Operational enhancement for upside: margin upside coming from product mix enhancement (lifting GPM) and operating leverage into 2023. (3) Macro recovery, supportive regulations provide confidence amid relatively light investors' positioning. Compared with global peers, China internet names should see a more visible marginal improvement into re-opening. |
January 3, 2023 China Financials Sector: Outlook 2023 - Building up our hopes on a macro recovery Brokers are well positioned to ride the equity market tide and outperform, as the CSI300 is expected to rise 21% in 2023, according to CS strategists. It is time to accumulate, given the undemanding sector valuation (15% historical percentile) and several structural opportunities ahead. Both banks and insurers would benefit from the policy pivot on pandemic control and property fronts, but banks have a better growth outlook. We estimate 9% bottom-line growth for banks and 0-5% VNB growth for life insurers in 2023. |
January 3, 2023 China Market Strategy: 2023 outlook - Moving on… Saying goodbye to an eventful and challenging 2022, which was dragged by Covid-19 containment and the property sector, the key question for 2023 is whether China can smoothly exit its Covid-19-triggered isolation, successfully reopen with speed, and restore economic growth and confidence. China’s top leaders have pledged to put economic growth back in focus, shifting away from Covid-19, and expansion of domestic consumption tops the list of priorities. We expect China to speed up fiscal expenditure and implement an accommodative monetary policy to spur growth. Retail sales is likely to stage a meaningful recovery after a full reopen; infrastructure FAI is expected to moderate to mid-single-digit growth on a high base effect but remain a major force for economic growth; while export growth is likely to become a notable drag given weakening external demand. |
December 15, 2022 China Consumer Sector: 2023 Outlook - Trending up After a year of constant changes, China's domestic consumption recovery is on the horizon, as reopening gained momentum recently. We believe the conditions would likely worsen before improving during the transition, and we expect a meaningful and powerful recovery after a full reopening likely in 2H23. Sub-sectors may recover at different paces. Dairy growth could edge up sequentially from 1Q23, while baijiu's CNY sell-through may be challenged. We expect demand to recover after mid-2023 for sportswear and in later 2023 for catering. Condiment/beer would benefit from earnings recovery/premiumization. We are more cautious on cosmetics demand and home appliance export. As cost prices mostly trended down starting in 2022, sub-sectors such as sportswear, condiments, and beer will see uplift in margins in 2023. Dairy and home appliances companies have already witnessed gross margin improvement from cost deflation since 2022 |
December 9, 2022 China Industrials Sector: 2023 Outlook - prefer growth at reasonable price We are optimistic on industrial stocks’ performance in 2023, as we expect a fundamental improvement driven by a broad-based economic recovery supported by a reopening and property rescue measures. Against this, most of the industrial names are trading at undemanding valuations. We take into account five factors when evaluating the relative attractiveness of sub-sectors, including: (1) the growth potential of sub-sectors; (2) potential upside from localization; (3) current valuation levels; and (4) elasticity on reopening and the property recovery. We prefer automation, laser, testing and EV parts as they offer solid growth prospects in 2023 and beyond with undemanding valuations. Railway equipment and EV parts are the major beneficiaries of reopening, while elevator and construction machinery are expected to benefit most from the property construction recovery. Construction, which used to be a defensive sector in 1H22, could see a mediocre performance in 2023 despite its low valuation |
December 2, 2022 Asia Pacific Strategy: 2023 Strategy Outlook: A pivot with Asian characteristics Pivots to and within Asia. We foresee two important pivots for Asia in 2023. First, we expect that global investors will shift funds from the US to Asia on resilient top lines, superior margin and earnings cycles, a weaker dollar and a positive turn on EPS revisions. Second, we expect a pivot in 1H within Asia from large, continental economies like China, Japan, India to more export-oriented markets in North Asia as the global economy nears a trough, rates peak and tech earnings become more realistic. |
November 25, 2022 China Hardware Sector: Auto connectors ride on new energy We initiate coverage on the China connector sector. We estimate the China auto connector market to reach Rmb76.4bn by 2026, in which high-voltage and high-speed will become the new drivers. With electrification/smart vehicle as drivers, the China auto high-voltage/high-speed connector market will reach Rmb35.9bn/Rmb25.0bn by 2026E, at 43%/26% CAGRs over 2022-26E. We think battery swapping and energy storage are extensive markets for auto high-voltage connectors, to fuel the growth of participants. |
November 25, 2022 China Home Appliances Sector: Navigating through the storm We believe the home appliances industry’s current depressed valuations have already priced in expectation of a continued decline in property sales in 2023, while we sense recent property policy rollout could signal a possible turning point. Meanwhile, we see more challenges in overseas markets amid a global macro slowdown. We forecast domestic white goods demand in 2021-24E to (1) stay flattish in volume, with expectations of a more stabilized property market in 2023/24, and (2) gain 5% Cagr in value, mainly driven by premiumization trend. We also see the silver lining coming from easing margin pressure in 4Q22/2023 as raw material costs soften. |
November 24, 2022 China Healthcare Sector: Efficacy ranking of leading domestic Covid vaccines Covid vaccine companies could benefit from potential vaccination campaign, but there are many competitors. The central government is making plans for a national vaccination campaign and we believe Covid vaccine companies could benefit. However, in addition to two vaccines that received Emergency Use Authorization (EUA) in September, 14 vaccines from 11 companies have been tested in a China Center for Disease Control and Prevention (CDC)-coordinated head-to-head (H2H) trial, some of which have a high possibility of receiving EUA. |
November 23, 2022 China Sportswear Sector: Double 11 review and CS monthly online tracker Vol.3 Domestic brands trended softly on Tmall during Double 11. For the comparable period (first eight days of presale and 1-11 Nov), sportswear sales on Tmall mildly increased by 1% YoY. Most domestic brands were trending softly. CQi’s recent sportswear survey (21 Nov) show that the China Pride trend is slowing. Due to strict Covid-19 control measures across the country starting from Oct, offline foot traffic was severely impacted, coupled with soft consumption sentiment (which can be reflected from weak online sales). Oct online sales declined by 11% (Sep: -1% YoY), showed by our tracker. That said, we see more positive signals in the past two weeks with a pivot toward a Covid-19 strategy optimization and a gradual reopening (CS house view: 2Q23), which may boost industry and market sentiment. |
November 7, 2022 China Semiconductor Sector: Beacons of light on the stormy sea Initiating on WFE and wafer companies China remains determined to develop a domestic semiconductor ecosystem, with an ultimate goal of being independent from the US, or with the least reliance on US technologies. We estimate China wafer fab new capacity additions to lower by 10% in 2023, but then grow 11% in 2024. However, we remind that the near-term slower wafer fab capacity builds provide a more sustainable growth environment for equipment and wafer suppliers, allowing them more time to develop technologies to shorten gaps with overseas peers and be qualified by customers. We expect China WFE to expand domestic market share from 14% in 2022 to 25% in 2024, resulting in 31% revenue CAGR. |
October 31, 2022 Asia Pacific Thematic Strategy: The global effects of Asia's ageing population Ten economies in Asia (the A-10: China, India, Indonesia, Japan, Philippines, Vietnam, Thailand, Korea, Malaysia, and Taiwan) were incrementally 50% of global GDP and 60% of exports and sent US$5tn in capital to the world (2010-19). We find that demographic transition in Asia is much faster than its economic expansion. There is also considerable diversity: demographic transitions are accelerating in Japan, Korea and Taiwan, but remarkably slow in Indonesia and Philippines. While China and Thailand run the risk of growing old before they become wealthy, India's challenge would be in deploying its burgeoning workforce. Will their ageing slow supply of labour and capital? |
October 26, 2022 China Online Lending Sector: Bargain hunting - Be selective China's consumption loan market and SME loan market have ample room for growth in the long term. We expect the internet consumer loan balance to reach Rmb8.4tn by 2025E, implying a robust 2022-25E CAGR of 9.7%. The growth is primarily driven by a higher penetration of online lending and GDP growth. On SME loan, with supportive policies, we expect the total SME/inclusive financing SME loan balance to grow at 8.6/9.7% CAGR and reach Rmb69.5/27.8tn by 2025E. |
October 25, 2022 China Unicorns: Into the backstretch China remains the second-largest source of “unicorns” in 2022, a year full of challenges and uncertainties. The nation's technology self-reliance and supply chain security continue to be a top priority amid escalating US-China tensions. We see opportunities for unicorns to grow, especially those closing gaps in key technologies. Amid the uncertainties, China's burgeoning NEV industry is a bright spot. Meanwhile, the positive development of US-China audit talks and fine-tuning of big-tech regulations are likely to send positive signals to the Chinese start-up space. |
October 24, 2022 China Coal Sector: Underperforming supply and 4Q strong seasonality to support coal price Structural shortage may persist under the current long-term contract mechanism and likely not ease soon in the peak season. Also, intermittent disruptions (due to pandemic flare-ups at major coal producing provinces, stricter safety checks, and railway maintenance schedules) on supply should also add fuel to the domestic coal price. Despite the lower temperature bringing down daily consumption at power plants in southern China, the market remains tight amid supply reduction. At present, despite the coal supply being relatively sufficient for the early stage of the heating season in northeastern China, further stock is not guaranteed. We expect a supply deficit of ~30mn t in 4Q, supporting the coal price. |
October 21, 2022 China Cosmetics Sector: What we are expecting ahead of 11.11 - CS monthly online tracker (Vol 1) What's new this year? Key takeaways from the show ‘Offers for all girls' (所有女生的 offer) by Austin Li: (1) higher discounts across the board compared with last year (buy-1, get-1-free or more); (2) international brands being more aggressive (as high as 50- 60% off); and (3) pent-up demand to be released, as Austin soft-guaranteed some brands to double GMV YoY, and hot SKUs may further outperform. In September, overall online skincare sales remained relatively weak, with the category down by 3%/8% on Taobao, Tmall/JD, slightly improving from a quiet August (-14%/-10%). However, leading local brands saw a sequential improvement in September. |
October 12, 2022 China Industrial Automation Sector: Thoughts ahead of 3Q22 results 3Q22 market view: Some improvement in Sep; overall trends still mixed. Based on our channel checks, some brands showed sequential improvement in the YoY growth of automation orders in Sep vs Jul-Aug (comp is lower for Sep). However, the underlying recovery of the automation market remains mixed, especially for traditional end-markets. We also hear of intensified competition (in the new energy market in particular) that could lead to softer pricing in 2H22. We are relatively more optimistic on robot than automation component sales growth in 3Q22 |
October 12, 2022 Upcoming results: Downturn well under way. 3Q22 saw a deceleration triggered by ongoing dampeners (rising rates/inflation, a goods to services shift, regional conflicts, China's Zero-Covid, high inventory and a pause in hyperscale orders ahead of CPU platforms), with weak sales from fabless,memory and tier-2 foundry. In 4Q22, we expect tier 2/mature 12” loadings to continue to drop. TSMC is likely to see a firm 4Q22 but flags a moderate 1H23 correction. We see stocks attractive on a cross-cycle view but still see risk being early, with potential cuts continuing in 4Q22 amid high inventory and muted demand. |
October 10, 2022 China Chemical Sector: BOPET film – Moving towards high-end markets China's BOPET film industry originally supplied to low-end markets such as packaging. But with a surge in demand from high-end markets, BOPET film producers are shifting product suites towards the high end to capture this uptrend. We expect BOPET film's high-end markets to enjoy much faster growth (+17% CAGR) vs the low end (+2% CAGR) over 2021-25. We deep-dive into these end-markets and assess the growth potential in the next 2-3 years. |
October 6, 2022 China Laser Sector: 3Q22 preview—Further lower full-year expectation; recovery lacks visibility. Following a mild recovery in Jul and Aug, the demand on laser-cutting machine turned out weaker than expected in Sep, based on our channel checks. We believe the unit sales were largely flat YoY in 3Q, while previously we expected the sales to see a small growth from the low base. Despite the lacklustre unit sales in 3Q, the ASP decline in 3Q has been milder than in 2Q for laser & equipment. Specifically, we expect single-digit % QoQ decline for laser ASP in 3Q following a 15% QoQ decline in 1Q/2Q. |
October 5, 2022 Asia Insurance Sector: AIA & Prudential from the inside out CS Asian and European teams jointly conducted an in-depth side-by-side comparison of AIA's and Prudential's franchises, offerings (e.g., channel & products), EV, and more importantly, their growth potential. This analysis highlights attractive opportunities for both companies. In medium term, we believe double-digit operating RoEV of both insurers is sustainable, as they are high-quality insurance operators. We prefer AIA for its stronger capital position, higher capital return to shareholders (6.1% vs Prudential 1.9%), and stable management team. Its EV is also more resilient than Prudential during a rising rate environment. |
September 27, 2022 We estimate that around 200~500mn annual doses of Covid mRNA vaccines might be needed in FY23/24/25/26 (274/501/362/218mn doses, corresponding to US$0.8/1.2/0.8/0.4bn market). We estimate that first mRNA Covid-19 vaccine approval in China could be by YE22 at the earliest. Our base-case assumption for such an approval is in 1H23. CSPC could benefit most from mRNA vaccine business in China with its fast clinical progress and solid Ph1 data, while Fosun Pharma and Wuxi Biologics could also see some benefit. Everest Medicines has some uncertainties in terms of its Ph2 vaccine data as well as competitive pressure from domestic mRNA vaccine players. |
September 26, 2022 China Chemical Sector: EVA vs POE—Which is the best proxy to solar demand? Two of the most commonly discussed topics during our marketing after our China Chemical Sector initiation are: (1) which product should be best to ride the solar demand uptrend; and (2) how quickly should we expect POE localization to happen in the domestic market. Currently EVA film is still the mainstream encapsulation solution for solar module, but POE is set to benefit most from the increasing penetration of N-type solar module. We forecast solar-grade EVA/POE resins demand to see 33%/80% CAGRs in 2022-25E, as N-type solar cell penetration increases to 40% by 2025, as per CS China Utilities Team's estimate. |
September 20, 2022 China Sportswear Sector: CS monthly online tracker—Vol. 1 (Aug-2022) China brands offered optimistic 2H guidance; however, the eventual performance still highly depends on the Covid situation in China. Considering the ~30% online penetration rate for sportswear, we tend to believe that the online tracker provides a reasonable source for a cross-check. We introduce a new CS China online tracker, and our first volume covers Taobao, Tmall, and JD sportswear sales (Douyin will be added in the next update). According to the tracker, we see industry-wide weakness in Jul (-7%) extended into Aug (-6%), and domestic group market share gain momentum is still in place. We prefer brands over OEMs within the space and select Li Ning as our sector top pick. |
September 19, 2022 China PCB Sector: Supply chain tracker—2H22 outlook deteriorates PCB makers expected a post-lockdown recovery in Jun, but they switched to a conservative tone in Jul/Aug on sub-seasonal orders, especially for consumer-related products. We highlight outlooks varied across technologies and applications. Declines in copper foil and epoxy resin prices accelerated in Jun/Jul, while glass fabric stayed low after the sharp cut in Feb. Material prices have returned to 1H20 levels, and we expect them to be manageable in the rest of this year. Copper Clad Laminate makers' gross margin will continue to decline in 3Q22 due to the aggressive price competition in Jul/Aug but will then start to stabilize. |
September 19, 2022 China Laser Sector: August demand moderated; dim prospect of near-term recovery Metal cutting machine production remained weak in August with a 13.5 YoY decline (July: -14.8%). We believe laser cutting machine will grow faster than general metal cutting machine driven by laser penetration, but we believe in monetary terms, there is still pressure for laser to achieve positive growth. Similarly, industrial value added from general equipment sector continues to underperform general manufacturing value-added, which is usually a sign of down-cycle based on historical pattern. Property new starts declined 46% YoY (July: -45% YoY) showing no improvement, though the property sales YoY narrowed. |
September 13, 2022 Northbound flow and sentiment continue to be volatile. August saw a bounce back from Jul selling, with US$1.9bn of inflows, though Sep is off to a cool start, with US$700mn of outflows. Overseas sentiment remains muted towards A[1]shares, especially in the short term, though we may see positioning for post-Party Congress catalysts begin emerge as 4Q approaches. YTD inflows now stand at US$8.6bn for 2022. Gross turnover impact remains significant at around 11% of A-share turnover, while the Northbound free float stake is currently around 8%. |
September 9, 2022 China Hardware Sector: Inventory tracker 2Q22 – Inventory concern extended The China hardware sector's aggregated sales declined by 1% YoY in 2Q22, below its five-year average of +22% YoY and grew by 4% QoQ only, far below the five-year seasonality of +19% QoQ, due to pandemic lockdowns. Unlike the strong recovery in 2Q20-1Q21 driven by post-Covid normalization, our check indicates that the 2H22 outlook for most sub-sectors is still clouded, and pessimism to even last into 2023. We do not expect Android smartphone to rebound until 2Q23, with demand weakness in PC, LED and display to further extend vs prior expectations. We see more positive demand in sub-sectors including auto (driven by EV), Apple (higher visibility), ARVR and datacom (short-term adjustment, but mid-term demand intact). |
September 8, 2022 China Chemical Sector: Transition into quality growth We expect EVA to witness the biggest growth potential, underpinned by robust solar demand globally. Our bottom-up EVA supply-demand model suggests a supply deficit through to 2024, with only 577kt new capacity additions in 2023-24E vs 831kt incremental demand. Separator (LiBS) is poised to enter an upcycle, driven by technology upgrade. And China's consumption upgrade supports a localisation trend for PLA, PC & SAP. Chinese chemical producers' expansion in new materials in 2021-25 should lift their GP contribution to 38% on average by 2025E (2021: 21%). |
September 2, 2022 Asia Technology Strategy: 2H22 Outlook – positioning through the industry slowdown Correction under way through 2H should help form a bottom. We have toned down our view through 1H and stay selective on stocks amid macro demand pressures alongside rising supply/inventory. We could see better entry later this year with the supply chain cutting aggressively and stocks moving ahead of fundamentals. Consumer tech demand softened by macro and high inventory. CS/street estimates have lowered by 10- 15pp for smartphones/PCs while TVs and consumer IoT have also slowed, pushing up inventory. Swift order corrections beyond the demand reduction should drive a classic 3 quarter downturn and bottom in 1Q23. |
