Global Markets Strategy 24 February 2025 This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. China Equity Strategy Be careful: US-China risks back in focus The new NSPM may trigger MXCN reversal after a 17.6% YTD rally. Last Friday, the White House released a ne ...

December house prices finish the year with strong gains FICC Research Economics 25 February 2025 US Economics Research House prices posted strong gains to end 2024. The FHFA and S&P 20-city measures grew 0.4% and 0.52% m/m, respectively. These gains and potential future gains may contribute to the continued pricing-out of potential homeowners in the current housing market. House prices post strong gains to end the year The FHFA House Price Index and the S&P CoreLogic CS 20-City Index increased in December. ...

Summary of Conference Call Notes Industry Overview - The conference call focused on the **China Industrials** sector, particularly in **Automation**, **General Machinery**, and **Renewable Energy Equipment**. Key companies discussed include **Inovance**, **Shuanghuan**, **Hengli**, **Hangke**, **Leaderdrive**, **JSG**, **Guomao**, and **Megmeet**. The interest in **humanoid robots** was highlighted as a significant focus for investors, alongside mainstream business outlooks and overseas expansion strategies [1][2]. Key Company Insights Inovance (300124.SZ) - Management anticipates **double-digit growth** in the automation business for 2025, driven by recovery in **lithium batteries** and traditional industries. The **Gross Profit Margin (GPM)** is expected to remain stable due to reduced price pressure compared to the previous year [2]. - **Industrial robot shipments** are projected to grow by **40-50% year-on-year**. The company plans to expand its client base to include automotive and auto parts manufacturers [2]. - A new **iFA software platform** will be launched for free to enhance customer loyalty [2]. - Inovance will introduce **humanoid robot-related products** in 2025, with a new plant in Nanjing already operational [3]. Shuanghuan (002472.SZ) - Revenue and net profit growth are expected to be in the **teens** and over **20% year-on-year** in 2025, driven by the **NEV** and **intelligent actuator** segments [9]. - Shuanghuan captured **45%** of the domestic passenger NEV gear market in 2024, focusing on high-end products and avoiding price competition [10]. - The **intelligent actuator segment** aims for revenue of **Rmb900 million** in 2025, while overseas business is expected to grow by **50% year-on-year** [12]. Hengli (601100.SS) - Management expects **double-digit growth** in excavator products, while non-excavator products are projected to remain flat in 2025 [13]. - The company aims to achieve **Rmb300 million** in sales for ball screws and linear guides in 2025, with significant cost reduction potential [16]. Hangke (688006.SS) - Management noted faster order delivery times, with most orders received in late 2024 and early 2025 requiring delivery within three months [18]. - The company anticipates increased demand for vertically integrated equipment in the solid-state battery sector [21]. Leaderdrive (688017.SS) - Management targets **doubling or tripling** revenue from humanoid reducers in 2025, with current revenue at **Rmb10 million** [24]. - The company has developed roller screws with performance comparable to industry leaders and aims to produce **500,000 units** within three years [25]. JSG (300316.SZ) - Management has low expectations for new solar equipment orders in 2025, focusing instead on new products for cell-making and module upgrades [27]. - Positive momentum is expected in the semiconductor equipment segment, driven by improving localization rates [28]. Guomao (603915.SS) - Management targets **mid single-digit revenue growth** in 2025, with slight price improvements expected [32]. - The company is a key supplier of planetary reducers for DEEP Robotics, which delivered hundreds of quadruped robots in 2024 [33]. Megmeet (002851.SZ) - Management forecasts a **30% CAGR** in revenue from 2025 to 2027, driven by AI server power supply and intelligent home appliances [35]. - The company has a **30-40% market share** in the Indian market for intelligent home appliances [35]. Additional Insights - The overseas business momentum is strong, with Europe accounting for approximately **30%** of overseas revenue, followed by India (**20-30%**), Korea (**~20%**), and Southeast Asia (**~20%**) [5]. - The strategy of expanding overseas has proven effective, with orders doubling to **Rmb500-600 million** in 2024 [5]. - The overall sentiment in the industry is positive, with expectations of growth driven by technological advancements and increased demand in various segments [1][2][9][10][35].

