Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The report highlights uncertainty stemming from fluctuations in US trade policy, which has negatively impacted consumer and business sentiment in the US, while global sentiment remains relatively stable but low [1] - Despite the challenges, global retail sales and trade volumes have shown resilience, potentially due to preemptive purchasing ahead of tariff implementations [1] - Labor markets globally remain tight, and global Purchasing Managers' Index (PMI) readings indicate expansionary conditions in the first quarter [1] Summary by Sections Global Economic Indicators - US consumer and business sentiment has significantly declined due to rising tariff rates and trade policy uncertainty [1] - Global PMIs have generally remained above the expansion threshold of 50, indicating ongoing growth in manufacturing and services sectors [4][8][9] Retail Sales and Trade Volumes - Global retail sales value and volume have held up well, with year-over-year growth rates of 3.0% for value and 2.7% for volume [26][30] - Trade volumes have also shown positive growth, with a year-over-year increase of 5.7% for global trade [37] Labor Market Conditions - Labor markets are described as tight, with global unemployment rates projected to remain low [42] - Business confidence has seen fluctuations, but overall sentiment remains cautious [42][45] Inflation and Price Indices - Headline Consumer Price Index (CPI) inflation is reported at 1.5% globally, with core CPI at 3.5% [54][55] - Input prices have shown an upward trend, indicating potential inflationary pressures in the near future [21][22] GDP and Economic Growth - Real GDP growth is projected at 4.6% for the global economy, with developed markets (DM) at 2.9% and emerging markets (EM) at 2.0% [26][30] - The report forecasts continued economic expansion, albeit at a moderated pace due to external uncertainties [41][74]

Investment Rating - The report suggests a conservative investment strategy focused on defensive stocks and sectors due to the anticipated double dip in Japanese stocks [1][4][35] Core Viewpoints - Japanese stocks are likely to experience a double dip in the short term, with potential for the next correction to fall below the recent bottom of TOPIX at 2,200 [2][3][19] - The report identifies three main risks contributing to this outlook: deterioration in US macroeconomic indicators, uncertainty in Japan-US tariff negotiations, and conservative initial guidance from companies during the FY3/25 earnings season [2][9][27] - A recovery in Japanese stocks may not occur until summer or later, contingent on specific conditions such as progress in tariff negotiations and aggressive monetary easing by central banks [27] Summary by Sections Short-term Risks - Japanese stocks currently lack upside momentum after a recent rebound to 2,500 from 2,200 [2][6] - The report highlights risks from US economic indicators, tariff negotiations, and conservative earnings guidance as key factors for the anticipated double dip [2][9][19] Market Correction Insights - The potential downside target for TOPIX is projected at 2,000, with a 12-month forward PER around 10x, aligning with historical downturn levels [3][19] - The report indicates that previous corrections of more than 10% have often led to double dips, particularly when rebounds do not exceed 50% of the initial correction [25][26] Defensive Investment Strategy - A focus on low-risk stocks, high EPS revisions, and strong balance sheets is recommended, as high-rated stocks are expected to underperform [4][35] - The report emphasizes the importance of identifying companies likely to issue positive guidance and maintain dividends during the uncertain macroeconomic environment [35]