August 19, 2022 China Market Strategy: Heatwave and aftermath: no repeat of 2021 power crunch China is experiencing the hottest summer in 60 years, making power shortage a growing threat to its bumpy economic recovery. Southwestern Sichuan province recently requested industrial plants in 19 out of its 21 cities to suspend production for six days to secure residential power supply, with other regions including Chongqing city, Shandong, Jiangsu and Zhejiang also rolling out measures to ration power use since July. The heatwave has disrupted both power demand and supply. However, we see no repeat of 2021 power crunch, given different supply bottleneck, demand backdrops and policy directions. |
August 16, 2022 We take July's overall macro data announced on 15 Aug as slightly negative for construction machinery demand. No sign of a property construction (new starts: -45% YoY) bottoming has emerged, while property sales (-28% YoY) have turned weak again. This trend can also be corroborated by outperformance of small excavator sales growth compared to mid excavators and large excavators, due to favourable exposure to infrastructure construction. Overall domestic machinery demand could continue to see a weak recovery in the rest of 2022. In 2023 and 2024, we continue to expect a small upside in sales from 2022 should property construction demand stabilize. |
August 10, 2022 Global Semiconductor Sector – US Chips Act joins effort to reshape semiconductor landscape The US Chips Act is being signed by President Biden into law to fund the US semiconductor (semis) production, R&D and science programmes. Key terms: (1) US$39bn for semis manufacturing incentives, including US$2bn on mature nodes and up to US$3bn per project; (2) US$11bn for R&D funding, including a National Semi Technology Center, and US$4.2bn for industry development for telecom, defense and workforce training; and (3) 25% investment tax credit for semis fab construction, fab equipment, and semi-cap investment. The US CBO estimates US$25bn/US$22bn for grants/tax credits over 2022-26. |
August 3, 2022 Asia PC/Hardware Sector – Weakening PC demand in 2H22 We revise down our global PC estimates for 2022/23 to 300/294 mn units, implying 12.5%/2% YoY decline, largely in-line with the ODM builds but moderately softer than our prior alert post Computex. Key sources of downside are led by much slower mainstream consumer demand again amid inflationary/rates hike environment and the Russia-Ukraine conflict, while our recent communication with ODMs/component makers has also suggested initial reversal in commercial and gaming demand. We believe the inventory level at OEM/ODMs as well as retail channel is a growing concern for the PC supply chain in 2H22 due to demand slowdown. |
August 1, 2022 China Healthcare Sector – Globalization through cross-border licensing deals: no slowdown in 1H22 Post our prior note on the M&A landscape in China pharma/biotech, we analyze China pharma/biotech's cross-border licensing deals from Jan-2008 to Jun-2022. We found 533 assets were in-licensed and 122 assets out-licensed. Out-licensing activities started taking off in 2020 and we counted 25 out-licensed assets in 1H22, suggesting 2022 could become a banner year for the number of out-licensed assets. China's drug industry could start gaining a competitive edge as its R&D transitions to a best-in-class strategy via engineering-related capabilities. Given the FDA's increasing requirement for multi-regional clinical trials (MRCT), we believe the drug candidates with overseas data could be out-licensed more easily. |
August 1, 2022 China Online Lending Sector – Seeking resilience in uncertain times While the current Covid impact may not be as broad as in 2020, macro uncertainties are rising. Online lending platforms are becoming increasingly prudent in business expansion. We prefer companies that have demonstrated resilience in their business models. We believe platforms with (1) larger exposure to quality consumption loans (<24% APR) and (2) superior online client acquisition capability should be more resilient. We estimate, in 2H22, number of active borrowers (sum of quarterly) could grow by 9/7% HoH for FinV/LX. Further, we believe regulatory tightening is approaching an end. The average APR is likely to stay at ~23.5-24% in 2H22 and ~23% in 2023, hence limited pressure from the 24% APR cap. |
July 29, 2022 China internet sector – 2H outlook: focusing on quality growth to pave the way for upside We see attractive risk-reward for China internet into 2H on undemanding valuation with relatively light positioning, room for earnings upside from optimization, supportive regulatory backdrop. 5 key themes: (1) Growth shifting towards operational enhancement, traffic monetization, and refinement of existing products for higher return; (2) Regulation is getting more supportive domestically, but watch out for ADR delisting risk; (3) Ecosystem interconnectivity is making progress, as internet companies are working in tandem to grow the pie; (4) Earnings recovery to diverge among subsectors but margin upside is a common theme; (5) Shareholder value creation would continue through the stepping-up of buybacks. |
July 26, 2022 China Healthcare Sector – Sideways market expected in 2H22, with focus back on company fundamentals Since late-May, we have seen the longest sector rally in China healthcare in the last 12 months and we believe the sector bottom was reached before the rally. However, we see the April/May Covid lockdown in parts of China had a negative impact on 2Q22 drug/device sales and we adjust down 2Q22 earnings. We expect the sector to be potentially range-bound in 2H22, as macro factors face uncertainties, including Covid resurgences, while sector fundamentals remain stable or even slightly positive. We prefer biotech and CRO as they continue to have the highest level of innovation, but their globalization will not be a smooth process. |
July 22, 2022 China Beer Sector – Brewing a more profitable future through premiumization We expect demand recovery led by on-trade consumption, relatively favourable weather conditions, and major companies' improved brand/product portfolios to drive revenue/earnings growth of 1-9%/4-21% YoY in 2022 for beer companies covered by us. Significant cost inflation since 2021 has propelled breweries to implement ex-factory price hikes since 3Q21, which have been passed through well YTD. As some raw materials already saw cost decrease in 1H, we see margin pressure easing from 2H22/2023. |
July 21, 2022 China Cosmetics Sector – China brands glowing in a growing market We estimate China's cosmetics market to grow at an 11% CAGR in 2021-25, with continuing consolidation driven by tightening regulations. We believe there may be a short-term reshuffle to mass-market brands amid China's economic recovery, where domestic brands may benefit, thanks to their better value for money, strong R&D, and improved brand perception. We believe 'functional' (bioactive ingredient-based) cosmetics and dermocosmetics (sensitive skincare) will outperform other beauty products. We suggest investors to be selective, monitor brand momentum, and stay with the industry leaders, while the market is waiting for the next catalyst. |
July 13, 2022 China Restaurant Sector: Brave the wind and waves This report provides a comprehensive discussion on the unit expansion potential and cost structure of restaurants. While we expect customer traffic and restaurant sales to gradually recover in 2H22 on marginal easing of pandemic controls, the restaurant industry will continue to face the uncertainties of the pandemic as long as China persists with its dynamic zero-Covid policy. The recovery may not be a V-shaped rebound as strong as what we had seen in 2020, in our view. Due to a slow recovery outlook, we cut 2022/23E earnings by 21-163%/0- 44% and cut TPs across the sector. |
July 13, 2022 2Q22 sales still tracked ahead for much of the group and FX tailwinds also helped margins, although we see high inventory, macro (inflation, China lockdowns and Russia-Ukraine) and consumer weakness in PCs, Android smartphones driving caution. We maintain a base view for a moderate vs sharp downturn due to demand factors, supply, and inventory. Our deeper downturn scenario factors in deeper recession and inventory bled to prior lows. While cuts are deep already, stocks historically bottom 3-7 months ahead of utilization and 2-3 months ahead of earnings, making the August-November period a likelier support for a more aggressive re-entry. |
July 8, 2022 China Cement Sector - Recovery in sight, but slow On the demand side, we expect the accelerating special bond issuance, supportive policies on property and construction acceleration of infrastructure projects to bode well for cement consumption. Meanwhile, we expect the disciplined production to stabilize in 2H. We expect industry consensus on stabilizing the market still exists, especially given the industry is facing an unprecedented challenge. We expect 2022E cement demand to drop ~10-15% YoY, with 1H22E down 15% YoY, implying 2H cement demand up ~15% HoH (~7% YoY decline). Despite pent-up demand, we expect the pace and strength of the demand recovery to be capped by rainy weather in 3Q, the traditionally slow season. |
July 5, 2022 China Sportswear Sector - 2H22 outlook: Back to the lane Apr-May marked the darkest time for China sportswear in the past two years, with double-digit store closures and traffic decline. Pent-up demand met with supply chain normalisation and 6.18 promotion in Jun, signaling a new start from the short downturn. The 2Q22 is set to be a trough for China brands, and we could expect sequential improvement in fundamentals from here on. China sports names with double-digit revenue CAGR, solid market share gain and good track record should be appreciated and gradually overweighed by the market. |
July 5, 2022 China Market Strategy - 2H22 outlook: Finding silver linings amid uncertainties We believe more aggressive fiscal and monetary policies, more supportive consumption and property policies, as well as fine-tuning of dynamic Covid-zero strategy are needed to stabilize the economy and market. Omicron-triggered strict containment measures in China's key cities in 1H22, caused severe disruptions to an economy that had already slowed since 3Q21. Externally, the Russia-Ukraine conflict and the ongoing Fed tightening cycle have added more complexity. Economic activities are picking up from April's trough, but we tend to believe the road to recovery will be more gradual and bumpier than the V-shaped recovery in 2020. |
June 30, 2022 China Dairy Sector: Margin expansion in a growth era driven by multi-categories Due to improved supply-demand and likely easing cost pressure from a record-high level, China's domestic raw milk price is likely to see moderate decrease by low-single digits p.a. in 2022/23, after 4%/13% increase in 2020/21. We identify two long-term trends in the supply side: (1) volatility of China's raw milk price could reduce given closer association between upstream and downstream and the modernisation/consolidation of dairy farms; (2) self-sufficiency of China's dairy consumption may increase structurally given the demand shift to high-end products and emerging Chinese brands. |
June 29, 2022 We are tactically cautious on the automation space into the 2Q results' season as we forecast the names likely to print a mediocre 2Q. More importantly, we believe the recovery in June and even in July is not V-shaped and could potentially disappoint vs optimistic market expectations. The average share price of automation names has out-performed the CSI300 index by 40% since late April, on what we believe is the expectation for a quick recovery after May. |
June 23, 2022 Fuel Cell Electric Vehicle : Fuelling the future of cargo mobility Fuel cell electric vehicles (FCEV) likely to enjoy structural growth globally—50% CAGR in 2022-30. Key growth drivers: (1) falling FCEV cost with a core component—fuel cell system cost down from US$1,000 per kW in 2022 to US$350 per kW in 2030; (2) falling hydrogen fuel price—from US$10 per kg in 2022 to US$4 per kg in 2030; (3) expanding infrastructure—hydrogen refuelling station (HRS) network at a 33% CAGR; and (4) favourable regulation tailwinds with generous cash subsidy. |
June 20, 2022 China TMT Sector: How to invest in China's cloud: Migration within cloud According to IDC, China's whole cloud market could deliver a 24.9% CAGR to reach US$155bn by 2025, driven by the ongoing localisation and digitalisation transformation, in which public cloud continues to outgrow private cloud. We expect the internet CSP growth to slow down in 2022 due to consumption weakness and regulatory impact. Non-internet CSP will likely gain share on enterprises, SOE, and government cloudification. Internet CSP's growth is expected to fall to 10-20% vs non-internet players' 50-60% CAGR over 2021-23E. Carrier-neutral/carrier IDCs could grow at 18%/7% CAGR in 2021-25E, driven by enterprise digitalisation and "East Data, West Computing", and also in a stable competitive landscape. |
June 15, 2022 China Laser Sector - How to position for a soft 2H22 Laser penetration likely to slow down in metal cutting, as it has reached a high level of 39%. Besides, the high base and slower penetration will expose laser demand to higher cyclicality. We believe the demand recovery trajectory is unlikely to resemble the one back in 2020 due to a change in circumstances, including a more contagious virus, a less supportive property market, as well as less resilient manufacturing SMEs in China. The current downturn appears to be deeper and also has a duration (8 months) which is shorter than the previous downturns (avg. of 13 months). |
June 14, 2022 China Shipping Sector - Navigating through supply-demand disruptions Containers: We see the post-Shanghai lockdown pent-up demand as constructive towards the spot market in the next two months, but turning less positive on economic headwinds and softening trade outlook. Dry Bulks: The Russia-Ukraine conflict, weaker China economic trends, and high commodity prices may drag underlying demand. But the shifts in trade flows, strained supply, and potential infrastructure investments should help support the bulker earnings momentum. Tankers: The market has bottomed and shown initial gains with a broader strength on the clean tanker market and the shifts to longer haul alternative destinations arising from the Russia sanctions. |
June 13, 2022 Asia Pacific Strategy - 2H outlook: Challenging times with some silver linings A troubled global outlook likely to limit absolute performance, but we believe Asia can be fairly resilient within challenging global context. Asia is less export-dependent than in GFC, and most domestic economies have better growth momentum than DMs. Less sticky cost structures than in DMs could insulate earnings in a downturn. Our Tactical Indicators for AxJ have jumped to bullish territory at >2Y high. We favour markets with low export dependence/big services sectors/positive leverage to rates. We retain our tactical OVERWEIGHT in China, upgrade Philippines to OVERWEIGHT, raise our OVERWEIGHT in Thailand, and cut in Korea from Market Weight to UNDERWEIGHT. |
June 6, 2022 China Market Strategy - How to position for a post-lockdown reopening China's most important cities declared victory over the Omicron outbreak, including Shanghai officially reopening on 1 June and Beijing easing restrictions on 6 June, with some conditions. Central and local governments are stepping up efforts to revive the economy, especially with a 33-item stimulus package. Lifted lockdowns indeed reinvigorate communities, but with a few restrictions still in place. Better foot traffic and activities will boost sales in sportswear, cosmetics, household appliances, property, catering, baiju and condiment. E-commerce, food delivery, local services platforms and express delivery will be major beneficiaries from recovering online consumption. Hotels, short-haul and local travel/flights should see a nice recovery. |
June 1, 2022 Global xEV Battery Value Chain: Balancing between growth and margin We prefer the battery sector the most, given its over-40% growth outlook, especially tier 2 battery companies that should enjoy margin recovery and market share gain, as our sector analyst turns negative on electrolyte and expects lithium prices to peak soon. We are also cautious on cathode in China, South Korea and Europe, given cathode makers' weak pricing power against customers and rising raw material costs. Cathode and electrolyte prices softened in 2Q, amid increasing supply capacity on a downstream demand dip after the lockdown. We also expect surpluses in China's cathode market. Our South Korea and Europe sector analysts share same concerns. |
June 1, 2022 China xEV Battery Value Chain: Electrolyte and Separator–Profitability divergence ahead In our sector report in December 2021, we forecasted the Chinese Electrolyte space to enjoy a favourable S/D environment in 2022, and elevated electrolyte/LiPF6 prices to sustain until end-2022 after a 307%/727% spike. However, Covid-19 lockdowns in China, plus a faster supply response from new capacity additions, have deteriorated the S/D balance and shifted early the tipping point. Electrolyte/LiPF6 prices have corrected 35%/54% from the peak in 1Q22, but we believe this is just the beginning of a downcycle. |
May 27, 2022 China Market Strategy: Revisit our wish list–What has been done and what to expect As China's economy has embraced greater-than-expected downward pressure over past months amid unexpected flare-up of Omicron and stringent lockdowns, we revisit our previous wish list published in late Feb. China's policymakers have stepped up efforts to stabilise the market, while the pace and magnitude may still fall short of market expectations and our wish list. Chinese equities have struggled to react positively, with all major indices registering a decline in 2Q22. After two months of strict lockdown that dragged economic growth, as confirmed by April macro data, it is definitely encouraging that Shanghai recently announced detailed measures to open up. |
May 26, 2022 1Q smartphones units were below our 8-Mar update, -14% QoQ to 314mn vs our 344mn units, impacted by the Russia-Ukraine conflict, China's zero Covid policy, and rising inflation on consumer demand. We lower our 2022E units to 1.283bn, -5.6% YoY (vs previous 1.419bn, +4.4% YoY), to reflect the weak 1Q22 performance and full-year units held back by rising BOM costs and sluggish consumer demand amid macro pressure from rising inflation and evolutionary spec upgrades. |
May 23, 2022 We consider the +8% growth of the China Automation market in 1Q22 resilient given the high base (+41% in 1Q21) and increased Covid disruptions from March. The momentum of the automation market has weakened since March and this has led to an outlook downgrade from MIR on China Automation market to flattish, from 8% previously. MIR expects 2Q22 to be the most difficult quarter with a decline of 5-10%. We now forecast 3-6% growth (7% previously) vs flattish by MIR for the China Automation market in 2022, on (1) orders secured in 1Q22 and April, (2) potential pent-up demand in 2H22 once restrictions are lifted, (3) growth from project and process automation markets, (4) potential stimuli in 2H22, (5) uplift from price increase to flow through in 2H22, and (6) a lower base in 2H22. |
May 19, 2022 Southbound flow has continued at a robust pace in 2022 with US$17.7bn of inflows year-to-date. May has seen net buying reaccelerate, with US$3.9bn of net inflows mtd. At the same time, gross daily flow activity has decelerated, amidst weaker overall market volumes. The last month has seen average gross flow decline from US$4.4bn of flows per day to US$3.3bn. While Hong Kong market volumes have been weakening, Southbound investor share of gross turnover remains strong at 30% (though declined from 32% last month). |
May 18, 2022 China Market Strategy: Infrastructure FAI back to spotlight to stabilise the economy Amid Covid resurgence and consequent lockdowns, the latest economic data in April worsened, including value-added industrial output, manufacturing output and retail sales. Exports, once a brilliant outperformer in the past two years, only rose 3.9% YoY in April, the slowest pace since June 2020. Property remained one of the key challenges, and new loans to the household sector sharply contracted. FAI managed to register growth in 4M22. With top policymakers maintaining original 2022 economic target, FAI (especially infra), is likely to become the primary driver to stabilise economic growth. |
May 18, 2022 China Heavy-duty Truck Sector: Demand to bottom out on accelerating infrastructure stimulus We estimate China heavy-duty truck (HDT) sales to increase 53%/11%/2% YoY in 2H22/2023/2024 after 12 months of sharp decline of ~60% YoY. We revise our China HDT sales estimates to 0.97mn/1.08mn/1.10mn units (from 0.95mn/1.05mn/1.00mn) in 2022/23/24 with higher construction truck demand assumption on the central government's significant stimulus on infrastructure fixed asset investments (FAI). We expect the valuation multiples to increase with sector-wide sales growth returning to positive zone from 3Q22, which will boost investors' confidence in HDT value chain players' earnings growth. |
