Core Insights - DeepSeek is expected to accelerate the development of AI, impacting the stock prices of major tech companies, particularly chip manufacturers like Nvidia, which saw a significant decline [3] - The long-term advantages of large tech companies such as Microsoft, Google, Amazon, Meta, and Apple are expected to remain intact despite the emergence of new algorithms [3] - Nvidia is anticipated to continue benefiting from the AI industry's growth, as its software advantages and existing market expectations mitigate the impact of new algorithms [3] Industry Overview - The development of AI technology relies on three core components: algorithms, computing power, and data. Limitations in one area will drive innovation in the others [3] - The emergence of more efficient and cost-effective AI models is likely to stimulate growth in application layers, creating new business models [3] - The AI industry is still in its early stages, and while sentiment may be negatively affected in the short term, the long-term outlook remains positive [3] Short-term Market Dynamics - The introduction of DeepSeek may lead to a temporary decline in demand for chips from major tech companies, affecting sentiment towards chip manufacturers like Nvidia [3] - Despite potential short-term volatility, large tech companies are unlikely to drastically reduce chip purchases due to the competitive landscape [3] - The emergence of DeepSeek may weaken the competitive position of closed-source models from companies like OpenAI and Google's Gemini [3] Company Analysis - A list of 24 companies in the AI industry chain has been compiled for reference, highlighting their market capitalization and recent performance [4] - Nvidia (NVDA) has a market cap of $294.05 billion and experienced a 16% decline in the past week, while other companies like AMD and Microsoft also faced declines [4] - The report emphasizes the importance of selecting companies with a strong competitive moat in a rapidly changing industry environment [3]

Investment Rating - The report maintains a "Hold" rating for the company [3][8]. Core Views - The company is expected to face significant pressure in its 2024 performance, with a projected decline in net profit attributable to shareholders by 70.47% to 75.36% year-on-year due to a transformation phase and a substantial drop in revenue from its cosmetics business [1][8]. - The target price has been adjusted to RMB 52.2, reflecting a potential upside of 7.9% from the current price of RMB 48.4 [3][8]. - The company is undergoing a reform in its functional skincare segment, which is anticipated to lead to a turnaround by 2025, although the timing of this recovery remains uncertain [8]. Financial Forecast Summary - The updated financial forecasts for the company are as follows: - 2024E revenue is projected at RMB 5,188 million, a decrease of 9.6% from previous estimates - 2024E net profit is forecasted at RMB 159 million, down 61.3% from prior predictions - The net profit margin for 2024E is expected to be 3.1%, a decline of 4.1 percentage points [2][9]. - For 2025E, revenue is expected to be RMB 5,727 million, a reduction of 16.7%, and net profit is projected at RMB 457 million, down 35.8% [2][9]. - The 2026E forecasts show a continued decline, with revenue expected at RMB 6,420 million and net profit at RMB 520 million, representing decreases of 19.8% and 39.7% respectively [2][9].

Investment Rating - The report maintains an optimistic outlook on the AI computing chip industry, particularly for companies like TSMC, NVIDIA, and AMD, emphasizing TSMC as a top pick [8]. Core Insights - DeepSeek R1 model, launched on January 20, demonstrates capabilities comparable to OpenAI's models while significantly reducing costs, with API pricing set at 1 RMB per million input tokens (cache hit) and 4 RMB (cache miss) [3][4]. - The rapid growth in DeepSeek's app downloads, achieving a 375% week-on-week increase, indicates strong market interest and potential demand for AI applications [4]. - The report suggests that concerns over excessive AI computing power investments are overstated, as the AI large model industry is still in its early development stage, presenting growth opportunities for startups like DeepSeek [5][7]. Summary by Sections DeepSeek Model Development - DeepSeek R1 features 671 billion parameters and outperforms many existing models, with a pricing strategy that undercuts both domestic and international competitors [3][4]. - The model's performance has led to significant interest from major tech companies, including NVIDIA and Microsoft, which have integrated DeepSeek's technology into their AI platforms [4]. Market Dynamics - The report highlights that the demand for AI computing chips is expected to expand significantly due to declining costs and technological advancements, benefiting end-user applications [5][7]. - The ongoing geopolitical tensions may accelerate the growth of domestic AI enterprises in China, as they adapt to restrictions on advanced technologies from the U.S. [9][10]. Investment Opportunities - Companies in the smartphone and new energy vehicle sectors, such as Apple and Xiaomi, are expected to benefit from the lower costs associated with AI applications, enhancing their competitive edge [8]. - The report identifies potential beneficiaries in the AI driving application space, including NIO, XPeng, and BYD, as they leverage DeepSeek's advanced capabilities [9].

