Cathay Pacific Haitong: Expansive space for emerging industries, looking at leading Chinese industries

The Zhitong Finance App learned that Cathay Pacific Haitong Securities released a research report saying that currently, China's emerging technology industry (such as semiconductors, innovative drugs, and communication equipment) is still in the early stages of growth, and there is still a gap with international leaders in terms of revenue scale and profitability, but the capital market has given high valuations, reflecting optimistic expectations for technological autonomy and industry catch-up. The future direction with technical barriers and large domestic substitution space will benefit even more. In contrast, the profit forecasts of leading application-side companies such as the Internet are no weaker than those of leading overseas companies, and their valuation levels are more attractive.

Cathay Pacific Haitong Securities's main views are as follows:

From a global comparative perspective, look at China's leading companies to reassess opportunities.

Against the backdrop of deep adjustments in the global economic landscape and intensification of technological competition, China's emerging industries are undergoing a historic shift from “catching up on scale” to “revaluing.” This paper systematically sorts out the fundamental positions and valuation levels of nearly 100 leading companies in the three major fields of advanced manufacturing, technology, and big consumption at home and abroad, and finds that in the field of advanced manufacturing, Chinese companies have shown higher industrial maturity and stronger global competitiveness, outstanding profitability, and more cost-effective valuations; hard technology is going through a critical stage from “following” to “running side by side”, and the application side has good room for valuation and growth; commodity consumption has shown strong profitability, but the degree of globalization has yet to increase. Service consumption is still in the early stages of development, and there is room for growth under economic structural transformation Expansive.

Emerging technology: Hard technology is catching up at an accelerated pace, and applied valuation is very cost-effective.

Currently, China's emerging technology industry (such as semiconductors, innovative drugs, and communication equipment) is still in the early stages of growth. There is still a gap between international leaders in terms of revenue scale and profitability, but the capital market has given high valuations, reflecting optimistic expectations for technological autonomy and industry catch-up. The future direction with technical barriers and large domestic replacement space will benefit even more. In contrast, the profit forecasts of leading application-side companies such as the Internet are no weaker than those of leading overseas companies, and their valuation levels are more attractive. With the iteration of large models and the acceleration of AI application implementation, Internet platform companies, as traffic entrants, are expected to fully benefit from AI industry trend dividends and resonate with valuation restoration and growth.

Advanced manufacturing: The industry is mature and globally competitive, and there is broad scope for value revaluation.

The advanced domestic manufacturing industry is relatively mature. With a complete industrial system and significant efficiency and cost advantages, it has established stable competitiveness on a global scale. Among new energy sources, lithium batteries lead the world in scale and profitability. The valuation of leading companies is generally lower than that of overseas leaders, and the cost performance advantage is outstanding; although wind power profitability is weaker than overseas, the valuation is also lower; the profitability of the high-end equipment and new materials industry is comparable to that of overseas leaders, and valuations are at a reasonable level, but there is still a lot of room for improvement in global expansion. In the future, we can focus on the revaluation of leading companies with outstanding profitability and a deep global layout, and investment opportunities for high-quality manufacturing companies to expand overseas.

Big consumption: The profitability of commodity consumption is strong, and the potential for service consumption needs to be unleashed.

In the field of commodity consumption, leading Chinese companies (such as high-end liquor, beverages, etc.) have shown strong profitability, but their growth is still highly dependent on the domestic demand market. Due to insufficient globalization, there is still a gap between revenue and market capitalization compared to leading international companies. Service consumption as a whole is in the early stages of development, and its scale and profitability are lower than those of overseas leaders. Judging from the valuation dimension, the consumer sector as a whole has a high cost performance ratio. In the future, we can focus on leading service consumption growth opportunities brought about by the transformation of China's consumption structure, as well as specialty consumer brands with global potential.

Investment advice: Recommended telecommunication/ transportation equipment/ communication equipment/ electronic/ service consumer industry leaders.

Leading emerging industry companies with significant innovation advantages and strong overseas momentum will accelerate to catch up with international leaders or further maintain their leading edge. As China's capital market continues to open up to the outside world, leading Chinese emerging industries are expected to increase their valuations.

Recommended: 1) leaders in advanced manufacturing industries such as electronics/automobile/machinery/military industries that benefit from outstanding profitability and global competitive advantage; 2) emerging technology leaders such as communication equipment/electronics/innovative drugs/the Internet that benefit from the rapid increase in China's innovation capacity and are expected to grow rapidly in profits; 3) service consumer/mass goods industry leaders that benefit from the transformation of the consumption structure and are expected to grow in scale.

Risk warning: The commercialization of new technology falls short of expectations; the progress of leading Chinese companies going overseas falls short of expectations; the risk of macroeconomic fluctuations.