May 17, 2022 ASEAN Consumer Sector: Inflation, fuel and shortages High inflation and rising commodity prices (oil, wheat, and packaging) are negatives, both through inflation and higher costs, as oil and soft commodity prices continue to rise. In terms of impact on countries, energy and commodity exporters (Indonesia and Malaysia), should remain resilient, but at the losing end would be the Philippines (heavy reliance on imported oil), Vietnam and Thailand; these may face the brunt of the commodity price spike. Here we assess further the potential impact of higher commodity prices on the ASEAN consumer space, especially the manufacturers that are likely to be hardest hit. |
May 5, 2022 We expect the hydrogen-powered FCEV to be an essential supplement to battery electric vehicles (BEV) in cold winter regions and long-distance and heavy-loading transportation. We estimate China's FCEV sales to jump from 3k units in 2022 to 30k/80k units in 2025/2030 and China's hydrogen price to decline from ~Rmb60 per kg in 2022 to Rmb35/Rmb20 per kg in 2025/2030. As a result, hydrogen-powered heavy trucks' fuel cost per 100km is estimated to decline from ~Rmb780 in 2022 to ~Rmb450 and ~Rmb280 in 2025 and 2030, respectively, below the diesel engine heavy trucks'~ Rmb340 in 2030. |
May 5, 2022 Asia Pacific Strategy: Input costs pressures – identifying the weak links Input cost inflation is inflicting significant damage on Asian earnings. We find that cost pressures are less serious than in Europe but bigger than in the US. The outlook for 1Q pressures is fairly flat, but 2Q should see renewed margin contraction. Commodity pricing, rather than wages, is the main problem. Margin trends beyond 2Q will in large part depend on commodity price moves. Our analysis finds that commodities importers in general and especially Japan and Philippines are sensitive to input cost inflation. Commodity exporters Indonesia, Australia and Malaysia appear resilient. Our existing positions already Overweight the three resilient markets, Underweight Japan and give a Market Weight to Philippines. |
May 5, 2022 China sportswear retail sales have sharply slowed since mid-March, with weakness across the board. Logistic disruptions might be worse than expected. The inflection point of a demand pick-up in Covid-affected areas may occur in mid-May at the earliest, with only a gradual and bumpy recovery afterwards. Despite short-term (ST) challenges, we stay positive on long-term growth as it is set to grow after stumbling in 1H22, with a 12% CAGR over 2022-25. Strong local brand momentum should continue. Technology and renovation would remain the drivers behind product upgrades and ASP hikes. |
April 29, 2022 China Market Strategy: Identifying winners and losers from CNY depreciation Previously firm Chinese currency, on the back of rapid economic recovery from Covid-19 outbreak in early 2020, robust supply chain, and yield spread over the US, has been facing significant challenges recently. The yield spread between the Chinese and US government bonds has started to narrow since mid-March, when Fed stepped up policy tightening to rein in inflation. The Russia-Ukraine conflict has triggered increasing disruption in the areas of commodities, leading to substantial pressure on already-high inflation. Fed began to hike interest rate and discussed plans to shrink its balance sheet. This powered USD ahead of other global major currencies and added increasing pressure for CNY depreciation. Our sensitivity study on CNY's depreciation demonstrates that companies with large overseas sales and assets should benefit, while those with large external debt exposure or cost items denominated in USD will be hurt. |
April 19, 2022 China xEV Battery Value Chain: Separator – Addressing market concerns on LiBS industry One of the most discussed topics is what would be the LiBS future price trend after the price war in 2019-20. We forecast LiBS blended ASP to deliver a 7% CAGR through to 2025. We expect the global LiBS industry to enter the ultra-thin and coating era, with LiBS thickness further reducing to 5μm/7μm by 2025 to meet the tougher requirements from xEV battery makers. It is the first-tier LiBS players that lead the technological upgrades towards ultra-thin and coating separators, leading to a greater divergence between first- and second-tier LiBS players in terms of GP margin and RoE. |
April 19, 2022 ~16% of China retail sales is at huge risk, given least 28 large and medium-sized cities in China have announced lockdown measures since late March. Our on-the-ground observation in Shanghai found foot traffic of offline retail severely dropped since mid-Mar, while the city's offline/online activities remain silenced and continue to face logistic challenges regardless of the easing arrangements. We believe such control measures imposed have put both online and offline consumption on a downward spiral. On a positive note, the government is ready to launch multiple stimulus measures to pump up consumption. |
April 13, 2022 Asia Semiconductor Sector: 2Q22 company outlook – Bull-bear-base scenarios for the cycle We split our 2Q22 report with industry themes for the semiconductor sector in a separate report and our company outlooks with key charts, financial assumptions and bear-base-bull scenarios in 2022-23 in this report. We view the scenarios broader, balancing positives of robust content gains, healthy cloud and auto/EV growth, with macro headwinds from the Ukraine-Russia tension, China's Covid containment efforts, and pressure from rising rates and inflation, which can impact consumer demand and reverse some inventory builds. Given a wider range, we present a base, bear and bull case scenario in our 2022-23 outlook. |
April 11, 2022 China Market Strategy – Shanghai lockdown and the ripple effect – a bottom-up reality check Shanghai is grappling with stringent measures to fight against the country's most severe Covid-19 resurgence since the outbreak in 2020. Despite the city extended lockdown, the situation remains fluid, with possibility of a spillover to Yangtze River Delta (YRD). Any extended outbreak would pose sizable economic impact to the entire China, given its significant contribution in GDP and export. High-frequency data are demonstrating the hits almost everywhere, including plunged mobility, dampened travels and hotel booking, etc. The control measures have put both online and offline consumption on a downward spiral, including passenger vehicle sales, box office revenue, catering, condiment, sportswear, aesthetics and home appliances. |
April 8, 2022 Southbound flow has continued at a robust pace in 2022, despite a significant bear market in Hong Kong stocks, with US$12.5bn of inflows year-to-date. March activity reaccelerated with US$6.2bn of net inflows, though April is starting quietly with US$80mn of net inflows. While Hong Kong market volumes have been volatile, Southbound investor share of gross turnover remains strong at 32% (accelerating from 30% last month). We believe this highlights the importance of Southbound liquidity and sentiment. For the last month, our max-return and balanced-risk implementations saw declines of around -3% and 1%, respectively. Stock specific risk was the main performance detractor. |
April 6, 2022 China Market Strategy – How to position after the 2021 results China is currently facing the most severe Covid-19 resurgence since the outbreak in Wuhan city in early 2020. It is hurting near-term economic activities, evidenced in the recent readings of NBS service PMI and manufacturing PMI. China's economy is also facing mounting imported inflationary pressure, mainly on elevated global commodity prices. CS China economists expect China's headline CPI inflation to go up 2.1% this year. And PPI will remain high over the coming months. Although it is relatively milder than for most DM countries, it will inevitably squeeze margins in downstream manufacturing industries and service sectors. We like the beneficiaries of supply constraints, such as CNOOC, PetroChina, Shenhua, SITC, and COSCO Shipping. |
April 1, 2022 Credit Suisse's 25th AIC, held virtually on 21-30 March, featured 345 corporates including 97 from TMT and 2,463 investors plus 52 keynote sessions. Our report includes takeaways from 60 TMT companies with companies presenting a more mixed view vs. the outlook from our January Greater China Conference reflecting the Russia-Ukraine conflict, Covid-19 conditions in China, and rising inflationary pressures. The geopolitical tensions in Europe, Covid resurgence in China and inflation are impacting Android smartphones. Hardware companies are now seeing 90%+ of their component supply back in balance and broadly available, though still have lingering bottlenecks on PMIC, MCUs, Wifi, switch, and high-end substrates.. |
March 31, 2022 Global xEV Battery Value Chain – Separator: The road to next-generation LiBS The push to higher energy density and stricter safety standards for Li-ion batteries (LiB) is driving tougher requirements for Li-ion battery separators (LiBS), as the industry moves towards ultra-thin separators with coating layers. We estimate LiBS thickness to drop to 5µm by 2025 (70% lower vs 2017), with thinner LiBS triggering a need for more advanced coating technologies, raising coated-LiBS penetration to 75% by 2025 (2017: 20%) and bringing the addressable market to Rmb42bn. These technological advancements set a higher bar for the LiBS industry and favour first-tier players, and we estimate the Top-4 global LiBS players to take an 84% global market share by 2025 (2020: 66%). |
March 24, 2022 China New Energy – Hydrogen: China Hydrogen Development Plan for 2021-2035 unveiled On 23 March, China's NDRC together with the NEA announced the long-awaited China Hydrogen Development Plan for 2021-2035. This marks the first hydrogen game plan from the central government since President Xi's net-zero pledge back in 2020. Despite not many specific numeric targets, it sets out a pathway for 2025/2030/2035 across the hydrogen value chain, a significant milestone for China's move towards carbon neutrality. The positive stance, as laid out in our China Hydrogen Connection Series last year, remains intact, and this policy announcement should kick-start a wave of capex spending in the hydrogen value chain, in our opinion. We list seven CS-covered companies which we believe should be best positioned to ride on the theme. |
March 23, 2022 China Market Strategy – What is next after relief rally? China's stocks had a roller coaster ride in the week of 14 March, when a drastic turnaround was triggered by Chinese Vice Premier Liu He's chairing a meeting in response to market volatility and investor concerns. Various government departments also followed with announcements, including China-US audit talk progress, a delay of property tax pilot scheme and encouragement of increased equity investment from long-term institutional investors. This reminds us of late 2018, when the US-China trade war and the then deleveraging campaign domestically triggered market turmoil. Despite the challenges from the recent Covid outbreak and geopolitical tensions, we reiterate that Chinese stocks may recover on potential positive policy rhetoric and execution, the already low expectations, and undemanding valuation. |
March 21, 2022 China's stock markets have undergone a historic transition since the launch of the A-share markets in the early 1990's. We look at how these changes have evolved over time and highlight our expectations for where China's markets are headed over the medium to longer-term. We recommend looking to incorporate domestic flow, positioning and sentiment into your investment process. Look to what domestic investors are doing for new alpha generating ideas. Take more risk down the market cap spectrum. Invest in thematics, stocks and sectors that align with China's policy goals. Adopt a more dynamic approach to Value in on- and offshore China. |
March 21, 2022 China Market Strategy – China's 'little giants': small and beautiful Faced with challenges arising from the global pandemic and heightened geopolitical tension, China's technology self-reliance and supply-chain security have never been as important as today. ‘Little giants', a group of government-endorsed innovative SMEs, are on the rise in the nation's push to achieve technology independence and strengthen advanced manufacturing capabilities. Currently 310 out of the over 4,700 little giants are listed, primarily in strategically important sectors like industrials, IT and materials. These stocks reported faster revenue growth and higher gross margin than the broad market and ChiNext companies from 2018 to 2020, and are committed to innovation with more R&D expenditure. |
March 9, 2022 China Market Strategy – Russia-Ukraine conflict: Reassessing energy security The Russia-Ukraine conflict has sent rounds of shock waves to the markets, triggering fears of a supply crunch as Russia is the world's leading natural gas and crude oil exporter. The global market took a hit with oil prices spiking, while volatilities are high in most markets. In the near term, we believe China's economy will not be significantly impacted, but still be affected by the ripple effect, mainly on PPI. We believe the conflict will trigger reassessment of energy strategies among global policymakers, bringing profound changes in the energy landscape. China will likely place energy security at higher priority and take a more pragmatic approach to achieve its long-term carbon neutrality goal. |
March 9, 2022 APAC Energy Sector – Are we getting towards the point of demand destruction? The Russia-Ukraine conflict has resulted in an unprecedented rally in oil prices past two weeks, pushing oil prices towards US$135/bbl, a level that seems unimaginable even a month ago, as the global oil market started to self-sanction Russia oil exports. At this rate of increase, we are at a point where demand destruction could start to kick in. We look at oil price peaks in the past two decades, and lay out a number of indicators to assess the current state of oil demand relative to history. The current economic situation is not in any way worsening off, and consumer affordability (US gasoline as a percentage of PDI) is still in a healthy state relative to historical oil price spike |
March 8, 2022 Asia Pacific Strategy – Tactical shift from India to China and Australia Because of its strong structural prospects and robust EPS momentum, we will look for opportunities to re-enter the market, but today we tactically cut our India position from Overweight to Underweight. Higher oil prices hurt the current account, add to inflationary pressures and increase sensitivity to Fed rate hikes. If Brent crude remained at US$120/bbl, India's current account would weaken by almost 3 pp of GDP. The market's big P/E premium magnifies the risks. We use the funds freed from India to raise China from Market Weight to Overweight. |
March 7, 2022 Smartphones were slightly light of our 22-Nov update, +10% QoQ to 368mn vs our 370mn units, with Apple 4mn light on supply constraints at 85mn. Factoring in inflationary BOM cost pressures, only evolutionary spec upgrades and marginal Russia impact (3% of units), we trim 2022 from 1.45bn to 1.42bn (+4.4% YoY) and 2023 from 1.51bn to 1.49bn (+4.7% YoY). 5G tracked higher outside China in 4Q21 on the new iPhone ramp up and Samsung's rising push in the mid-tier, lifting units to 560mn, above CS 545mn and the high-end of market expectations 500-550mn. |
March 4, 2022 China Components Sector – Shifting power from CCL to PCB We believe automotive, substrate, high-density interconnect (HDI) and flexible printed circuit (FPC) are growth drivers. We estimate PCB content will increase from Rmb750 in internal combustion engine vehicles (ICEVs) to Rmb1,500-2,000 in electric vehicle (EV), and the automotive PCB market will reach US$14.3bn at 9% CAGR in 2021-25E. Prismark forecasts substrate/HDI/FPC to grow at CAGRs of 13.9%/8.2%/4.9% in 2021-25E. We agree that these technologies will outgrow the industry, but expect upside of FPC in the EV battery management system (BMS). China's local companies, who may only represent 4%/17%/17% of the global substrate/HDI/FPC market by 2021, will gain share in these high-end segments and outgrow global peers. |
February 24, 2022 Chinese stocks, had a bumpy start in 2022. Simultaneously there's a drastic style rotation from growth to value, consistent with the global market. Policymakers are doubling down to stabilise a weakening economy. However, concerns still centre on policy development and execution. More pro-growth policies and better visibility in regulatory environment are among the key components needed to regain market momentum. We list market expectations in various key policy areas and our views on the potential forces. CS Global Equity Strategist in January raised China to Overweight from benchmark and see eight reasons for Chinese equities to potentially outperform. We reiterate our view that China's equities market is likely to recover. |
February 18, 2022 APAC Energy Sector – Welcome (back) to the US$100/bbl oil era Oil prices have rallied 42% since end-November and are now fast approaching US$100/bbl. Indeed ESG is at the forefront of investors' concern for the energy sector, but we think the market might have discounted oil equities too much and ignored any fundamental improvement and earnings recovery, similar to what CS Global Equity Strategy Team highlighted last month. In this report, we compare a number of key financial/operational metrics for APAC Oils and see how things stack up between now (2022) and then (2011- 14), as well as run a 2022 earnings sensitivity under different oil price scenarios. |
February 17, 2022 Survey implying continued TCM sales growth but we see no particular signs for growth acceleration. Given that since Dec-2021 the TCM subsector has outperformed many other China healthcare subsectors, we asked CQi to conduct a TCM survey to understand if there are any changes in consumer sentiment. In our analysis, we do not find strong signs to suggest TCM sales growth acceleration in 2022, though the survey data is limited. We see consumers' interest in TCM could be increasing modestly. Prescription appears to be the key driver for TCM products. Nearly half the consumers spent less than Rmb500 annually within their household on TCM drugs, suggesting there could be room for growth in average household TCM spend. |
February 10, 2022 China Wind Equipment Sector – Soaring in the wind post grid-parity We raise our forecasts for wind addition to over 275 GW during the 14th FYP. Mega-size renewables base would be the main force in driving onshore wind installation. For offshore wind, we calculate capacity addition could reach 52 GW and tendering volume could pick up significantly in 2022. Among wind turbine makers, we expect higher margin pressure in 2022, continued market share gains from lower-tier players, wider application of larger turbines with lower unit cost, and increased penetration of hybrid drive. We see strengthening position for industry leaders with acceleration in capacity expansion and domestic substitution which creates opportunities for suppliers. |
February 8, 2022 Global TMT Sector: Metaverse: A guide to the next gen internet Sector implications. Innovations in the five components can provide users new experiences in entertainment, collaboration and commerce, while driving opportunities for the TMT ecosystem. Internet, gaming, media. Internet and gaming platforms are positioned to evolve cloud gaming, social and business communities into a central platform role in the metaverse, while the metaverse should grace media companies with more time spent. Telecom and infrastructure. Telecom and network infrastructure companies can look forward to 20x higher data usage in 2032. Hardware and semi. For accessing the metaverse, AR/VR along with upgrades to traditional PC/smartphones provide opportunities for hardware companies. |
February 7, 2022 MIR reports that China's industrial robot market grew +28% YoY in 4Q21, about in line with 3Q21 growth of 29%. In 2021, the market grew by a strong +50% YoY. For 2022, MIR now expects +21% YoY growth for the industrial robot market in China, which is an upgrade compared to the previous forecast of 11%. Market share of locals increased to 28.4% in 2021 from 26% in 2020. Both Inovance and Estun showed strong performances and gained market share. For Chinese names, we like Estun and Inovance; for Japanese names, Fanuc and Yaskawa; for European names, we highlight ABB (Restricted). |