Investment Rating - The report does not explicitly state an overall investment rating for the industry, but it provides individual ratings for specific companies within the consumer sector, indicating a mix of "Buy," "Hold," and "Sell" recommendations [20]. Core Insights - The U.S. has imposed an additional 10% tariff on Chinese goods, raising the average tariff rate to 29%, which negatively impacts the competitiveness of Chinese products in the U.S. market [1][8]. - Companies are adjusting their supply chains by relocating production to Southeast Asia to mitigate tariff impacts, as seen with Pop Mart and OEM firms like Shenzhou International [2][12]. - Export-oriented consumer companies are advised to reduce their reliance on the U.S. market and focus on regions with lower tariff risks, such as Japan, South Korea, and Southeast Asia [3][13]. - The trade war compels companies to enhance product innovation and brand building to maintain competitiveness, as low-cost strategies may no longer be viable [6][17]. Summary by Sections Section 1: Impact of Tariffs - The additional 10% tariff increases costs for Chinese exports to the U.S., affecting major consumer categories like electronics, appliances, clothing, and toys [1][8]. Section 2: Supply Chain Adjustments - Companies are shifting production to Southeast Asia to avoid tariffs, with examples including Pop Mart and Shenzhou International, which has 100% of its U.S. orders produced in Southeast Asia [2][12]. Section 3: Market Focus Shift - Export-oriented firms are encouraged to lower their U.S. market share and target markets with less tariff exposure, emphasizing cultural proximity in regions like Japan and Southeast Asia [3][13]. Section 4: Innovation and Branding - The increased tariff costs necessitate that companies invest in product innovation and brand marketing to justify higher prices, as low-margin products are particularly vulnerable [6][17]. Section 5: Raw Material Costs - Potential retaliatory tariffs could raise raw material costs for certain consumer goods, necessitating early planning for local sourcing to mitigate risks [18].

Investment Rating - The report maintains an optimistic outlook on the AI computing chip industry, particularly for companies like TSMC, NVIDIA, and AMD, emphasizing their potential for growth despite recent stock price declines [8]. Core Insights - DeepSeek R1 model, launched on January 20, 2025, has 671 billion parameters and offers capabilities comparable to OpenAI's models at significantly lower costs, with API pricing set at 1 RMB per million input tokens (cache hit) and 4 RMB (cache miss) [3][4]. - The rapid growth of DeepSeek's app downloads, achieving a 375% week-on-week increase, indicates strong market interest and demand for its AI capabilities [4]. - Concerns in the overseas market include potential oversupply in computing chips and a perceived weakening of U.S. companies' advantages in AI model competition [4][5]. Summary by Sections DeepSeek Model Development - The DeepSeek R1 model has been optimized through reinforcement learning and knowledge distillation, outperforming many existing models while maintaining lower operational costs [3][4]. - The model's performance has led to significant interest from major tech companies like NVIDIA, Microsoft, and Amazon, who are integrating DeepSeek's technology into their AI platforms [4]. AI Computing Demand - The report suggests that fears regarding excessive demand for AI computing power are overstated, as the AI model industry is still in its early stages, with significant growth opportunities for startups like DeepSeek [5][7]. - The decline in overall costs for AI models is expected to drive rapid expansion in end-user applications, benefiting from lower operational costs [7][8]. Investment Opportunities - Companies in the AI computing chip sector, such as TSMC, NVIDIA, and AMD, are highlighted as strong investment opportunities due to their solid fundamentals and potential for growth [8]. - The report anticipates that the lower costs associated with DeepSeek's AI models will enhance the user experience for end-user companies, particularly in sectors like smartphones and electric vehicles, benefiting companies like Apple and Xiaomi [8][9]. - The report also identifies potential beneficiaries in the autonomous driving sector, including NIO, XPeng, and BYD, as they leverage DeepSeek's advanced AI capabilities [9].