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Technology in China - **Date**: February 25, 2025 Core Insights and Arguments - **China's Regulatory Changes**: The Chinese government plans to ban unlawful penalties imposed by national entities on private firms that are not based on laws and regulations. This is part of a broader initiative to promote the private economy, with a draft law under review for immediate implementation once approved [5][5][5] - **US Semiconductor Restrictions**: The Trump administration is reportedly planning to further tighten semiconductor curbs on China, including restrictions on the types of Nvidia chips that can be exported without a license. Meetings with Japanese and Dutch officials have occurred to discuss limiting maintenance support for semiconductor equipment in China [5][5][5] - **Mexico's Tariff Exploration**: Mexico is considering tariffs on countries without free trade agreements, including China, as part of negotiations with the Trump administration ahead of a March 3 deadline [5][5][5] Company-Specific Developments - **Li Auto**: - Official images of its first BEV SUV model, the i8, were disclosed, but no launch date was provided [7][7][7] - Weekly unit sales from February 17 to February 23 reached 7,700 units, ranking second among domestic startup EV brands [7][7][7] - **XPeng**: - Plans to expand its EV business into 60 overseas markets this year, doubling its current footprint. The company aims for half of its sales volume to come from outside China by 2033 and to be a top 3 global exporter by 2027 [7][7][7] - **Tesla**: - Preparing to launch Full Self-Driving (FSD) features in China, with an update allowing driving assistant features on public roads for customers who have paid 64,000 yuan for FSD [7][7][7] - Plans to announce updates for Model S/X later this year, potentially including features from revamped Model 3/Y [7][7][7] - **WeRide**: - Expanding robotaxi operations in Beijing with approval for its latest-generation model, GXR, marking its second robotaxi model in commercial operations in the city [7][7][7] - **Pinduoduo**: - Recruiting teams to develop AI language models to enhance its e-commerce platform, focusing on applications like pricing comparison and customer service [7][7][7] - **Alibaba**: - Released a deep reasoning feature on its AI chatbot platform, competing with other major AI models [7][7][7] - **JD.com**: - Announced it will cover social insurance benefits and housing fund costs for delivery riders, potentially impacting its operational costs [7][7][7] Additional Noteworthy Information - **Temu's Expansion**: Temu plans to allow Canadian businesses to sell goods on its platform, aiming to expand its product base and improve order fulfillment [8][8][8]

Key Takeaways from Global Automation Expert Call Industry Overview - The discussion focused on the automation industry in China, particularly the sales of automation products such as Siemens PLCs, led by Mr. Qiu, a former Sales Supervisor at Suzhou Xidian, Rexel's China subsidiary [1] Core Insights - **Inventory Levels**: Distributors in China are starting the year with 70-80% of peak inventory levels due to weak demand in 2024. Siemens distributors specifically have high inventory levels, with PLCs making up two-thirds of total inventories [4][4] - **Product Variability**: Inventory levels vary significantly by product. Popular products with long lead times, like Siemens PLCs, tend to have higher stock levels, while local suppliers may only maintain one month of inventory [4][4] - **Localization Trends**: There is rapid localization for low-to-mid-end products, leading to severe competition due to local overcapacity. However, Siemens PLCs do not face significant local competition in higher-end segments [4][4] - **Rebate Structures**: Rebate rates for distributors typically range from 1-3%, increasing to 5% during low demand periods. Foreign brands like Siemens prefer product rebates over cash, while local OEMs often provide cash discounts [4][4] - **Demand Recovery**: A gradual recovery in demand is anticipated towards the second half of 2025, with significant growth in new areas like humanoid robotics, where over 6,000 companies are involved in the supply chain in Suzhou [4][4] - **Traditional Automation**: Traditional automation sectors remain subdued, awaiting policy clarity, with key project announcements expected between June and August [4][4] Competitive Landscape - **Local OEMs**: Inovance is highlighted as a local OEM offering low to mid-end servos that match Siemens in quality but are priced 30-40% lower. However, local OEMs are still considered inexperienced in higher-end applications [5][5] - **Sector Preferences**: State-owned enterprises (SOEs) in industries such as shipbuilding and pharmaceuticals prefer foreign brands for quality and safety, while private companies are more cost-sensitive and likely to experiment with local products [5][5] Additional Insights - The automation industry is experiencing a shift with increasing competition and changing demand dynamics, which could present both opportunities and risks for investors [4][4][5][5]