January 26, 2022 Asia Pacific Strategy – Rate hikes and inflation: Winners and losers APAC typically performs well in the environment we envisage. Contrary to popular opinion, the region usually outperforms on the upside when the Fed hikes, bond yields rise and inflation surpasses expectations. Singapore and Australia look best positioned for higher rates and sustained inflation among markets, while the Philippines, Malaysia and China would gain the least. Among sectors, Financials looks the strongest, followed by Materials and Energy. Defensives like Consumer Staples, Telcos, Utilities and Healthcare lag. Stocks that we like on fundamentals and strong leverage to our top-down themes include DBS, KB Financial, Cathay Financial, Infosys, Rio Tinto, Zijin Mining and Nickel Mines. |
January 17, 2022 China Property Sector: Outlook 2022 – Supply-side consolidation to accelerate Our analysis of the past three down cycles shows regulators' policy has become more supportive after the YoY growth in property sales turned negative and MoM growth in home price moderated. In the current down cycle, the larger-than-previous decline in property sales and continued home price weakness indicate more signs of policy relaxation. We are more positive on property policy relaxation in the short term amid regulators' macro focus on pro-growth and stabilisation. In addition to monetary easing and relaxation in mortgage quota, we expect demand-side loosening on a city level and fine-tuning of pre-sales escrow account post the CNY. |
January 14, 2022 China Container Shipping Sector: Another year of rising freight rates Container freight rates have been steadily climbing up after a pullback in Oct-2021, as demand has stayed solid and long-term contract renewals add momentum. As the prevalence of virus variants has continued to put pressure on the fragile supply chain, capacity should remain under strain on supply bottlenecks (logistics and labour) and COVID restrictions, in our view. Top pick: SITC, on its leading position in Asia and new fleet in 2022 to ride on surging freight rates. |
January 13, 2022 China Consumer Sector: The rise of the Chinese brands (vol 2) We believe "Guochao" remains a secular trend in China, driven by consumers' increasing favouritism towards homegrown brands, with Gen Z's increasing preference for "Made in China" products. The improved quality and value-for-money offerings of domestic brands, plus the rapid penetration of livestreaming e-commerce, further accelerate the momentum for emerging brands, in our view. We see the common prosperity push in China as a long-term driver to trigger consumption upgrade, likely to benefit domestic brands. |
January 12, 2022 Global Auto and Auto Parts Sector: Divergence to narrow down in 2022 While traditional automakers have suffered from production disruption, mainly caused by chip shortage issues, the new EV players (Tesla, NIO, Xpeng, Li Auto, Lucid, and Rivian) outperformed their peers, creating value and share performance divergence in 2021. Yet, with signs of easing chip supply, we believe the traditional automakers are likely to narrow down the valuation and performance divergence gaps with the new EV players in 2022. |
January 11, 2022 China Internet Sector Outlook 2022: Finding the silver linings in challenging times Six key themes for 2022: (1) Growth: With peaking internet traffic, internet companies are increasingly looking inward for growth from operating efficiency enhancement and value creating opportunity leveraging their existing traffic. (2) Regulation: With the regulatory legal framework largely in place, the focus will be on implementation. (3) Ecosystem: We expect inter-connectivity to continue. Internet companies will negotiate to resolve issues including platform security and mutual benefits as they dismantle walled gardens. (4) Competition: With government's anti-trust efforts, dominant leaders are more mindful of market share, creating opportunities for others to catch up. (5) Investment focus: Hard technology and overseas market would be the focus. Internet companies would also look for ways to unlock shareholder value (e.g. buyback). (6) Earnings forecasts: The street hasn't factored in the downside from macro and upside from margin saving. We see upside for PDD and Kuaishou (S&M saving) and downside for BABA and Meituan (food delivery). |
January 7, 2022 China xEV Battery Value Chain: Electrolyte: LiPF6 vs LiFSI: The road to mainstream solute One of the most discussed topics during our virtual marketing, following our Connections Series and Chinese electrolyte initiation, is whether / when LiFSI could replace LiPF6 as mainstream electrolyte solute. Our answer is yes – but with a long way to go. LiFSI possesses better technical characteristics than LiPF6 in terms of conductivity, safety and lifecycle. Therefore, LiFSI becomes an alternative solution for Li-ion battery makers who want to produce Li-ion batteries with high performance. Currently, Li-ion battery makers add LiFSI in electrolyte as an additive specifically designed for high-nickel NCM batteries, in order to improve performance in charging speed and safety. |
January 5, 2022 China Healthcare Sector Outlook 2022: If Winter comes, can Spring be far behind? In our China Healthcare Outlook this year, we analyse the sector's outlook from two perspectives, including an analysis of key themes that may impact the sector in 2022, as well as an analysis of subsector growth in 2022. For the key themes, we include a discussion on: (1) policies, (2) innovation, (3) BD, and (4) healthtech. For subsectors, we include an analysis on the eight major subsectors in China healthcare. We expect biotech to continue to see higher top-line growth rates compared to the pharma subsector, which may realise top/bottom-line growth rate of low-to-mid teens in the next few years. |
January 4, 2022 Global Renewables Sector: Disruptive innovations for Net Zero In the past decade, we've witnessed dramatic cost reductions in renewables driven by technology improvements, which helped most of the world achieve grid-parity. For the next decade, a new round of innovations already in progress will bring global renewables demand to a new level, by making renewables more economical, efficient and available. With those innovations, we expect solar/wind costs to fall by another 33%/25% by 2025, and global solar/wind annual installation to rise from 165/67GW in 2021 to 386/112GW in 2025. |
January 3, 2022 China Technology Sector: Outlook 2022: Prefer NEV and Metaverse beneficiaries NEV is an inevitable megatrend with rising electrification and information technology. CS Global Autos team forecasts global NEV (PHEV+EV) sales volume to see 31% CAGR over 2020-30 to reach 44.7 mn units in 2030, and China NEV sales volume to see 29% CAGR to 16.0 mn units over 2020- 30 and reach 66% penetration rate, accounting for 36% of global NEV sales. We have identified seven segments that benefit from this mega trend, including (1) auto display panel, (2/3) ADAS (camera/LiDAR), (4) connectivity, (5) glass enhancement, (6) semiconductor, and (7) PCB, totaling potential TAMs of US$140 bn/US$53 bn globally/in China. |
January 3, 2022 China Market Strategy: Outlook 2022: A better year when the dust settles Following a V-shaped recovery in 2020, China's growth lost momentum since 3Q21 due to resurging COVID, summer flooding, unexpected power cuts and property tightening. We expect to see moderate recovery in 2H22, after a still tough 1H22. We expect China to speed up fiscal expenditure, carry out a constructive monetary policy and adjust the implementation pace for China's long-term development goals such as common prosperity and carbon neutrality. China and Hong Kong equity markets experienced remarkable corrections in 2021, with dramatic sector rotation. Sixteen out of 22 sectors declined, led by consumer services, Macau, software, insurance and real estate. |
December 6, 2021 APAC Quantitative & Systematic Strategy: Southbound sentiment tracker. Amid a continued deceleration over the past few months, Southbound flows turned negative in November, with around US$600 mn of net outflows. December is off to a more positive start, with US$800 mn of inflows, though it is still early in the month. |
December 6, 2021 China E-vaping Sector: Vaped by regulations. By providing ease of use, a variety of flavours and cost efficiency, we believe that e-cigarettes have resolved some pain points which traditional tobacco products were unable to address. Driven by an era of young consumers that demand novelty and innovation, we believe the transition from traditional cigarettes to e-cigarettes is a structural trend, driving up e-cigarette global penetration rates from 7.6% in 2020 to 10.7% in 2025E. |
December 1, 2021 China Aesthetics Sector: Expert call takeaways (Vol 4 collagen stimulator). We published our sector initiation report on 1-Nov and hosted the 4th expert call on 1-Dec. HA-based dermal filler accounts for 95% of total dermal filler in China due to its better safety profile and a lack of licensed alternatives. The speaker expects non-HA dermal filler (including PLLA/PCL, CaHA, PMMA and collagen, etc.) to account for 25-30% of the total in the foreseeable future, with collagen stimulator to be the largest category in the non-HA pie. |
December 1, 2021 China Auto Parts Sector: Bullish on intelligent cockpit structural growth. As vehicles evolve into moving data terminals in China, we see the rising penetration of the intelligent cockpit, comprising heads-up displays, domain control units, in-vehicle infotainment, digital instrument clusters and digital mirrors among others. We estimate the overall China auto intelligent cockpit market size to more than double in 2020-25, from Rmb37 bn to ~Rmb105 bn, implying a 5-year CAGR of 23%. |
November 22, 2021 The rise of domestic institutional investors in onshore China is leading to a new regime in Chinese stocks. We recommend paying particular attention to crowding risk in A-shares. After record new launches in 4Q20/1Q21, the pace of launches has normalised. At the same time, mutual fund crowding risks associated with domestic mutual funds remain elevated, a key risk in a downturn. As highlighted in our domestic fund deep dive, stocks with crowding risk see significantly larger drawdowns relative to the market. |
November 10, 2021 At our first expert call of ‘Deep dive into China's booming aesthetics market' series on 10-Nov, the speaker, Dr Li, said the execution of the ongoing inspection (Jun-Dec-2021) of the MA industry seems much stricter than before. The regulation tightening and new guidance on advertising will inevitably lead to disruption in customer acquisition and sell-through. They observed stricter-than-before execution already, same with what we expected. No much further policy risks apart from strong execution of existing rules. Dr Li also flagged that large-scale off-label treatment might be a potential risk for some companies. |
November 8, 2021 China Market Strategy: China Investment Conference wrap-up – Changing gears. Among 115 covered companies by CS, technology, consumer, healthcare, utilities and industrial sectors dominated discussions during the CIC this year, where investors focused on technology, consumer, utilities, industrial and healthcare sectors. 28% corporates held a neutral tone, having doubled from 14% in 2020. Management tone for materials, travel & transportation and utilities sectors was relatively more optimistic, while property and consumer sectors turned more cautious. The change in management tone reflects challenges arising from COVID-19 resurgence, commodity price hike, and remarkable changes in the regulatory landscape. However, most of our macro experts believe China's economy will recover in 2022. |
November 1, 2021 China Aesthetics Sector: Aesthetics in the limelight. China's medical aesthetics sector has gained significant market attention in recent years, underpinned by higher affordability, a favourable change in mentality, and lower penetration. We estimate total market size would see 13% CAGR in 2020-30E (vs 19% CAGR in 2016-20), driven by a robust demand growth (19% CAGR) offsetting a 5% CAGR ASP decline. Leading domestic players should benefit from continuous replacement of smuggled products and international brands. In our view, BTX and collagen stimulator should see the biggest upside among all products. We expect the BTX market size to reach Rmb29 bn in 2030 (+22% CAGR), driven by surging anti-aging demand. We also see a big potential in collagen stimulator as the first batch of NMPA-approved products just entered the market in 2H21, although ramp-up may be slower than expected. |
October 25, 2021 The Standing Committee of the National People's Congress has authorised the State Council to pilot property tax in selected regions, as announced on 23 October. While the pilot details remain unknown, the progress is much earlier than market expectations, especially after senior officials' relaxation tones indications on property financing since 29 September. We expect more communications on the framework of the pilot scheme in 4Q21 whereas it would likely take a bit longer for the pilot cities to roll out execution details. January in 2022 would be the earliest window with the next one in late March or early April after the "two sessions" meetings conclude. |
October 25, 2021 China Healthcare Sector - China PD-(L)1 on the move: Picking long-term winners in a competitive race PD-(L)1 drugs have become the most important drug class in China, with a combined sales of ~Rmb11-12 bn in 2020. There are 10 existing players in China. We believe the China PD-1 market could reach Rmb40-45 bn peak sales by 2030E, given the large cancer patient population, PD-1's fundamental roles and a long-term annual pricing of ≥Rmb30k, which corresponds to ~1.3 mn patients on PD-1 at peak. |
October 12, 2021 Semi structural outlook positive, cyclical concerns to continue. We stay positive on structural content gains and good secular demand drivers in the coming years. We expect tightness to ease through 2022, and see two adjustments, a modest one from near-term inventory mismatch and potentially again late in 2022. We see foundry showing better pricing and sustainability over back-end and fabless product cycles can overshadow some semis cyclicality. |
October 7, 2021 China Communication Infrastructure Sector: Accelerating capex ramp in 2H21-1H22 We expect 2H21 capex to pick up post a slow 1H21, given the: (1) announcement of 5G tenders; (2) easing of supply constraints; and (3) stabilising of the regulatory environment. The three telcos/BAT had only completed 37%/45% of their FY21E capex in 1H21; the expected acceleration in capex should be a core earnings improvement driver for the communication infrastructure supply chain. |
October 7, 2021 China Telecom Sector: The overlooked 'new infrastructure' gems We adjust our capex and BTS estimates, incorporating peak 5G capex in 2022, the extensive co-build, co-share arrangements among operators and government support of flexible use of spectrum, which lowers the number of BTS required to achieve national coverage. We estimate operators' capex to grow by 2/1/-5% YoY in 2021/22/23E (0/2/4% below consensus) to reflect our latest 5G BTS estimate of 1.4/2.1/2.7 mn in 2021/22/2023E. |
October 7, 2021 As the State Council reaffirms its plan to continue drug and device GPOs in the first five-year plan for public medical insurance, we believe the scope of future national GPOs would expand beyond generic drugs and high-value medical consumables, given that a number of provinces have conducted or plan to conduct GPOs for the non-drug/non-medical consumable healthcare product categories. |
October 4, 2021 China Market Strategy: Power shortage tends to be short lived when administrative measures step in Power shortages in factories, and even some homes in north-eastern China, are mainly due to resilient demand and tight supply. Industrial electricity consumption has increased due to strong export orders, while safety production and environmental protection requirements have slowed the pace of domestic coal production and coal imports have also been dampened due to geopolitical tensions. |
September 27, 2021 China Auto Sector: Robotaxi: A disruptive force for car autonomy A Robotaxi is a driverless taxi based on high-level autonomous driving (level 4/5), which will slash transportation costs. We estimate the Robotaxi fleet to reach ~200k/1.4 mn units by 2025/2030, as Robotaxi services penetrate into lower-tier areas (like Tier 3/4/5 cities) with falling mobility price. We see Robotaxi as the best testing tool for driving-autonomy R&D because it generally deals with more complicated urban-area traffic scenarios and longer operation hours than private cars. With the knowhow from Robotaxi operations, we expect China's high-level autonomous driving vehicle sales to reach 1.0 mn/6.0 mn units by 2025/2030, achieving penetration rate of 23%. |
September 23, 2021 China Market Strategy: Concerning but no need to panic To gauge the magnitude of total debts of Chinese major developers, we assessed items both on and off balance sheet and found developers' debts on balance sheet have been lowered from the peak in 2019, but off balance sheet items are still a big concern, in addition to increasing accounts payable to suppliers and wealth management products used as alternative financing channel. Chinese banks that grant about 27% of their RMB loans to property will be under pressure. |
September 15, 2021 China Market Strategy: Embracing carbon neutrality After decades of successful reforms and opening-up, it is the right time for China to seek to achieve high-quality development in a greener and more sustainable way. Carbon neutrality offers such a pathway to sustainability. Following years of regional pilot projects, China's first national carbon market—a key policy instrument to achieve the nation's ambitious goal of carbon neutrality—started trading in July. Currently only covering power companies, the market is likely to expand trading activities to more sectors such as auto and cement. Riding on the super trend. NEV and renewable energy are the major beneficiaries from the replacement of ICE cars and fossil fuels. |
September 14, 2021 ABCD technologies are transforming the way healthcare is imparted. The market is growing rapidly and is expected to reach US$180bn in 2028 (CY20-28: 28% CAGR). The use of ABCD has resulted in increased shift of medical care into patients' homes, improved medical services and supply chain efficiencies, enabled better utilisation of healthcare plans, and tapped a large wellness segment (in addition to illness). In particular, we outline five key themes: (a) improving access to care, (b) care management, (c) reducing fraud, waste and abuse, (d) optimising supply chain, and (e) driving employee/consumer engagement. |
September 14, 2021 China Internet Sector: Live-streaming e-commerce becoming a norm While China online retail growth has slowed amid soft consumption and tightening regulation, we expect live streaming e-commerce ("LS e-commerce") to post a 70% 2020-23E CAGR to Rmb4.7 tn, as penetration increases to 27% (2020: 8%). With regulations in place to crack down on non-compliant behaviour, such as fake transaction data and false advertising, a healthy environment would be developed, supporting sustainable growth of the industry. LS e-commerce reshapes the market in terms of creating demand (customers' discretionary demand attracted by KOLs) and supply (new channels for merchants) while also offering more opportunities to emerging brands. |
September 9, 2021 China Healthcare Sector: ESMO 2021: China pharma/biotech abstracts to watch for potential catalysts ESMO congress is one of the biggest annual events for oncology stocks. To help investors track ESMO 2021 online sessions, we have summarised abstract titles from the companies under our coverage as well as from other China/ex-China pharma/biotech companies with products of interest. The companies under our coverage include BeiGene, Hengrui, Everest, Innovent, Junshi, ZaiLab, Harbour Biomed (HBM), Sino Biopharma (SBP), CSPC, and Luye. Other Chinese biotechs/pharmas include Akeso, HutchMed, Innocare, Carsgen, Cstone, Genor, Alphamab, I-Mab, Betta, Kelun, and Hansoh. |
September 7, 2021 China Insurance Sector: 1H21 results wrap and 2H21 outlook The sector VNB dipped 14% YoY in 1H, on both tepid NB sales and margin contraction. FYP slid 3.6% on: (1) shrinking agency force, (2) unrecovered long-term insurance demand, (3) likely competition with HMB. Group/life EV growth slowed to +3~7%/+4~7% HoH, partly due to deteriorated experience variance. In tandem, life operating RoEV moderated to 5.8~7.4%. 13M persistency slid 1-9 pp YoY. We expect VNB pressure to stay in 2H on persisting NB sales headwinds and COVID resurgence. Insurers have: (1) ramped up agency incentive, (2) focused on agency productivity, and (3) launched simple, easy-to-sell products. |