Macro Perspective - The Federal Reserve paused interest rate cuts in January, marking the first pause since the rate-cutting cycle began in September of the previous year[1] - The Fed's statement removed the phrase "progress towards the 2% inflation target," indicating a more hawkish stance[1] - Powell emphasized that the pause was due to a strong U.S. economy and labor market, suggesting no immediate need for policy adjustments[1] Interest Rate Outlook - The likelihood of a rate cut in March is low, with expectations that the Fed will also pause in that month unless economic data weakens significantly[2] - The Fed's current forecast predicts two rate cuts this year, but actual cuts may exceed this prediction, potentially reaching 3-4 cuts of 25 basis points each[3] - The impact of Trump's policies on inflation is considered limited, as the administration's tariff threats are viewed as negotiation tactics rather than immediate economic changes[3] Economic Indicators - December's economic data showed resilience in the U.S. economy, with a strong labor market and steady consumer spending[3] - The Fed remains cautious about rate cuts in the short term, likely skipping cuts in March due to stable economic indicators[3] - Rising U.S. Treasury yields are expected to influence economic momentum and labor market performance in the medium term[3] Risks - If Trump escalates tariffs more aggressively than anticipated, the number of Fed rate cuts may be significantly lower than expected[4] - Potential risks include slow rate cuts leading to economic recession and inflation risks stemming from Trump's new policies[4]

Investment Rating - The report maintains a "Buy" rating for IGG (799.HK) with a target price of HKD 4.2, representing a potential upside of 13% from the current price of HKD 3.73 [4][5]. Core Insights - The company is expected to see a revenue growth of 9% year-on-year in 2024, reaching RMB 5.72 billion, with an adjusted net profit of RMB 614 million and an adjusted net profit margin of 10.7% [3][4]. - The core product, "King of Avalon," is anticipated to maintain stable revenue in the second half of 2024 due to gameplay adjustments and content updates [3]. - New game products "Doomsday: Last Survivors" (DLS) and "Viking Rise" (VR) are projected to contribute significantly to revenue growth in the second half of 2024, offsetting declines from older games [3][4]. - The company's APP business has transitioned to focus on content-driven applications, particularly in news services, which is expected to drive strong revenue growth in the second half of 2024 [3]. Financial Projections - Revenue and profit forecasts for IGG are as follows: - FY22 Revenue: HKD 4,591 million - FY23 Revenue: HKD 5,266 million - FY24E Revenue: HKD 5,720 million - FY25E Revenue: HKD 6,136 million - FY26E Revenue: HKD 6,348 million - Adjusted Net Profit for FY24E: HKD 614 million, with a target PE of 8.0x [5][4].

Core Viewpoints - The report emphasizes the implementation of a plan to promote long-term capital inflow into the market, which is expected to improve market sentiment and liquidity [2][4] - The plan aims to optimize the capital market system and drive funds into fundamentally sound listed companies, fostering a positive cycle of capital flow [2][4] Key Areas of Focus - The plan is expected to enhance market sentiment and trading liquidity in the short term, with a target of at least 100 billion yuan in insurance funds allocated for long-term stock investments, including 50 billion yuan approved before the Spring Festival [3][4] - A-shares are anticipated to benefit more than Hong Kong stocks and U.S.-listed Chinese stocks due to this plan [3] - The report suggests focusing on high-quality dividend stocks, as the dividend yield of the CSI 300 index has reached 3%, highlighting the investment value in the market [3] - Over 310 listed companies are expected to distribute more than 34 billion yuan in dividends in the two months leading up to the Spring Festival [3] Implementation Measures - The plan sets clear targets for long-term capital inflow, requiring public funds to increase their holdings of A-shares by at least 10% annually over the next three years [4][5] - It aims for large state-owned insurance companies to allocate 30% of their new premiums to A-share investments starting in 2025 [4][5] - The plan includes a long-term performance assessment for public funds and state-owned insurance companies, reducing the weight of annual performance metrics [4][5] - It seeks to increase the scale and proportion of equity funds, optimize the investment ecosystem, and encourage share buybacks and multiple dividend distributions [4][5] Market Impact - The introduction of hard targets for long-term capital inflow is expected to provide substantial and stable incremental funds to A-shares annually [4][5] - The plan aims to enhance the quality of information disclosure by listed companies and strengthen their commitment to returning value to investors through cash dividends and share buybacks [4][5]