Investment Rating - The report assigns a positive outlook on the Japan Electronics sector, indicating that sector stocks are attractive following an average decline of approximately 10% over the past month [1]. Core Insights - The report anticipates that US tariffs will be revised before causing a recession, with minimal to moderate impact on Japan's industrial and consumer electronics sectors compared to other export industries [1][2]. - Company-specific catalysts such as restructuring and buybacks are highlighted as potential growth drivers [1]. - The focus is on upcoming results from Hitachi and NEC, which are expected to be less affected by tariffs, while long-term growth prospects are emphasized for Mitsubishi Electric, Panasonic, and Fujitsu [1]. Summary by Sections Tariff Impact - The report suggests that tariffs could depress the sector's operating profit (OP) by 21% in gross terms for FY3/26, with varying impacts across companies: Sharp (174%), Yamaha (67%), Hitachi (5%), and Fujitsu (7%) [4][6]. - In a best-case scenario, the average impact on OP across the sector is estimated to be 9% [4]. Company-Specific Analysis - **Sony**: Expected to face the largest impact due to tariffs on PS5 sales, with a significant portion of production in China [8][9]. - **Panasonic**: Anticipated to be heavily affected due to its US sales of white goods and batteries, although some operations may mitigate tariff impacts [10][11]. - **Mitsubishi Electric**: Projected to experience a major impact primarily on air conditioner sales, with 17% of sales coming from North America [12]. - **Hitachi**: Expected to have a minimal impact with a 5% reduction in OP, potentially decreasing to 3% with strategic responses [15]. - **NEC**: Anticipated to be largely unaffected due to its low US sales weighting [16]. - **Casio and Yamaha**: Projected to see significant profit reductions of 47% and 67% respectively, as both companies are in a post-restructuring phase [17][19].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings with a target price of HK$681, indicating an expected share price increase of 47.9% from the current price of HK$460.40 [2][7]. Core Insights - The 2025 Spark Game Conference showcased a total of 46 game titles, including 26 new games, which is a 35% increase from the previous year. Key titles such as HoK: World, Roco Kingdom, Valorant, and The Finals received significant attention from viewers [1]. - Tencent's strength in self-development and publishing capabilities was highlighted, with a diverse range of game genres presented from both domestic and global studios [1]. - The report emphasizes the positive user feedback and engagement during the conference, suggesting a constructive outlook for Tencent's gaming segment [1]. Summary by Sections Self-Development Games - Tencent presented 18 games from its in-house studios, including notable titles like HoK and CODM, which achieved over 1 billion downloads in 2024 [4][5]. Publishing Games - A total of 13 new licensed titles were showcased, including Path of Exile 2 and The Finals, indicating a robust pipeline for Tencent's publishing segment [5]. Investment Games - Eight games from Tencent's investees were highlighted, including Phantom Blade Zero and Dune: Awakening, showcasing Tencent's strategic investments in the gaming industry [6]. Valuation - The target price of HK$681 is derived from a sum-of-the-parts (SOTP) valuation approach, applying various price-to-earnings (P/E) ratios to different segments, including online games, advertising, social networks, fintech, and cloud services [7].

Investment Rating - The report maintains a Buy rating on Sany Heavy Industry with a target price of Rmb24.00, indicating an expected share price return of 25.1% and a total expected return of 26.6% [6]. Core Insights - Sany Heavy Industry is focusing on high-quality growth and third-party markets due to the ongoing deglobalization trend, targeting regions without competitive local construction machinery OEMs [1][2]. - The management is optimistic about the demand for excavators in China, driven by labor replacement and the export of second-hand excavators, while remaining cautious about non-excavator demand due to a sluggish property market [3][5]. - Significant upside potential is identified in ultra-large excavators and aftermarket services, where Sany currently lags behind competitors like Caterpillar and Komatsu [4][5]. Summary by Sections Market Focus - Sany plans to concentrate on third-party markets such as the Middle East, South America, and Africa, where local competition is minimal [2]. Demand Outlook - Management expresses a positive outlook for excavator demand in China, anticipating a shift similar to Japan's market, while being cautious about non-excavator machinery due to ongoing property market challenges [3]. Growth Strategy - The company aims for high-quality growth by focusing on receivable recoveries and investing in R&D while reducing operational expenses to enhance competitiveness [5][8]. Capital Expenditure - Future capital expenditure is expected to remain low, around Rmb2.9 billion, reflecting a 35% year-over-year decrease, as Sany does not plan significant capacity expansion in China due to oversupply [8]. Global Expansion - Sany is considering expanding production capacities in regions like Brazil and Eastern Europe to adapt to the deglobalization trend, where production costs are significantly lower than in China [8]. IPO Plans - The planned Hong Kong IPO is viewed as a step towards deepening Sany's globalization efforts, despite having sufficient cash reserves for operational needs [9].