September 6, 2021 China Market Strategy: How to trade on accelerating FAI We expect the government to accelerate issuance of local special bonds in the remaining months of the year, making infrastructure FAI the major driver to stabilise the economy. For the construction sector that is valued at low-single-digit P/E, the business is improving, or at least stabilising. With this, the sector is simply too inexpensive to ignore, and an accelerating FAI is expected to be marginally helpful for construction machinery demand. In the materials space, the demand increase and tight supply are expected to create a favourable supply-demand dynamic for steel and cement sectors, boding well for prices and profitability. |
September 1, 2021 After the record outflow in July, August sees SB selling pressure easing. August records a relatively mild total outflow of US$1.7 bn with continued rotation out of "traditional favourites" into lower policy risk stocks, especially Auto names. For the past month, we see SB investors buying Communication Services and Real Estate, while selling Financials and Consumer Discretionary. Utilities sees the largest percentage increase compared to holdings one month ago. For the last month, our max-return implementation and balanced-risk implementation have returned 8.4% and 7.3%, whilst the overall market was -2%. Selection effect and factor tilting have contributed to the outperformance. |
August 26, 2021 Global Themes Monitor: Cloud Computing: Investor jitters; but outlook remains robust "The cloud is all pervasive", this comment from the CEO of one of the leading Indian IT services companies highlights the ongoing transition that many companies have undertaken in the wake of the pandemic. CS research teams have continued to explore this theme. Among the leaders, fabless and PCB/Substrates segments performed the best. On the other hand, Memory and Conglomerates lagged as compared to other segments. Cloud computing theme-exposed tech supply chain companies continue to see strong positive EPS revisions over the past three months, with only three of the top 20 market cap names seeing modest EPS cuts. |
August 24, 2021 The freight rate spike CYTD (spot rates up 6- 8x on some routes) has created an impression of strong demand. Container freight is the most stressed: containers are in shortage and container-ship-building orders are growing. However, as growth in shipping volumes is broadly in line with trend, the tightness has two reasons, in our view. First, port closures and Covid-related regulations have raised turnaround times, cutting the number of trips a ship can make in a year. Second, growth in global freight is concentrated on a few routes (e.g., from East Asia to the US west coast), pressuring some ports. |
August 20, 2021 The State Council's recent five-year blueprint and the accelerating pace of announcements may suggest that the ongoing regulatory risks could be a medium-to-longer-term overhang for Chinese stocks broadly. In order to help investors monitor/hedge risks associated with continued regulatory momentum, we have divided up the liquid Chinese universe (MXCN+HSCI ex HK) across a number of top-down cohorts: SOEs vs POEs, VIEs vs Non-VIEs and sub-industries with positive, neutral and negative regulatory trends. We have created tradable baskets on each. We estimate that 44% of MSCI China weight is in sub-industries with negative regulatory momentum. |
August 13, 2021 China Market Strategy: Push and pull factors to accelerate home market listing US-listed Chinese companies are caught in a bind, with tightening regulation both at home and abroad. We expect China to set up a cybersecurity pre-clearance process for foreign listings, which could increase the review time and costs for future platform operators' listings in the US. Authorities are also likely to include VIE structure into a unified regulatory framework for overseas listings. We believe more Chinese ADRs will accelerate home market listing. Quality unicorns may favour Hong Kong over the US as their listing venue over the long run. HKEx is well positioned to ride the ADR home-coming trend. |
August 10, 2021 China Banks Sector: Picking up gems amidst profitability recovery JSBs and regional banks recover better this year as they have less national services responsibility and a stronger urge for profit to replenish capital. The ones with geographic focus, strong wealth business and good asset quality are even more advantaged. We see high certainty in banks' recovery in FY21 supported by steady loan growth, resilient NIM, lower credit cost, and growing wealth business. Risks in property and LGFVs on the rise, but we do not see systematic risks. Recent concern is overdone. 1H results could boost confidence. |
August 9, 2021 Northbound inflow has remained steady since 2H21 amidst heightened market volatility, with July contributing US$1.7 bn. We estimate year-to-date inflow has reached US$37 bn, exceeding the full-year total inflow of US$30 bn in 2020. For the past month, NB investors have been buying IT (US$2.1 bn) and Consumer Discretionary (US$820 mn), while selling Financials (US$460 mn) and Real Estate (US$200 mn). Since June, the long-only implementation of our strategy has returned flat, and the market neutral implementations have returned 4.8% (vs CSI300) and 14% (vs A50). The outperformance has been driven by style and industry tilting. |
August 2, 2021 China automation market grew 32.4% YoY in 2Q21, implying a 17% QoQ growth, similar to historical seasonality. China OEM automation grew 28% YoY in 2Q21, implying a 21% 2-Y CAGR. This is mainly driven by rising demand from industrial robot, battery, and semi. Servo/LV inverter/small PLC market grew 36%/19%/32% YoY to Rmb6.3 bn/8.3 bn/2.2 bn in 2Q21. Domestic players continue to gain market shares in those sub-segments, while mid and large PLC markets remain under-penetrated by local brands. China industrial robot market grew 72% YoY to 73k units in 2Q21, driven by demand from electronics, metal, and auto parts sectors. |
August 2, 2021 The recent regulatory tightening targeting the education sector has triggered an acceleration of re-positioning within the Southbound universe, a trend which we first noticed since early June. It appears that the SB investors have been increasingly rotating into industries with lower perceived policy risk. Such rotation has kept Southbound gross impact high at 30% of total HK cash turnover. For the past month, we see Southbound investors buying Health Care (US$600 mn) and Materials (US$580 mn), while selling Communication Services (US$4.6 bn) and Financials (US$1.6 bn). Materials also sees the largest percentage increase (6.7%) compared to holdings one-month ago. |
July 30, 2021 China xEV Battery Value Chain: Top players to benefit from rising prosperity We expect rising xEV penetration would continue to lend support to xEV battery and value chain demand. We estimate China xEV sales volume to reach ~6 mn units by 2025, or a +33% CAGR. EV demand growth would also boost demand for middle stream and upstream sectors including battery cathode (42% CAGR) and lithium (36% CAGR) producers. We expect battery upstream sectors (both battery materials and minerals) to see similar 30-40% demand CAGRs through 2023E. That said, we expect most of the profit to be gained by upstream minerals companies, given their better supply-demand dynamics. |
July 20, 2021 We expect policies that have a sector impact to continue to roll out in 2H21, but we do not see heightened risks. We see the main policy themes in 2H21 being the continuation of prior cost-control measures, including NRDL negotiation and orthopedic device GPO. In addition, we would keep an eye on potential domestic or global catalysts currently under the radar, such as DRG/DIP, the US-China relationship and COVID-19 variants. As for the CDE guidance on cancer drug development, we believe it could optimise the pharma/biotech industry's resource allocation in the long run. |
July 19, 2021 China Market Strategy - 2H21 Outlook: Beyond normalisation and regulation The strong economic rebound since 2H20 continued its momentum in 1H21, but in a divergent fashion. We expect continued recovery in 2H21, but slower given the higher base. As economic normalisation nears an end, we see early signs of less aggressive tightening or even moderate easing but no U turn in policy. Regulatory changes would definitely promote competition, leading to more innovation in the long run, despite generating short-term uncertainty, in our view. We expect China's equity market to remain resilient on the back of recovering economy, lower tightening and more reasonable valuation, despite uncertainty in variant development, regulations, and geopolitical tension. |
July 14, 2021 Asia Technology Strategy - 2H21 performance should catch up with strong fundamentals Most key tech end products' demand is tracking better than year-start expectations, with consumer notebooks tracking substantially better, servers and TVs tracking slightly better and smartphones broadly in line. Automotive tech demand is further adding to the strength. AxJ tech earnings are forecast to grow at a 23% CAGR over 2020-23 (30% CAGR over the next two years). In addition, earnings estimates have been seeing sustained EPS revisions throughout this year. We expect the long-held relationship between EPS revisions and stock performance will reassert itself in 2021 again. We retain our positive view on semis with still-solid demand drivers and supply also capped through 2H21. |
July 14, 2021 Global Tech Supply Chain - iPhone evolution continues to drive opportunities We project stable iPhone replacement rates at 4.3 years to drive 234/237/249 mn units over 2021-23, as 5G shifts to more mainstream, driving Apple hardware TAM to grow to US$300 bn by 2023. Near-term upgrades will be evolutionary but still improve the camera (image stabilisation, larger sensors, improved wide angle), display (faster refresh), processor (enabling AI, multimedia/graphics, and app development), and RF (more mmWave, Wifi 6E), and smaller notch. Apple has brought in more suppliers in hardware keeping focus on share gainers or areas of better barriers. In silicon, it has developed more internal silicon, raised content at TSMC, and created new SiP content. |
July 12, 2021 China Construction Machinery Sector: Domestic demand peaked, but not overseas Replacement cycle comes to an end. After over four years of growth, China domestic excavator sales softened in recent months, along with other machinery. Operating data also weakened. Despite being triggered by unfavourable macro conditions which could improve in 2H, excavator sales are unlikely to go back to an uptrend. We do not expect a sharp fall in sales as in the last downturn, and expect domestic excavator demand to see 5%/-17%/-12% YoY growth in 2021-23. We expect tower crane sales to keep growing; loader and pump truck should see a much milder decline than excavator and truck crane. |
July 8, 2021 China Internet: Platform regulation—navigating the competitive landscape For China's internet sector, the heightened scrutiny, increasing new laws and rules as well as coordinated actions among regulators have been the key focus this year. We take a deep-dive of anti-monopoly and data regulation, the two key areas that affect every internet platform, as well as subsector specific regulation to help investors get perspective of regulatory moves. We expect regulatory overhang for the sector to remain. The government, in our view, hopes to safeguard data security, promote fair competition and social consideration, while continuing to encourage innovation. The regulatory uncertainty may drag valuation multiple, and operational change and social responsibility may affect earnings. |
June 30, 2021 Southbound aggregate net flow stayed relatively flat in June vs historical levels, with an estimated US$700 mn of inflow, driving YTD total inflow to US$59 bn. While the net flow was lacklustre relative to recent months, we saw significant sector rotation, with gross turnover impact in June staying high at 30% of the value traded. Southbound investors now hold a free-float stake of 12%, close to the all-time-high level. For the past month, we see Southbound investors rotating to Consumer Discretionary (US$2.9 bn) and Healthcare (US$1.9 bn) stocks, while selling Financials (US$1.9 bn) and Communication Services (US$1.6 bn), traditional favourites. |
June 29, 2021 China Oil & Gas Sector: Life after US$70: Revising our pecking order Our positive stance as illustrated in our APAC O&G Sector report back in April has played out. The recent Covid-19 resurgence in Asia has had muted effect on global oil demand recovery, and with a synchronised OPEC+ effort in putting barrels back to the market plus a more subdued response from US shale oil producers, global oil S/D balance continues to improve – as evidenced by the eight consecutive weeks of US crude inventory drawdown. The CS Global Energy Team forecasts US$70/bbl Brent for 2H21, but risk is skewed to the upside as we head into the summer peak demand season. |
June 28, 2021 China Communication Infrastructure Sector: Investment ideas from 'New Infrastructure' China's 'New Infrastructure' is one of the key initiatives in the National 14th Five Year Plan. China 5G capex is controlled, up just 5% YoY in 2021, but 5G's prevalence has been a driving factor for cloud penetration and edge computing. China tier 1 hyperscale capex rebounded by 14% YoY in 2020 and is expected to maintain 14%/13% YoY growth in 2021/22E, driven by China's migration to cloud, booming data traffic demand and digitalisation. We expect more detailed policies to accelerate developments by providing incentives, and enterprises will also drive their initiatives to support the national missions. |
June 21, 2021 China Software and IT Service Sector: Key takeaways from China Cloud Day We hosted our China Cloud Day on 16-17 June by virtual conferences, and met with various companies in the China cloud sector value chain, including PaaS, IaaS, SaaS, DaaS, IT service and IDC players. We see digitisation demand remains sticky across industries post pandemic, demonstrated by social e-commerce and ERP. As a result of solid SaaS growth expectation, SaaS/subscription revenue should gradually take an increasing share among total revenue. Attendee companies see regulatory environment changes led to different levels of impact, but mostly manageable. |
June 17, 2021 China Auto LiDAR industry: A promising sensor for vehicle autonomy LiDAR, or light detection and ranging, is an active remote sensing method that uses light emission and return data for measuring objects' exact distance, thus, forming high-resolution 3D 'point cloud' without substantial backend processing. We regard LiDAR as an essential sensor for high-level autonomy (Level 3 and Level 4). We are bullish on LiDAR sensors' structural growth. We believe two drivers – increasing high-level vehicle autonomy penetration and falling LiDAR price – will notably boost LiDAR's demand in China. Given Chinese LiDAR suppliers' faster mass producing along with mature scanning technology, Chinese smart EV makers could solidify their leading position in high-level autonomy. |
June 16, 2021 China Market Strategy: Revisit after census release: how to position for China's demographic changes Newly released China's census reflects that the nation is facing dual challenges of ageing population and slow-growing child birth. As the continuing most populous country globally, China has a rapidly ageing population, with new births and total fertility rate falling dramatically. Credit Suisse CQi's yearly survey of maternity hospital doctors across China in Nov-2020 provided a rare snapshot of new birth number in the nation and revealed the fading effect of the two-child policy. Against the backdrop of China's demographic changes, we expect to see a broad set of structural changes in the medium to long term. |
June 9, 2021 Asia Pacific Thematic Strategy: Leisure: Resuming the 150-year trend A steady rise in leisure time is one of the longest running themes in human history, with work hours falling for 150+ years due to regulations, negotiations and rising productivity. All time saved by automation has not gone into leisure, but that is changing too. An equally important trend is the growing commercialisation of leisure, helped by a growing global middle-class and technology-driven cost cuts making leisure more affordable: it is no longer a preserve of the ultra-rich. Leisure's share of consumption is rising across economies. |
June 8, 2021 China Medtech Sector: Transcatheter heart valve market marching to a new beat Transcatheter valve surgery has changed how structural heart diseases are treated. TAVR was the first to be commercialised, and TMV surgeries are currently the next focus due to their large medical need. We estimate that by 2025, we could see ~45,000 TAVR annual operations in China. Looking at the future competition landscape of the second generation TAVR market, in this report, we have analysed the domestic players. The TMVr/TMVI markets are large potential markets. We share our market model for TMV in this report, and expect the combined TMVr/TMVI market to exceed +Rmb10 bn by 2029E and reach ~Rmb7 bn and Rmb4 bn, respectively. |
June 3, 2021 China Healthcare Sector: ASCO 2021 calendar: China biotech presentations to watch ASCO is one of the biggest events of the year for oncology stocks. The conference will run online from 4-8 June 2021. Late breaking abstracts will be released at 5 am (HKT), 4 June the day before the meeting gets under way. Other live sessions will be livestreamed as scheduled and be available online until 6 July. To facilitate investors to watch ASCO'21 online sessions, we have created an ASCO'21 calendar to summarise 50+ key posters and oral presentations from companies under our coverage as well as from other China/ex-China pharma/biotech companies with products of interest. |
June 1, 2021 Asia Oil & Refining Sector: Speed bumps along the recovery pathway The recent COVID-19 variant has led to a number of countries re-imposing semi-lockdowns, bringing back memories of the demand destruction a year ago; but the destruction is not likely to be as severe this time, given that governments are now fully aware that a complete lockdown is not feasible. Latest mobility data indicates that current activity levels are only 28% below pre-COVID levels vs a 51% decline in Apr-2020. At the same time, the positive mobility trends in the West heading into summer, and better vaccination rates, should mitigate the near-term setback in Asia. |
May 31, 2021 Asia Technology Strategy: Soft patch does not derail the 5G ramp We maintain smartphone units growing +8.7%/+4.4% to 1.39 bn/1.45 bn in CY21/22 netting a stronger 1Q21 and weaker 2Q21 with a potential 2H21 pick-up from easing Asian COVID-19 restrictions, normalising China from low 2Q base, and re-opening in US/Europe which shifts screen time from PCs/laptops toward mobile devices and could refresh to capture more experiences. We maintain 5G units growing from 255mn in 2020 to 551mn/707mn in 2021/22 and 1.3 bn by 2025. 5G in 1Q21 paced above our estimate at 125 mn vs prior 110 mn, driven by China, as MIIT reported 80% of devices built as 5G. |
May 14, 2021 China Market Strategy: How to trade on reflation? Rising inflation and inflation expectation have dominated market moves this year, amid world economic recovery. Divergence between PPI and CPI is gaining traction in China. Commodities prices have experienced strong growth over the past 3-5 months, driven by recovering downstream demand and tight supply amid environmental protection and safety- related policies. Our global team revised up its metal prices forecasts to reflect the positive outlook for aluminum and copper. Our sensitivity analysis suggests that producers of commodities like aluminum, copper and oil are likely to be the major beneficiaries, while other sectors will face cost pressure with varied ability to pass-through to downstream. |
May 14, 2021 China Metals & Mining: Bullish in longer term despite short-term fluctuation China demand remains very solid and overseas demand is expected to add fuel. We perceive investors are skeptical on China's macro turnaround and presumably demand slowing down. We argue demand is resilient in China. With easing liquidity in developed countries, we believe copper and aluminium prices are most geared to the upside and supply constraints to further add fuels to rising prices. Supply constraints will benefit copper upstream and aluminium middle stream. Aluminum smelters' margins at Rmb5,000-6,000/t given strong demand, capped supply (45mtpa) and weak alumina prices. Our global team revised up 2021E copper/aluminium prices 16%/18% to US$9,200/2,339/t and 2022E price 6%/39% to US$7,500/2,640/t. |
May 13, 2021 China Online Healthcare Sector: The force awakening: Online healthcare growth accelerating Online healthcare's weight in the total China healthcare market increased from 1.6% in 2015 to 2.7% in 2019 and is expected to reach ~19% in 2030, at a CAGR of ~30% in the next 10 years. The COVID-19 pandemic in 2020 has fueled online healthcare growth and left a sustained impact. For online pharmacy, we had estimated a higher-than-market total GMV of Rmb340 bn in 2020, and it could reach ~Rmb2 tn by 2030, at a CAGR of >19% over 2020-30. We think CDSS is close to the point of being commercially deployed at a large scale. |