Group 1 - The report highlights that negative events lead to a short duration of market declines, with major A-share indices showing significant drops on the first day of negative events but stabilizing within six days [2] - It notes that despite negative events causing declines, sectors such as pharmaceuticals, food and beverage, and tourism can still yield positive returns, indicating potential alpha investment opportunities [2][3] - The report emphasizes that under uncertainty, investors show limited positive reactions to favorable events, resulting in constrained market rebounds [2] Group 2 - The report suggests that if US-China relations improve, it could boost market sentiment, with potential for a more moderate US stance towards China [3][4] - It indicates that the Trump 2.0 administration may pose challenges to the RMB exchange rate, corporate earnings, and capital flows, leading to increased market volatility [4][14] - The report recommends focusing on companies with strong brand power and those that have already established global operations to mitigate risks associated with potential trade conflicts [4][14] Group 3 - The report discusses the recent performance of major Chinese indices, noting that the MSCI China Index fell by 0.8% and the Shanghai Composite Index dropped by 3.7% over the past month, while the Hang Seng Index rose by 2.0% [13] - It highlights that sectors such as information technology and consumer discretionary performed well due to earnings upgrades, while telecommunications and utilities faced valuation contractions [13][14] - The report points out that the current valuation levels of major Chinese stock indices remain attractive compared to global markets, with the MSCI China Index and Hang Seng Index trading at forward P/E ratios of 9.8 and 9.1, respectively [22][23] Group 4 - The report notes that the trend of downward revisions in earnings expectations has slowed, with the MSCI China Index's 2025 earnings growth forecast adjusted to 7.7% [36][38] - It indicates that external uncertainties, including the potential for renewed trade tensions, may continue to impact earnings growth, but recent policy measures could help stabilize corporate earnings [37][38] - The report emphasizes the importance of monitoring the upcoming policy announcements, particularly during the National People's Congress, which may signal new stimulus measures [22][36] Group 5 - The report identifies short-term capital flows, noting that domestic funds have shown significant net inflows into the Chinese stock market, while foreign capital has experienced net outflows [48][49] - It highlights that the recent increase in domestic capital inflows is a positive sign, despite the overall market facing pressure from external factors [48][49] - The report suggests that foreign capital may return to the Chinese market if there is a noticeable improvement in the economic fundamentals [48][49] Group 6 - The report recommends focusing on sectors such as telecommunications and consumer discretionary, which are expected to benefit from policy support aimed at boosting domestic consumption [57] - It highlights the potential for telecommunications companies to lead in digital transformation and cloud services, benefiting from stable cash flows and solid fundamentals [57] - The report also emphasizes the importance of brand strength in consumer-driven companies, particularly those that can leverage domestic demand recovery [57]

Trade Policy and Inflation - Trump announced a 25% import tariff on Canada and Mexico starting February 1, which could raise U.S. inflation by approximately 0.46 percentage points if fully passed on to consumers[7] - The actual impact of tariffs may be less due to potential currency fluctuations and trade negotiations, particularly with the EU and China[2] - Trump's tariff threats appear to be more of a political bargaining chip rather than immediate policy changes[10] Economic Data and Labor Market - December's core CPI inflation rate decreased by 0.08 percentage points to 0.23%, indicating a moderate decline in inflation[10] - Non-farm payrolls increased by 256,000 in December, exceeding market expectations, while the unemployment rate fell from 4.231% to 4.086%[13] - Retail sales showed a 0.4% month-on-month increase in December, reflecting consumer resilience despite concerns over future inflation[17] Monetary Policy Outlook - The Federal Reserve is expected to pause interest rate cuts in January, with the likelihood of 3-4 rate cuts throughout the year, each by 25 basis points[25] - The Fed's recent hawkish stance has reduced its forecast for rate cuts from five to two for the year[27] - High U.S. Treasury yields are anticipated to impact economic momentum and labor market performance throughout the year[25] Financial Market Trends - The U.S. dollar index is projected to remain strong around 108 in the short term, influenced by tariff policies and interest rate expectations[28] - The ten-year Treasury yield is forecasted to end the year at 4.1%, up from a previous estimate of 3.8%[29] - Concerns over slow rate cuts could lead to recession risks and potential financial crises in the U.S.[4]