Investment Rating - The investment rating for Hangzhou Hikvision Digital Technology is Neutral, with a target price adjusted to Rmb30 from Rmb33, reflecting a 5.7% expected return [4][21][22]. Core Insights - The company reported 4Q24 results that were in line with preliminary results, with a revenue decrease of 2% YoY to Rmb27.5 billion and a net profit decline of 26% YoY to Rmb3.9 billion [2][10]. - For 1Q25, revenue increased by 4% YoY to Rmb18.5 billion, although it was below expectations [1][11]. - Management plans to focus on higher-margin businesses and maintain strict control over operating expenses [8][21]. - There is an expectation of muted recovery in domestic business for FY25, while overseas and innovative business segments are anticipated to grow stronger [8][21]. Summary by Sections Financial Performance - 4Q24 revenue was Rmb27.5 billion, down 2% YoY, with a gross margin of 41%, down 1.9 percentage points YoY [2][10]. - 1Q25 revenue rose to Rmb18.5 billion, with a gross margin of 43.9%, down 0.8 percentage points [1][11]. - FY24 revenue for the PBG segment decreased by 12% YoY, while the innovation business grew by 21.2% YoY to Rmb22.5 billion [2][10]. Earnings Estimates - FY25-26 earnings estimates have been cut by 11-16% due to lower revenue and margin assumptions [9][13]. - The new revenue estimate for FY25 is Rmb98.986 billion, down 3.2% from the previous estimate [13][14]. Market Position and Strategy - Hikvision is the world's largest supplier of video surveillance products, focusing on innovation and expanding its overseas business [20][21]. - The company has ceased shipments to the US, which previously accounted for about 3-4% of sales, with limited expected impact on overall business [8][21]. Valuation Metrics - The target price of Rmb30 is based on a 20.2x NTM PE, which aligns with the company's 10-year historical average [4][22]. - Current market capitalization is Rmb261.946 billion [4].

Investment Rating - The investment rating for China TransInfo Technology is "Sell" with a target price of Rmb5.1, indicating an expected share price return of -38.0% and a total expected return of -37.6% [4][8]. Core Insights - In 4Q24, revenue decreased by 28% year-over-year to Rmb1.8 billion, which was 40% and 25% below CitiE and BBGe estimates respectively [2][6]. - The gross margin for 4Q24 fell by 5.4 percentage points year-over-year to 32.1%, which was 6.1 percentage points below CitiE but 4.5 percentage points above BBGe [2][6]. - Operating expenses increased by 3% year-over-year to Rmb796 million, leading to an operating loss of Rmb206 million compared to an operating profit of Rmb179 million in 4Q23 [2][6]. - The overall net loss for 4Q24 was Rmb1.2 billion, aligning with previous guidance [2][6]. - For FY24, revenue declined by 7% year-over-year, with net losses also at Rmb1.2 billion compared to a net profit of Rmb542 million in FY23 [2][6]. Segment Breakdown - In the second half of 2024, revenue from intelligent transportation fell by 54% year-over-year to Rmb798 million, while the overall FY24 revenue for this segment decreased by 26% year-over-year to Rmb2.2 billion [3]. - The gross margin for the intelligent transportation segment narrowed by 12 percentage points year-over-year to 19.5% in 2H24, and the FY24 gross margin decreased by 7.3 percentage points to 21.1% [3]. - Conversely, revenue from intelligent IoT increased by 7% year-over-year to Rmb2.9 billion in 2H24, with an overall FY24 revenue growth of 5% year-over-year to Rmb5.1 billion [3].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The report discusses the trade war initiated by the US, emphasizing that it was seen as winnable with minimal economic damage under the right conditions and strategy [2][3] - It highlights the failure of the Trump administration to maintain a consistent strategy during the trade negotiations, particularly after backing down from "reciprocal tariffs" [2][3] - The report analyzes the ongoing trade negotiations between the US and Japan, questioning the likelihood of reaching a trade deal and the implications of various outcomes [4][5] Summary by Sections Trade War Dynamics - The report identifies five main objectives of the Trump administration regarding the trade war, including minimizing the trade deficit and raising tariffs [8] - It notes that the US trade deficit with Japan is significant, ranking eighth among trading partners, while bilateral trade is the fifth largest [12] Potential Outcomes of Trade Negotiations - If a trade deal is reached, the US would likely lose revenue from the current 10% tariff but would require Japan to purchase an additional $62 billion in goods, resulting in a net benefit of $54 billion for the US and a net loss of $77 billion for Japan [16][17] - In a scenario where no deal is reached but talks continue, a 30% reduction in bilateral trade is expected, leading to a net loss of $6 billion for the US and $44 billion for Japan [18][19] - If negotiations collapse, a 60% contraction in trade is anticipated, with the US losing $34 billion and Japan losing $89 billion [20][21] Game Theory Analysis - The report employs Game Theory to analyze the trade negotiations, presenting a matrix that outlines potential payoffs for both the US and Japan under different scenarios [22][24] - It concludes that it is optimal for the US to pursue a deal that eliminates the trade deficit, while Japan would prefer to maintain the status quo to minimize its losses [31][32] - The Nash Equilibrium is identified at a point where the US offers a deal to eliminate the trade deficit, and Japan rejects it, provided the US does not walk away from negotiations [33][34] Strategic Considerations - The report suggests that both sides may benefit from prolonging negotiations without reaching a successful conclusion [35] - It discusses the possibility of Japan adopting a stronger negotiating position, potentially leading to a scenario where the US would accept a deal that favors Japan significantly [42][49] - The report indicates that the US may need to explore alternative strategies, such as currency devaluation, to achieve its goal of eliminating the trade deficit [39] Market Implications - Investors are advised to prepare for a potential retest of market lows within a 90-day window following the negotiations [56] - The report notes that the performance of the NKY index relative to the SPX could influence Japan's willingness to engage in stronger negotiation tactics [57]