May 11, 2021 Onshore Chinese mutual funds are increasingly driving the A-share market. We estimate that onshore mutual funds now hold nearly Rmb9 tn worth of A-shares, representing 35% of A-share's free float market cap. Weakening onshore sentiment likely led to a significant reversal of mutual fund inflows following Lunar New Year. More recently, we have seen mutual funds unwinding "crowded" stocks. We highlight the different types of funds, AUM trends, and take a detailed look into different funds' holdings. We also assess the interconnectedness of onshore funds to identify potential crowding risks. |
May 5, 2021 Global Themes Monitor: Alternative Energy (Vol. 2): Hydrogen, Decarbonisation and Renewables The themes of climate change, clean energy, and decarbonisation continue to gain traction with various stakeholders across the world. In this second edition of the Global Themes Monitor on Alternative Energy, we highlight recent CS research reports on the theme. During the recently held 'Leaders' Summit on Climate', hosted by the US, several countries raised their 2030 greenhouse gas (GHG) emission reduction targets. The US clearly aspires to regain its prominent position in efforts towards handling climate change. CS US ESG research team has analysed various pieces of the puzzle, which need to fall in place for the US to reach its ~50% GHG reduction target. The US Utilities team estimates a sharp rise in renewables/storage capex to meet carbon reduction targets. |
May 3, 2021 We update our tracker of 49 listed China semiconductor companies' revenue and inventory to 1Q21. China fabless, IDM/foundry, and OSAT (outsourced semiconductor assembly & testing) sectors all witnessed above-seasonal growth in 1Q21 exiting the quarter with sub-seasonal inventory days. Notably, the China fabless sector had sub-seasonal inventory for three quarters (3Q20-1Q21) and inventory exiting 1Q21 was 34 days below three-year seasonality. This is positive for foundries and OSATs. |
May 3, 2021 Year-to-date, Southbound investors have posted net inflow of nearly US$53 bn. The month of April has seen net inflow of US$5.6 bn, ranking as the second-highest April flows to date, after the US$6.8 bn in April 2015. Gross turnover impact has reverted back from 30%+ levels seen in March towards the longer term average of 25%. Southbound investors now hold a free-float stake of 12%, close to the all-time-high level. For the past month, we see Southbound investors buying Consumer Discretionary (US$2.7 bn) and Communication Services (US$2.2 bn) stocks, while selling Financials (US$1 bn). |
April 29, 2021 China Market Strategy: Ride on strong May holiday, with 200 mn people on the move. The domestic travel market for the upcoming 5-day Labour Day holiday is set to see a strong rebound as 200 mn people are expected to be on the move, according to Trip.com. Advanced booking data demonstrates a full recovery of domestic tourism, even stronger than that in 2019. We see the spike in the both volume and ticket prices, consistent with the robust sequential recovery trend seen post Chinese New Year. With the domestic outbreak well under control, we stay positive on domestic travel demand normalisation to drive revenue recovery for travel agencies and airlines in China this year. Vaccination is pushing forward globally but still with uncertainties given increasing variants. |
April 20, 2021 Macau Gaming Sector: Structural constraints to cap upside While gaming revenue (GGR) has been tracking way below expectation on regulatory controls, sentiment is positive on hope of a recovery. Structural headwinds that prevent the stocks from rerating include: Slower top-line growth as a result of: (1) ongoing regulatory measures that permanently impair top player demand, and (2) player-mix shifting towards mid-tier and leisure players; lower margin due to (3) elevated business acquisition cost and reduced quota for non local labour structurally; and valuation multiple being dragged by (4) weaker FCF flow through, together with (5) license renewal uncertainty. |
April 14, 2021 In Mar, the overall online sportswear industry grew 25% YoY on Tmall/Taobao, a slowdown from the high growth in Feb due to a low base and the CNY. This brings 1Q21 to +37% YoY growth, which we deem as healthy demand. Mar was a volatile month, given the Xinjiang cotton issue, and we saw divergence in the overall growth trends between foreign and domestic brands. Distributor expects foreign brands to decline 20% in May, -10-20% in 3Q21, before achieving a flat growth in 4Q. In 2021, the distributor now sees 20-30% decline for foreign brands. |
April 12, 2021 APAC Oil & Gas Sector: Raising oil price forecast: Staying bullish We continue to expect a favourable global oil S/D balance for 2021, which should be supportive to the oil price recovery as seen YTD. Global oil demand should see an extended recovery as we head towards summer, and global supply remains synchronised, with US producers showing a more disciplined manner towards increasing output in this upcycle. CS raises 2021/22 Brent forecast to US$66.5/US$68 (from US$59/US$63), as we now expect a quicker normalisation of global crude inventories by 2Q21 (vs 4Q21 previously). Despite the encouraging macro condition, APAC Oils have underperformed oil prices YTD and are still trading at below-historical multiples. |
April 12, 2021 China Market Strategy: Ride on domestic recovery and resilient export. The combined economic figures for January and February 2021 reflect that China's economic recovery continues to gain momentum. We analysed two-year CAGR for major economic indicators and found an uneven recovery, with exports and industrial production leading the recovery versus less impressive FAI and retail sales. We expect China to have a sustainable economic recovery on the back of gradual domestic recovery and resilient export on improving global economy. Our FY20 results review of China/HK companies covered by us suggests a strong pick-up momentum of corporate earnings. |
April 6, 2021 Asia Semiconductor Sector: Consolidating landscape and solid demand support price recovery We update our raw wafer supply/demand model, and maintain the supply side expectation for global 12" raw wafer capacity growth slowing down from an 8% CAGR in 2017-19 to a 3% CAGR in 2020-22. However, we are lifting 12" wafer demand from 1% CAGR in 2017-19 to 10% CAGR in 2020-22 on the back of product drivers including the 5G smartphone ramp, continued WFH demand, data centre investment reacceleration, and now supplemented by improving auto/industrial demand recovery. We expect 12" raw wafer utilisation to improve from 80-85% in 2019/20 to 92%/97% in 2021/22. For the mature nodes, 8" raw wafer utilisation should be at 95% while 6" at 80-85%. |
March 25, 2021 China Internet Sector: Emerging Consumer Survey 2021 deep dive As the Credit Suisse Research Institute publishes the 2021 edition of the Emerging Consumer Survey, we take a deep-dive into China's internet space. For this sector, the increased adoption of online services across almost all categories has been the trend during the pandemic and is here to stay, reflecting the structural changes and the lasting effects COVID -19 has brought to consumer behaviours. We discover structural changes including rise of e–grocery, growing popularity of online games and increased acceptance of online education. |
March 22, 2021 APAC Quantitative & Systematic Strategy: Enhancing China exposure with A/H aware portfolios As onshore China's importance grows, allocating between on- and offshore is an increasingly critical decision. The markets have different underlying dynamics, sentiment and correlation profiles. A common strategy looks to exploit the A/H differential by favouring the "cheaper" line. Such a strategy has generally underperformed. Our China Strategy team has shown that the equity risk premium (ERP) spread can help reconcile the price targets of A/H shares (link). Over a shorter time horizon, we identify mean reversion and the average A/H level as the two most important drivers from a time-series perspective. We create an optimised signal for predicting moves in individual A/H pairs. |
March 22, 2021 China Market Strategy: Dual Circulation 2.0: Energy security and revolution (能源安全与变革) The security of China's strategic resources and energy has become more important than ever before. Against this backdrop, in 2020 China's top leaders introduced two high-level strategies, the 'Dual Circulation' development model and the target of net-zero carbon emission by 2060, underscoring its focus on domestic energy security and energy self-dependency and greener development. The carbon neutrality goal, together with peaking emission target by 2030, is the nation's first long-term climate goal. China needs to drastically shift from fossil fuel to renewable energy to achieve this. In this third part of our Dual Circulation series, we deep dive into China's energy security and revolution roadmap to achieve carbon neutrality by 2060. |
March 15, 2021 China New Energy – Hydrogen: How best to play the China hydrogen theme In our second Hydrogen series in APAC, we deep dive into China's hydrogen market and focus on the demand side of the value chain. We identify the transportation market as presenting the largest near-term opportunity, within which FCEV heavy-duty trucks stand out. We believe demand inflection point could be sooner than expected – our TCO analysis suggests an inflection point by 2024 as we expect FCEV heavy-duty trucks to reach parity with ICEVs, driven by: (1) lower energy module cost; (2) favourable subsidy scheme. Moreover, a lower supply cost should drive grey/brown hydrogen price parity. By 2025, we expect hydrogen pump price to be competitive vs diesel at US$60/bbl oil thanks to lower distribution cost, offering consumers a more compelling case to switch to FCEVs. |
March 15, 2021 China Metals and Mining Sector: Positive drivers remain intact despite rising volatility Higher demand and low inventory support copper and aluminium prices. With global easing liquidity, we expect copper and aluminium demand to edge higher in 2021, mainly supported by the ex-China economic recovery. We forecast China demand to grow 2.5% YoY for copper and 4.1% YoY for aluminium in 2021. With relative tight supply of copper scrap, we forecast copper price to remain above US$3/lb in 2021 as a result of resilient demand and very low inventory. Within the industry chain, upstream copper concentrate producers are in a dominant position and take majority of the industry's profits, given the sub-US$50/t TC price. For aluminium, due to improving pricing power, downstream aluminium manufacturers should enjoy much higher profitability amid potential newly added-in capacity to cap upstream alumina price hike. |
March 10, 2021 China Utilities and Renewables Sectors: What to expect over the next five years 2021 marks the beginning year of 14th Five-year Plan (2021-25) in China, and major policies for the utilities and renewables sector are likely to be set this year. We believe energy mix improvement would be the key driver behind all subsector demand-supply changes, with clean energy the key winner. Based on our projection, renewables (solar and wind) as a percentage of China's energy mix (~5% in 2020E) is set to double in 14th FYP (10%) and triple in 15th FYP (16%). Natural gas remains a clean energy solution and should expand further in the medium term (13% by 2030E per CSe), while other traditional fuel types (coal-fired power, etc.) may see continuing drops in % contributions. With solar currently at grid parity, we raise China solar demand to 103GW per year on average in 14th FYP (previous forecast: 67GW), meaningfully higher than 42GW per year in the 13th FYP. |
March 2, 2021 Themes Monitor: Electric Vehicles: Strong momentum carrying forward into 2021 Norway is a good example of how govt. policies can encourage faster transition to electric vehicles - 2020 marked another milestone in the journey as battery EV volumes crossed 50% of annual PV sales for the first time. In 2020, European regulations accelerated the sales of EVs, reflected in more than doubling of volumes over 2019 – the trend continued in January as well, despite ~25% decline in overall PV sales (lockdowns). In China, strong demand for SGMW's Mini EV demonstrates the large potential of mass market EV models. These developments augur well for the entire value chain including battery makers and mineral producers. Rise in lithium prices over past few months has encouraged mineral companies to move ahead with capex decisions. |
March 1, 2021 By end-2020, China had built 718k 5G BTS (70% of the global), covering more than 300 cities and all the prefecture-level cities. Industry participants expect more than 1.0 mn 5G BTS to be built in 2021, in line with CSe. China Mobile's 700MHz and China Unicom's 2.1GHz tenders are believed to take place possibly in Mar/Apr, while China Telecom should also launch its tender in 1H21. The penetration of 5G smartphones exceeded 70% by end-2020, with approx 90% penetration in the Rmb2,000+ segment. China Mobile expects more than 200 mn units of 5G smartphones and 100 mn other smart connected device shipments in 2021. |
March 1, 2021 YTD, Southbound (SB) investors have posted net inflow of US$50 bn, representing nearly 60% of the full-year inflow in 2020. The recent sharp reversal may hint a slowdown of inflow going forward. The monthly gross turnover impact has stayed above 40% and the free float stake has remained at 12.5%, close to the all-time high level. The outflow on 24-Feb-2021 reached US$2.6 bn, the largest one-day outflow since the beginning of the programme and representing a 3-sigma move. By cross-referencing the outflow composition by stocks and the onshore mutual fund holdings, we believe the outflow is likely driven by fund redemption. Onshore mutual funds have become a key marginal buyer within the SB community since 2020. |
February 26, 2021 China Healthcare Sector: FY20 earnings preview: Buy the dip as we maintain our positive view China healthcare stocks have seen pressure recently, but we do not think there are fundamental issues and remain positive as we see this as sector rotation. Based on 10-Feb price, stock prices are down 14% for CS covered biotech stocks on average, 16% for CRO, 14% for devices, 16% for pharma, and 9% for other covered names. We maintain our highest conviction in biotech, CRO, and innovative device with an average 36%, 25%, and 15% upside implied by our target price, respectively. Within our healthcare coverage, our top picks as per each of our preferred subsectors include Zai Lab in the biotech space, Wuxi Bio in the CRO space, and Venus Medtech in the innovative medical device space. |
February 23, 2021 China Cosmetics Sector: Online cosmetics sales in Jan-2021 grew 41% YoY For Taobao/Tmall, online sales accelerated to 41% YoY in Jan from +28%/+32% in 4Q20/2020. Overall skincare (excluding 'medicinal') growth increased to 54% YoY, while colour cosmetics growth declined to 20% YoY. 'Medicinal' skincare also outpaced overall industry growth at +51% YoY in Jan. Our positive view on the cosmetics industry remains unchanged on increasing penetration levels among consumers, the trend of "medicinal" products, and premiumisation. The story of the leading domestic brands gaining market share is also playing out, as seen on the Taobao/Tmall platforms. Among the stocks we cover, our top pick is Proya, on its strong brand momentum in the 'Proya' and 'Timage' brands to gain market share, strength in online channel, and brand premiumisation. |
February 19, 2021 Global Themes Monitor: Alternative energy: Hydrogen, Offshore wind, EV batteries There is a growing global focus on sustainable development, particularly in the post- COVID19 world. Europe has been leading the path for a while now and in September 2020, China, for the first time, announced a fixed timeline to have CO2 emissions peak (2030) and achieve net-zero emissions (2060). President Biden announced US is rejoining the 2015 Paris Agreement on Climate Change and subsequent announcements from the White House clearly show the intent that US wishes to play a prominent role on this front. |
February 18, 2021 Jan-2021 discounts are still +4 pp YoY steeper at 24% but have narrowed from +6 pp in Dec 2020. We expect brands' inventory levels to continue improving into 2021 (currently still 1-2 months higher vs normal levels). Narrowing discounts and new product launches at premium pricing support our positive view on the sportswear sector. While growth moderated in January, we believe it to be more of a seasonal impact and expect demand in 2021 to remain strong on recovery of sports events, increasing health consciousness and DTC channel shifts. |
February 16, 2021 China Property Management: Growth of top players remains intact We estimate the scale expansion of the top-100 players will remain intact at a five-year CAGR of 22%. With a 21% CAGR in traditional property segments (i.e., residential/office/ retail properties), new property segments like industrial parks, schools, and hospitals will serve as additional growth engine and we estimate the fee CAGR at 27% over 2020-25E for the top-100 players. On the community VAS, we expect the revenue to grow by 37% p.a. for the top-100 players on the back of more diversified services and continued expansion on the customer base, The monetisation ratio (i.e., community VAS revenue-to-basic services revenue) will expand by 1.5 pp p.a. and reach 17.5% in 2025 (vs. 10% in 2020) |
February 10, 2021 China Market Strategy: Dual Circulation 1.5: Technology self reliance (自力更生) – switching power China's IGBT (insulated gate bipolar transistor) development serves a good purpose – "Dual Circulation" in a greener world. Known as the "heart" of power semiconductor devices, IGBT is the core device widely used in areas such as new-energy vehicles, railways, smart grids, renewable power inverters, and home appliances. China has seen explosive growth in demand over the years but still has low self-sufficiency, resulting in a key technology bottleneck. We believe IGBT will play a critical role in China's energy-mix shift towards renewable energy, import substitution, and consumption upgrade, in line with the goals of the "Dual Circulation" strategy. |
February 8, 2021 We discuss China-developed COVID-19 vaccines' technology platforms and clinical data, and their commercial prospects, including capacity, pricing, and potential role in overseas supply. By YE21, we estimate the total capacity of China COVID-19 vaccines could exceed 2.5 bn doses, and China has ~500 mn doses of overseas orders. Logistics-wise, inactivated vaccines have an advantage as they can be stored in 2-8ºC temperature. The Chinese government is offering a free vaccination programme and we believe it has strong determination in getting people vaccinated. Note we only consider the domestic market for China-developed vaccines here. Additionally, our model suggests China COVID-19 vaccine sales could be ~US$14/12/9 bn in our blue sky/base case/grey sky scenarios in 2021. |
February 5, 2021 China TMT Sector: How to invest in China's cloud China's cloud migration will accelerate on digitisation/domestic substitution. China's 2021 IT budget recovery (7.2% YoY), 5G proliferation and favourable policies support faster conversion. Key themes: (1) Robust demand in China IaaS market driven by Internet/enterprise applications and multi-cloud adoption, public/private cloud approach converge among peers. (2) IDC benefits from rapid data volume growth with 16.7%/29.2% CAGR (2019-24) from carrier-neutral/hyperscale datacentres. (3) Fragmented SaaS market will benefit from fast penetrating IaaS and a wide adoption of cloud native tech, ERP/e-commerce SaaS will enjoy fast growth due to high standardisation and customer value-added. |
February 2, 2021 Global Telecoms Sector: Broadband: Wiring up the world Our Global Telecoms team unveils aggressive forecasts for fixed broadband growth. Due to COVID-19, politicians and regulators are encouraging investment to bridge the 'digital divide', and we expect total high-speed broadband subscribers to reach 1.0 bn by 2023. Due to COVID-19, fixed broadband access has become a necessity, highlighting the 'digital divide' to politicians. For broadband providers, our analysis shows incremental ROIC from fixed broadband access is above cost of capital in most markets in our coverage universe (though China is an exception). |
February 1, 2021 YTD, Southbound investors have posted net inflow of US$37 bn, representing more than 40% of the full-year inflow in 2020. History suggests that significant increase in net flow is likely to be followed by additional inflow in the short term. Communication Services see the bulk of the sector inflow (US$17 bn), driven by inflow to Telecom (US$6.6 bn) and Media & Entertainment (US$11 bn). Tencent is the most bought name, with US$10 bn inflow. Our Southbound strategy has returned flat YTD. |
January 28, 2021 China Cosmetics Sector: Online tracker suggests leading domestic Chinese brands are gaining share Overall online cosmetics grew by 32% YoY in 2020, albeit slowing down from 49% YoY in 2019 on Tmall/Taobao. Overall skincare ex "medicinal" growth slowed down to 31% YoY (2019: 57%), while colour cosmetics growth was roughly stable at 32% YoY. Leading domestic brands market share increased 4.1pp to 15.8%. Remain positive on cosmetics sector; top pick Proya. Our view of leading domestic brands gaining market share is also seen on Taobao/Tmall platforms. Proya remains our top pick on strong brand momentum, strength in online channel and brand premiumisation. |
January 20, 2021 Global Semiconductors Sector - The uneven rise of China's IC industry In a follow-on to our China semiconductor reports, including China's ascent and supply chain localisation, this report updates on the US-China policy implications, China's manufacturing, design and tech supply chain, and the fabless industry map. Leveraging our full global semis team, we also take an in-depth look at equipment, materials, RF, Power, CPU, national IC fund investments, China fab projects, and profile 21 covered and Not Covered China IC companies' business overview, drivers, near-term outlook, and valuation. The US is looking to protect its leading 48% share consisting of its leading IDMs, fabless, equipment and EDA/IP, while China is looking to gain self-sufficiency and increase its 5% share, which lags its 20-25% share of tech demand and 30-40% hardware share. |
January 20, 2021 China Market Strategy - Dual Circulation (part 1): Technology self-reliance (自力更生) Faced with the unprecedented global pandemic and heightened geopolitical tensions, China introduced the "Dual Circulation" model as the guideline for next phase of development, to strategically rebalance the economy and aim to achieve a more sustainable development ultimately. We expect "Dual Circulation" will focus on technology self-reliance, import/supply-chain substitution and domestic demand expansion. It's also the right timing to roll out this strategy given China's significant domestic demand upgrade and readiness of hard and soft infrastructure. We expect China's technology self-reliance initiatives to bring profound changes along with associated investment opportunities. We pick the long-term winners with focus on technology competitiveness, R&D capacity, product design/development sophistication, import replacement potential, and management capability over valuation. |
January 20, 2021 China Industrial Machinery - Riding the capex upcycle and benefiting from localisation As China's economy further gains momentum in 2021 and overseas economies are likely to restart helped by vaccines, we are optimistic on China's manufacturing capex and industrial machinery demand, thanks to an industrial profit rebound and high capacity utilisation rates. CS analysts in tech, auto, renewables and consumer goods are positive on their sectors, supporting our view. We expect manufacturing upgrades and technology progress to drive advanced machinery to further proliferate among various industries. Localisation is a multi-year trend in advanced industrial machinery markets and domestic companies would benefit more from the upcycle. Among sectors, we prefer automation, laser equipment and PIMM (plastic injection moulding machines). |
January 18, 2021 China's equity capital markets are undergoing a significant re-alignment. The key trend is a "return home" with increased listings occurring on the STAR board and a dramatic increase of large IPOs and secondary listings in Hong Kong. We expect this trend to continue. At the same time, recent announcements such as QFII/RQFII reform should further expand the depth of China's onshore markets. The increasingly tense Sino-US backdrop is likely to drive further "secondary" listings in Hong Kong and more CDR/STAR board listings. Longer-term, we expect these trends to continue to drive Southbound and Northbound Stock Connect usage and promote a more robust China capital market. |
January 15, 2021 China Consumer Sector: 2021 Outlook: Out-of-home consumption to gain steam Despite near-term headwinds from COVID-19 resurgence, normalising consumer behaviour should lead to a strong rebound in out-of-home spend vs the fading at-home consumption, while some behaviour (e-tailing) might linger for longer. Inflationary pressure manageable for leading players with strong brand equity and supply chain, given the more favourable competitive dynamics. Chinese brands to further gain share (especially in sportswear and cosmetics). Rotating to discretionary sectors that are attractively valued. We upgrade sportswear to our top pick among sectors, as we see secular trends post COVID. We remain positive on restaurants and white goods, but turning slightly less constructive on baijiu and beer. Small appliances and supermarkets are our least preferred sub-sectors. We prefer post-COVID recovery plays with secular growth and reasonable valuation and suggest investors accumulate on near-term pullback. |
January 15, 2021 China Sportswear Sector: From a jog to a sprint We turn bullish on the sportswear sector, on secular trends such as increasing health consciousness among consumers and accelerated DTC channel shifts by brands post COVID. Moreover, sports events are likely to restart in 2021. We expect the sector to recover from low-mid single-digit growth in 3Q20 to 8-10% growth in 4Q20, followed by growth of 20-25% in 2021 on a low base. While brands have sharply discounted their products to clear inventory, and we expect discounts to be higher YoY into 2021, we expect the market to overlook this, should growth improve sequentially. COVID has accelerated brands' shift towards the DTC channel, particularly on the e-commerce platforms, and we expect this trend to continue. We estimate that well-managed direct retail stores and e-commerce platforms should have a higher operating margin profit of 2-3 pp than the wholesale channel. As such, an increase in e-commerce contribution would be a long-term positive. |
January 11, 2021 Asia Technology Strategy: CS Greater China Tech Conference Credit Suisse's Virtual Greater China Tech Conference over 6-8 January featured record 72 corporates split between hardware/semiconductors and Internet, four expert speakers, and over 700 registered investors for a look into 2021 business trends. Our report includes takeaways from 37 of the 45 hardware/semiconductor companies and 11 Internet companies. The conference tone was uniformly positive. Companies are upbeat on demand, with COVID-19 second-wave stay-at-home demand, online education and supply constraints keeping PC and home consumer orders healthy, supplemented by 1H21 recovery in hyperscale/cloud, expected doubling of 5G units to over 500 mn, and improving auto/EV/industrial as the vaccine rolls out. Offsets include FX appreciation and higher component costs, though most companies are reporting a sellers' market to start the year. |
January 8, 2021 Whilst we have a positive view on the sector, post the strong outperformance of the sector (rallied ~55/70% in A-/H-share in 2020), our sector and stock selections are based on clear growth profile and identified catalysts. We are most bullish on the biotech, contract research organisation (CRO), and medical device subsectors on their potential for continued innovation and relatively low policy exposure risk. We estimate innovative drug sales in China could grow at CAGR of ~18% over 2021-23, outpacing the overall drug market growth. |
January 7, 2021 China Passenger Vehicle Sector: 2021 outlook We expect China passenger vehicle demand to increase 15% YoY in 2021, well above auto makers and industry associations' relatively conservative forecast of 7.5-9% YoY growth. Key drivers are (a) cyclical demand recovery after three years of continuous volume decline in 2018-20, which is estimated to boost 2021 PV annual demand by ~6 pp. (b) low-base effect amid COVID-19 – volume down 45% YoY in 1Q20, which stand-alone offers ~12 pp annual growth for full year 2021. |
January 7, 2021 China Insurance Sector: 2021 Outlook: An uneven recovery We remain constructive about long-term fundamentals of the insurance sector, but anticipate an uneven recovery in 2021 following severe disruption of sales by COVID-19. For most life insurers, 'open-year' sales of 1Q21 are likely to surprise the market on the upside, driven by healthy demand of saving-type insurance post COVID-19, falling attractiveness of competing products, early and proactive preparation by insurers, and low base. On bond yield, we estimate China's 10Y government bond yield to sustain at a healthy level of over 3.1%, supported by robust outlook of economic recovery, but partially offset by reduced issuance of local government bonds. |
January 6, 2021 China Internet Sector: 2021 outlook: Structural growth versus regulatory uncertainty We see a lifted growth ceiling for the online games, food delivery, and e-commerce segments post COVID. With more offline businesses shifting online and enhanced algorithm boosting ROI, the ad market is likely to continue to see solid growth in 2021. Despite tough comps for game revenue next year, we believe that industry's APRU/paying ratio are structurally higher post COVID, supported by a perception change towards online game and good IPs. |
January 5, 2021 China LED Sector: Mini LED not yet mainstream but triggers capex buy We attended GGLED (a Chinese LED research institute) conference in December 2020. GGLED expects the global market value of mini/micro LEDs to reach Rmb8.9 bn/Rmb8 bn in 2022, with 2021-22 CAGR of 53%/138%. From a capex perspective, mini/micro LED display is definitely the next driver for the China LED sector. According to GGLED, there were nine major new mini/micro LED projects announced in China in 2020, with a total investment of Rmb17 bn. |
January 5, 2021 Asia Technology Strategy: 2021: Growth outlook remains robust Despite significant negative impact of COVID-19 on economic growth, surprisingly, overall tech demand held up quite well in 2020, with demand for notebooks globally and 5G phones in China particularly strong. Our underlying structural positive view on tech has been anchored on two key product cycles – 5G and cloud/datacentre (and related AI/ML and data analytics applications). Demand for both these themes turned out quite robust even in 2020 (over the year we raised our 5G unit forecasts for 2020/21 by 4-5% to 257 mn/528 mn), and we expect these two themes to stay strong throughout 2021 and beyond. |
December 18, 2020 China Technology Sector: Outlook 2021 – A bright year ahead with multi-structural themes After a 7% decline in 2020, we estimate smartphone growth of 9% YoY for 2021 with higher 5G penetration (38%), and with Apple and OVX unit growth offsetting Huawei declines. (We expect Huawei to be constrained on mobile 5G chips but not 5G BTS chips as it has stocked up for 2021). We are most positive on camera upgrade on 6P/48-64MP migration but cautious on pricing pressure in other specs. Despite recent pullback in the Apple supply chain due to a reset on AirPods (revised down to 120 mn 2021) and 1H21 order expectations, the Chinese supply chain would benefit from vertical integration. |
December 18, 2020 China e-commerce and Consumer Sectors: Framing the impact from the rise of e-grocery The online habit cultivated post COVID, improved fulfilment infrastructure, new distribution channels percolating lower tiers (community group purchase) and brands shifting online has set e-grocery to accelerate starting 2021, propelling online penetration to reach 33% in 2025E from 10% in 2019. Community group purchase (Rmb1.5 tn) will be a major industry disrupter by best satisfying consumers' pursuit of value-for-money products, but with limited SKUs (stock keeping unit). Traditional e-commerce (Rmb2.4 tn) and supermarket would remain important channels carrying wider selection. Omni-channel and front-end warehouses (Rmb320 bn) offer on-demand delivery with best user experience. |
December 17, 2020 China Alcoholic Beverages Sector: 2021 outlook: Riding the higher premiumisation trend We expect the fundamental backdrop for premium brands to remain strong in 2021, underpinned by continued demand recovery and tight demand-supply dynamics. As 2021 marks the first year of the 14th Five-Year Plan (14th FYP), we expect the premium brands, most of which are SOEs, to unveil an encouraging five-year plan. We expect the premium segment to continue with its fastest volume growth at a CAGR of 7.1% over 2021-25, outgrowing the industry at -0.8%. |
December 16, 2020 China Market Strategy: China Outlook 2021: Year of normalisations We continue to see strong momentum in 4Q20, evidenced in expansionary PMI, recovering retail sales and a positive surprise in exports, and confirmed by CQi's key indicators updates. Looking forward to 2021, Compared to gradually improving infrastructure and unexciting property investment, consumption should become a major driver of economic growth, in line with government policy. A global economic recovery, with assistance of vaccines, would help support China exports. |
December 15, 2020 China Consumer Sector: The rise of the Chinese brands From a top-down approach, considering industry growth, landscape, and penetration levels in China vs other markets, we see potential in six consumer sub-sectors – infant milk formula, colour cosmetics, snacks, condiments, skincare, and soft drinks for the Chinese brands. These six sub-sectors have penetration gap of 25-38 pp against comparable markets (Japan, Korea, and the US) and local brands have also displayed potential to gain market share. While the remaining sub-sectors have achieved comparatively high penetration rates, as we dig deeper, we find that there are still one or two brands in these sub-sectors that we think have the potential. |
December 9, 2020 Hydrogen: A new frontier: Part 2: A primer on the APAC value chain Hydrogen is set to become one of the most important and fast-growing low-carbon energy sources in the next 30 years, accounting for 18% of primary energy consumption by 2050 (vs ~0% currently), according to BP Energy Outlook. This represents a US$2.5 tn addressable market that spans the value chain. China, the #1 energy consumer globally that accounts for one quarter of world consumption, shocked the market when it announced its target to reach net-zero by 2060. Hydrogen will play an important role in achieving this target, in our view. |
December 8, 2020 China Healthcare and Insurance Sectors: Prime time is coming for commercial health insurance The commercial health insurance premium would exceed Rmb1.9 tn by 2025E, implying an 18% CAGR under our base case, driven by (1) continued growth of healthcare expenditure, (2) rising funding contribution from commercial health insurance to total healthcare expenditure, and (3) government policy direction to lower out-of-pocket healthcare expenses. Our bull case, based on accelerated growth of healthcare expenditure and health insurance funding, suggests that health insurance premium would amount to Rmb2.3 tn by 2025E, implying a 22% CAGR. |
December 1, 2020 Asia Pacific Thematic Strategy: RCEP First Take: Impact likely to be slow and incremental The Regional Comprehensive Economic Partnership (RCEP) signed on 15-Nov will come into effect 60 days after at least 6 ASEAN and 3 non-ASEAN members get local approvals and notify the ASEAN Secretariat. In the current environment, this is likely to take time. Once ratified it would represent the world's largest trading bloc (12% of global trade). It includes commitments in goods, services, investment, intellectual property rights, competition, etc., but in this note, we focus on goods. As tariffs were negotiated bilaterally (incl. for countries within ASEAN), these run into thousands of pages. Here we focus on China (CN). |
November 26, 2020 Asia Pacific Strategy: 2021 outlook: The start of an earnings super-cycle AxJ is exiting a badly disappointing decade with just 6.5% in compound annual total returns and a 4.7% CAGR in EPS, but we believe that the region is entering a new earnings super-cycle. After losing shares to workers and SMEs in the past decade, we expect large corporates to take a bigger slice of the GDP pie. Stabilisation of nominal GDP growth should help margins and deleveraging should be less of a drag. The rise in effective tax rates may end soon. We expect earnings growth in the teens for several years or more even after the big 2021 post-COVID-19 bounce back. |
November 25, 2020 China Semiconductor Sector: Shanghai semiconductor tour takeaways We held a Shanghai semiconductor tour on 24 November and visited five semis across fabless, IP, foundry and equipment. Most companies noted positive progress on product roll-out and solid demand outlook. Key takeaways: (1) Tight foundry and substrate supply may impact revenue growth in next few quarters; (2) China's localisation remains a key driver for most companies; (3) Will Semi to introduce multiple high-pixel CIS in 2021; (4) Huahong expects better demand in 2021 from automotive, 5G, IoT, power and domestic market; (5) Espressif aims to meet full-year revenue target but noted uncertainty; (6) VeriSilicon expects growth across business in 4Q; and (7) Kingstone has good progress with logic and memory customers in both domestic and overseas markets. |
November 17, 2020 APAC Quantitative & Systematic Strategy: US / China market tension steps up a notch (for now) US President Donald Trump signed a presidential executive order imposing restrictions on US persons from holding securities issued by a list of 31 Chinese companies that the US has identified as having links to the Chinese military. Based on our reading of the order, sanctions are set to go into effect for buying on 11 Jan 2021 and holdings are meant to be divested by 11 Nov 2021. Short-term price action has seen underperformance in directly referenced names, as well some indirectly held associates. While we think there is a significant likelihood that these measures could be rolled back or watered down by a Biden administration, there is concern that anti-China measures are increasingly bi-partisan in nature. |
November 17, 2020 Global xEV Battery Sector: Reaching the next inflection point Taking into account CS Auto team's raised expectations about xEV penetration rates (57% in 2030E vs. previous 45% – on tightening CO2 emission regulations) and assuming higher energy density/unit (72kWh/unit vs. previous 62kWh – led by battery technology upgrade), we raise our 2030E xEV battery demand forecast to 1.8TWh (previous 1.5TWh), implying a 30% CAGR. Technology and capacity leadership helps battery makers' bargaining power. While concerns have risen since Tesla's Battery Day, we believe xEV demand growth is still at an early stage and leaves enough room for quality battery cell makers to grow, even if some OEMs were to insource battery production. |
November 6, 2020 China Market Strategy: China Investment Conference wrap-up: Great Expectations II Over 150 companies attended our 11th China Investment Conference. It was dominated by companies from the technology, consumer, industrials, healthcare, and property sectors. In terms of market capitalisation, technology, consumer, property, utilities, and industrials were better represented. We invited Dr. Zhu Min and Professor Huang Qifan as our keynote speakers, to attend our CIC this year and discuss China's post-pandemic macro policies, China's 14th Five-year plan, and the economic implications of the 'Dual Circulation' development model. The topics included macro outlook, the 'Dual circulation' role in the 14th FYP, supply chain security, technological initiatives, regulation, and globalisation. |
November 2, 2020 Global Offshore Wind: Investing across the supply chain We believe the offshore wind segment will require €350bn of cumulative capex across the decade to 2030. While we keep our 2020-25 aggregate installation forecasts unchanged at 36GW, our new forecasts post-2025 increase from 6.5GW p.a. to 11.6GW p.a., reflecting growth in new markets. We are c25% below government/industry targets in 2030E, pricing in planning delays and limited seabed rights; We expect developers to consolidate. We cannot rule out pricing power in the turbine and cable supply chain, albeit our base case is that in turbines, only SGRE is profitable to 2025E; We estimate IRRs for developers of current 'fixed bottom' foundation projects are c5-6% post-tax nominal, often with developers taking power price risk. We now see 'floating' offshore as the place for pioneer profits. |