Investment Rating - The report does not provide a specific investment rating for the industry or companies involved Core Insights - The current trade dynamics between the US and China are characterized by high tariffs and significant trade deficits, making it sub-optimal for either side to reach a trade deal at this time [2][12][21] - The US is currently benefiting from tariffs, with an estimated net gain of $293 billion despite a 30% decline in bilateral trade, while China is experiencing a loss of only $7 billion due to compensatory tariffs on US exports [6][7] - A scenario without a trade deal is expected to lead to a 50% drop in bilateral trade, with the US gaining $242 billion and China losing $127 billion [8][11] - The report suggests that both countries are unlikely to reach an agreement until bilateral trade losses reach a significant threshold, specifically a drop of at least 65% [32][35] Summary by Sections Trade Dynamics - The US has imposed a 145% tariff on most Chinese goods, with exceptions for certain electronics, leading to a complex trade environment [6][7] - The US aims to eliminate its trade deficit with China, which is a primary objective in the ongoing trade war [11][12] Game Theory Analysis - The report employs Game Theory to analyze the trade negotiations, indicating that both sides currently find it optimal to maintain the status quo rather than reach a deal [18][21] - The Nash equilibrium suggests that neither party will benefit from a trade agreement until significant trade losses are realized [25][29] Future Outlook - A potential trade deal may only emerge after bilateral trade has significantly declined, with both sides needing to feel the economic impact before negotiations can begin [34][35] - The report concludes that a Sino-US trade deal is unlikely in the near term, as both parties are currently positioned to avoid making concessions [21][29]

V i e w p o i n t | 22 Apr 2025 14:12:07 ET │ 10 pages Metal Matters New critical minerals Section 232 poses new US arb upside and opportunities in Pd, Pt, Ni, Zn, Sn CITI'S TAKE 51 metals and minerals are the subject of a new Section 232 (S232) investigation into US critical mineral imports (Fig.1, mostly as published by USGS), reigniting US import tariff risks after broad exemptions for mineral imports from US reciprocal import levies earlier this month. We note particularly the inclusion of palladium, pl ...