November 2, 2020 China is the second-largest source of "unicorns" in the world. Against the backdrop of the 'Dual Circulation' model – with focus on quality amid a still- challenging international environment – we see opportunities for unicorns to grow, especially those satisfying people's consumption demands and closing gaps in key technologies. New regimes introduced by SSE, HKEx and SZSE have yielded positive results. Our sector analysts update the key trends of the five major sectors: Internet, Technology, Auto, Healthcare and FinTech. |
October 29, 2020 China Restaurants and Condiments Sectors: A bigger bite of China We expect restaurant sales in China to see an accelerating recovery into 2021 along with the fade-away of COVID19, and healthy growth over 2019-24E, supported by multiple secular drivers including increasing disposable income and urbanisation, faster pace of lifestyle and the changes in social and demographic structure. In our view, food delivery, supply chain and digital are the three key drivers for chain restaurants to adapt to evolving consumer preferences, improve operationally and to rapidly scale up. We project condiment sales in the restaurant channel to deliver 8.5% CAGR over 2019-24E, faster than 6.7% in retail and 7.5% overall. |
October 28, 2020 China Cosmetics Sector: Ascent of C-beauty brands China is the second largest cosmetics market in the world, and is set to deliver a 16% CAGR from 2021-23E (2016-20E: 12%) driven by (1) GDP growth in China; (2) increasing penetration among young consumers; and (3) premiumisation trend to drive ASP hikes. We expect Chinese brands to gain market share, particularly in the mass segment, as domestic brands are gaining popularity. Assuming that domestic brands' penetration levels reaches ~60% in five years, comparable to the Korea/Japan markets, we expect domestic skincare/colour cosmetics brands to deliver 19.3%/33.7% CAGR. |
October 14, 2020 China Chemical Sector: Polyester filament yarns: Consolidating into a new era We expect polyester margins to bottom out and continue to expand due to reaccelerated demand growth, industry consolidation and increasing raw material supplies post COVID-19. We expect global/domestic polyester demand growth to re-accelerate to 4%/5% CAGRs in 2021-22, driven by 7%/11% CAGRs in global/domestic sportswear demand. With an estimated 4% CAGR in global capacity for 2020-22, global supply-demand should be largely balanced. |
October 12, 2020 Global Telecoms Sector: 5G: Huawei uncertainty triggers capex cuts The 5G iPhone launch is set to be a key catalyst for 5G uptake, particularly in the US. While applications are potentially exciting, there is no 5G 'killer app' for mass-market consumers as yet, in the way that streaming media was for 4G uptake. As a result, our global team finds that most 5G launches so far have focused on high-volume data bundles and 5G handsets, rather than apps, limiting expected FY19- 24 revenue growth to just 1.3% p.a. Generating a return on over US$958 bn in capex is, therefore, a challenge and helps explain the sector's poor YTD share price performance. |
September 30, 2020 China Steel Sector: Margins squeezed on higher iron ore prices Thanks to government stimulus in reaction to COVID-19, China's construction activities continued to surprise the market on the upside. As a result, we revise up steel consumption. That said, China steel demand is expected to further increase. With a highly fragmented market, China steel industry still faces weak pricing power over global iron ore producers. China steel mills are likely to continue running at very low margin to breakeven level in coming 6-12 months, in our view. |
September 17, 2020 China Auto Parts Sector: Valuing the Tesla supply chain Tesla has become the largest automaker by market cap. Investors appreciate its technology leadership in electrification and autonomous driving. After the CS US auto team recently provided an update on Tesla, in this Connection Series report, the CS China auto team, together with the CS China Industrial team, CS China Tech team and CS China Material team, provide a deep-dive analysis of business upsides for Chinese suppliers of Tesla expected to benefit from Tesla's 116% 2020-22 sales CAGR in China. We see a golden opportunity for Chinese auto parts suppliers supplying Tesla and prefer those with higher content per vehicle. |
September 14, 2020 China Online Games Sector: Four key trends continue to drive growth 1H20 has seen an acceleration in mobile gamer base expansion as the lockdown has helped reactivate dormant players. Mobile game revenue growth stayed strong at +28% YoY in 2Q, despite traffic normalisation post work/school resumption, suggesting not only an expanded gamer base but also an improved engagement level and paying penetration. We remain positive on the sector, thanks to the structural tailwinds on expanding gamer base and engagement levels, with medium-term upside from the further monetisation of popular IPs. |
September 8, 2020 China Market Strategy: China Back to Spend 3: On the road again! We observe a clear trend of recovery in consumption, despite a certain level of moderation in the short term. We remain confident that the recovery trajectory in 2H20 is intact. Sporadic virus outbreaks may make investors concerned about potential disruption, but improved testing infrastructure along with concerted administrative measures can contain contamination quickly. |
| September 1, 2020 APAC Quantitative & Systematic Strategy: Southbound sentiment tracker: Consumer favoured over IT, with Meituan in focus The opening of China's capital markets represents a generational structural shift for international capital flows. We believe it is amongst the most important long-term themes in the region. The first testing ground of this trend is the Stock Connect program: Southbound flows have reignited liquidity in Hong Kong and are now the key marginal driver of stock prices. We also believe they are a more 'informed' investor group – stocks with outsized flow show idiosyncratic outperformance. |
August 26, 2020 The next decade will see the largest cohort of retirees in history. China's baby boom generation, 245 mn+ people, will represent a formidable group of consumers as they enter retirement age. Credit Suisse's CQi team has conducted a comprehensive survey to understand the implications of this shift: their interests, preferences and consumption habits are markedly different than the current generation of seniors. This trend will have profound implications for listed stocks that are penetrating the wallets of Chinese boomers. |
August 25, 2020 China Market Strategy: Capitalise on 245 mn retiring baby boomers While population ageing is well understood globally, the pace at which it is going to unfold in China is probably not as well understood by the market. Our China Quantitative Insights (CQi) study leverages on a comprehensive survey of 1,500 middle-aged and elderly consumers and focuses on this generation. Our analysts from China, as well as from relevant global sectors, take this CQi study into consideration and discuss the most important issues related to this theme for their respective sectors and identify key investment themes. |
August 17, 2020 China Optical Communication Sector: Prefer transceivers over optical fibre We estimate the global datacom transceiver market to grow by 24%/26%/22% in 2020/21/22, reaching US$6.4 bn in 2022, primarily driven by expected top-tier hyperscale capex growth of 16%/18%/8% over the same period. Specification upgrades to 400G (142% 2019-22E CAGR) and 100G recovery (8% CAGR) are expected to be the primary drivers. We also expect about 60 new builds of hyperscale datacentres each year in 2020/21, as well as the transition to universal spine-leaf architecture to drive the demand for optical modules. |
July 21, 2020 Global Technology: Cloud computing – The next frontier While a solid 26% CAGR for data cited by Cisco is an old theme, what is new is our ability to monetise data, with AI and Machine Learning being the first technology to lower analytics costs, potentially unlocking the potential for 99.5% of data that has remained dark, leading to an accelerating application workload growth and an accelerating compute TAM. Cloud IT infrastructure spending is delivering a 10% CAGR, vs -1.2% CAGR for traditional IT infrastructure, driven by the rising number of connected devices and video applications, proliferation of cloud services for enterprise and consumer, and accelerating AI data analytics. |
July 16, 2020 China Components Sector: PCB leaders rise on 5G and Datacom cycle We estimate PCB (printed circuit board) content to be almost 5x in 5G BTS vs 4G, besides an enlarged volume on higher coverage density. We estimate the total addressable market in access and transmission network will reach Rmb84 bn/Rmb168 bn in China/worldwide. Assuming that CCL (copper clad laminate, the base material of PCB) accounts for 24% of PCB market value, CCL demand in telecom could reach Rmb20 bn/Rmb40 bn in China/global, among which, high-frequency CCL will likely reach Rmb6 bn/Rmb12 bn and high-speed CCL could reach Rmb10 bn/Rmb20 bn in China/global. |
June 26, 2020 China Insurance Sector: Beneficiaries of a healthier bond yield Concerns have mounted over insurers' investment outlooks and the potential 'spread loss' of insurance portfolios due to bond yield weakness early this year. Even with the bond yield recently recovering to 2.9%, market confidence remains low, as seen in the H-share valuation of 0.64x P/EV (12M forward). At such a depressed valuation, we believe concerns over both asset and liability are overdone. We revise up our base-case long-term investment return under EV to 4.75% from 4.5%, driven by the recent recovery of the 10Y CGB – to 2.9% from the trough of 2.5%. |
June 15, 2020 We believe e-commerce platforms would be the biggest winners, with their share of China home appliance retail sales rising to 65% in 2030E (2019: 41%) at the expense of standalone stores and distributors. Omni-channel/channel penetration are key drivers for e-tailing to expand the total addressable market and capture consumer demand in a versatile manner, while brands with self-developed distribution network are quickly adapting to avoid becoming obsolete. We prefer JD, Midea and Xiaomi as the biggest winners and downgrade Gree/Robam to NEUTRAL/UNDERPERFORM. |
May 26, 2020 China Market Strategy: Road-mapping the return of Chinese ADRs It is natural to look for the alternatives out of the US markets, given escalating tensions between US and China over finance and investment recently. The infrastructure back in China and Hong Kong is actually ready to welcome them back, after a two-year reform in both stock exchanges and regulators. Opening up and reform on China and Hong Kong stock markets has created a positive feedback loop with increasing activities on both primary and secondary markets. STAR Board in Shanghai had 94 IPOs that raised Rmb112 bn with higher valuation multiples when the listing regime reform in Hong Kong resulted in 17 companies raising HK$117.3 bn. |
May 15, 2020 Among the 60-plus companies that attended our China A-share conference, 37 were under our coverage. Companies from technology, industrials, consumer and auto sectors dominated. A majority of corporates (57%) held a positive tone, while the remaining 14% held a neutral tone. Half of the companies estimated an improvement in 2Q20 vs 1Q20, with 30% expecting worse performance in 2Q20. The outlook appears better into 2H20, with 75% of companies foreseeing a bright outlook with business improvement into 2H20, and only 3% anticipating deterioration. Overseas demand (59% of total) was the most frequently mentioned risk by corporates as a result of potentially worse global recession for longer, well above domestic risk (18%) and competition (19%). |
May 4, 2020 China Unicorns: Emerging from the stables China is the second-largest source of unicorns. Compared to the US, China's unicorns are more driven by business model innovation which takes advantage of the large, fast-growing but fragmented consumer market. Due to the lower investment in R&D, fewer China unicorns are in AI/big data/robotics/software and healthcare. The increased R&D spending may boost the unicorns in those sectors in the future. China and Hong Kong adapted themselves to companies with innovative businesses. In China, STAR Board was launched in June 2019 as a testing field with a completely new design, introducing IPO registration system, new company thresholds, new financial tests, and welcoming weighted voting rights and red chips. |
April 21, 2020 China Market Strategy: China Back to Spend 2: Recovery in better shape The gradual recovery of China consumption is on track, although there are still uncertainties related to the pandemic. Despite a weak print in 1Q20, some key economic indicators showed a gradual recovery in March. China has come up with plenty of stimulus packages to boost consumption at both the central and local levels, with more to come. E-commerce space has seen a strong recovery in March, with MAUs on all major platforms exceeding Dec-2019's level amid an impressive rebound in parcel volume growth. Delivery user traffic is now back to 75-80% of the pre-outbreak level, with order demand expected to fully recover by May. |
April 3, 2020 Asia Pacific Thematic Strategy: A boon to energy consumers Of the >US$1 tn in income shift from oil producers to consumers, US$500 bn moves between countries and US$550 bn within them. Of the loss to net exporters, ~85% is in RU, SA, IQ, the UAE, KW, and IR. Governments lose mostly, and may borrow more. ~84% of savings could end up with consumers, offsetting some of the pressure due to the virus-linked lockdowns, particularly KR, CN, and IN. Better affordability helps poorer economies, as dense energy helps productivity. |
March 18, 2020 China Banks Sector: Be very selective in a challenging year Most factors would otherwise have been stable for China banks in 2020, except for pressure from narrowed NIM. However, with the COVID-19 outbreak, CS has revised down 2020 GDP forecast from 5.9% to 5.5%. We see further downside risks. The unfavourable macro environment will put further pressure on various aspects of the banking business. It will be a challenging year. With the outbreak getting under control in China, stable economic growth is gaining higher priority on government agenda. |
March 13, 2020 Taiwan tech well behind due to China's virus control measures. February sales for the Taiwan chain brought QTD sales down 37% QoQ. EMS and PC/NB ODMs underperformed while semis kept orders intact. Our team's checks suggest downstream utilization is recovering though may lag full production into 2Q. Across our CS coverage, 26% of companies were above, 4% in line and 70% below street expectations QTD due to China's containment efforts. |
March 12, 2020 China Property Management: High growth + high visibility + high quality We initiate coverage of the China property management sector with an Overweight rating, given the (1) strong earnings growth, (2) high visibility on sufficient pipeline, and (3) good quality with positive FCFF. We believe the strong share price momentum should continue, driven by: (1) resilient margin, (2) more government support post COVID-19, and (3) more fund flows after stock connect inclusion. We believe the basic services segment will benefit from the property completion upcycle and the leading players are better positioned to reap more upside. We prefer players with (1) high growth visibility, (2) strong execution capability, and (3) a quality client base for community VAS. |
March 12, 2020 Asia Oil & Gas Sector: Just when you thought you've seen it all – Cutting oil price forecasts CS Global Energy Team cuts Brent oil price forecast to US$42/$50 for 2020/21 (from US$63/$65), and expects oil prices to remain under pressure next several quarters. We see risk of oil prices to temporarily approach low-$20s in the near term. |
March 5, 2020 The coronavirus outbreak has worsened outside China since our last assessment on 5 Feb, with 65% of Asia oil demand countries now affected. We now forecast 1.4mb/d of demand loss in 1Q20 (vs 0.65mb/d previously). For the full year we forecast 570kb/d loss (vs 270kb/d previously), resulting in a 110kb/d YoY decline in Asia oil demand – the first YoY decline since 2008 GFC. We expect GRM recovery to be slower than our previous forecast given wider and deeper demand disruption. We cut our 2020 product spread forecast by 21% on average, and believe the GRM rebound in February could be short-lived. Chinese refiners' run rates have likely reached a bottom, and with increasing destocking pressure, product exports out of China could pick up in the coming months. |
March 4, 2020 Better-than-expected growth outside of China and for overall iPhone units in 2019 would have called for a positive revision to our global smartphone units estimates for 2020. |
March 3, 2020 China Market Strategy: Work from home: A new secular trend; how to position This is probably the largest scale of WFH in recorded history, with ~200 mn office workers in China stuck in their homes.The central and local governments had to take rigorous quarantine measures and encourage people to stay at home due to COVID-19 outbreak. |
February 25, 2020 Work resumption status reported by the local media this week demonstrates noticeable improvement, with average rate at the provincial level increasing from 38.9% to 61.9%. |
February 20, 2020 China Market Strategy: China back to work (week 2): Moderate recovery The COVID-19 is gradually getting under control in China, excluding Hubei. In addition to fighting the outbreak, the central and local governments are trying to stabilise the economy, with work resumption as top priority. |
January 21, 2020 China Market Strategy: Wuhan pneumonia outbreak - lessons learnt during SARS in 2003 |
January 15, 2020 China Consumer Sector: 2020 outlook: Finding alpha in a less volatile world For 2020, we expect overall consumption sentiment to remain at a high level, which should support a more stable retail sales (at ~8% YoY), with mild recovery in large-ticket items. We reckon some near-term headwinds such as calendar-shift of the Chinese New Year and diminishing impact of last year's tax cut, but expect consumption to be remarkably resilient this year, supported by secular drivers and a less volatile macro environment. |
January 9, 2020 China Technology Sector: Hardware outlook 2020 We anticipate 2020 to be the key inflection point for 5G where capex is expected to recover in China by 16%. Our CS tech strategist forecasts global 5G smartphone shipments to be 250 mn/500 mn in 2020/21E, 121 mn/208 mn units to ship in China (48%/42% of total shipment). We see 5G as key to driving the replacement cycle for China's smartphone market. |
January 6, 2020 China Internet Sector: 2020 outlook E-commerce and education are likely to continue to outperform in 2020. Following the two subsectors' 83%/64% share price rally in 2019, they are again expected to see the fastest growth profile among sub-sectors. We see secular drivers, including lower-tier city penetration, offline share gain and further monetisation as support. In other subsectors, we see a brighter outlook for local consumption but a relatively neutral outlook for game as growth may slow down. Online entertainment, advertising and verticals remain our least preferred sectors on increasing market competition and persistent share gain from private names despite a decent industry growth. |
October 23, 2019 Macau Gaming Sector: The odds are improving The combination of a new Baccarat bet option and rising adoption of non-commission Baccarat tables should lead to better margin both for casinos and junkets. We consider the sector under-owned and see gaming revenue increases through 2020. We also see more positive policies in support of Macau, both from the new Chief Executive and infrastructure. |
October 3, 2019 Asia Pacific Thematic Strategy: A half-trillion dollar shift To understand implications of the US-China trade war on manufacturing locations, we surveyed 100 companies (global sales US$1tn) and dived deep into trade flows, sectoral trends as well as macro-economic drivers. In this Connections Series report, Credit Suisse concludes ~US$350-550 bn of exports are expected to move out of China that in five years. |
July 17, 2019 China Internet Sector: Picking winners amidst a demographic shift Our analysis shows 200mn untapped users, over the existing 830mn internet users, and the pace to acquire the last batch will be very fast. More than half of China's population still generates GDP per capita <US$10,000; we see accelerating urbanisation driving a consumption upgrade and thus better monetisation by leading players. |
July 10, 2019 China Sportswear Sector: A fashion for fitness We expect China sportswear to deliver the highest growth within the apparel industry, underpinned by: athleisure; personalization and customization; and e-commerce and social media. Can Chinese brands be fashionable? Yes – our analysis shows Chinese consumer perception has evolved on foreign brands, backed up by CS's Emerging Consumer survey 2019. |