Summary of Key Points from the Conference Call Industry and Company Focus - The analysis centers on the impact of potential government actions under "Trump 2.0" on Business Development Companies (BDCs) and their portfolio companies, particularly in higher-risk industries such as aerospace and defense, tobacco/food/beverage processing, business services, construction, and general manufacturing [2][4][5]. Core Insights and Arguments - **Higher-Risk Industries**: The report identifies five industries with significant exposure to government spending cuts, import tariffs, and labor shortages, which are deemed higher-risk [2]. - **Portfolio Company Risks**: A list of 60 companies was compiled, focusing on those with exposures greater than 1.5% of NAV, highlighting potential risks to net asset value (NAV) due to their industry and size [3][4]. - **Granular Analysis Needed**: The report emphasizes that a broad view of industry concentrations can be misleading, as companies within the same industry can have vastly different revenue sources and risk profiles [5]. - **Government Contracts and Tariffs**: Companies reliant on government contracts or imports may face risks from potential cuts in government spending or rising tariffs, particularly in defense and manufacturing sectors [4][30][34]. Notable Company Profiles - **Edge Autonomy Holdings**: Specializes in uncrewed autonomous systems, heavily reliant on U.S. government defense contracts, which could be at risk due to funding cuts [13][14][15]. - **Food Pharma Subsidiary Holdings**: Engaged in contract manufacturing of functional foods, with moderate exposure to import tariffs due to reliance on globally sourced ingredients [18][19][20]. - **Peraton Corp**: A national security and technology company with significant revenue from U.S. government contracts, particularly vulnerable to budget cuts [28][29][30]. - **JW Aluminum**: Likely to benefit from aluminum tariffs, with a domestic supply chain and minimal reliance on government contracts [34][36][37]. - **Ricardo Defense, Inc.**: Highly reliant on U.S. government contracts for defense vehicle systems, facing risks from budget fluctuations [51][54][55]. Additional Important Insights - **Diverse Revenue Streams**: Companies like SureKap LLC, which manufactures packaging equipment, have low exposure to government contracts and are less likely to be impacted by Trump 2.0 actions [23][25]. - **Supply Chain Risks**: Many companies, such as Clarience Technologies, have a global supply chain that exposes them to tariffs and international logistics issues, which could affect their operations [39][44]. - **Labor Considerations**: The report notes that many companies do not rely on low-cost labor, focusing instead on skilled labor, which may mitigate some risks associated with labor shortages [38][45][68]. Conclusion - The report provides a comprehensive overview of the potential impacts of government policy changes on various industries and companies within the BDC sector, highlighting the need for detailed analysis to understand the specific risks and opportunities presented by these changes [1][4][5].

Summary of Key Points from the Conference Call Industry Overview - **Industry**: India Energy & Chemicals - **Key Focus**: The conference discusses the outlook for large-cap and integrated energy equities in India, emphasizing the benefits from well-supplied energy markets, state-owned enterprise (SOE) reforms, strong domestic demand, and monetization of key projects [2][12]. Core Companies and Ratings - **Top Picks**: - **Reliance**: Rated Overweight with a price target of INR 1,606.0, current price INR 1,224.9, indicating a 31% upside [6]. - **GAIL**: Rated Overweight with a price target of INR 248.0, current price INR 160.2, indicating a 55% upside [6]. - **ONGC**: Rated Overweight with a price target of INR 416.0, current price INR 233.7, indicating a 78% upside [6]. - **Oil India**: Rated Overweight with a price target of INR 506.0, current price INR 318.1, indicating a 59% upside [6]. - **MGL**: Rated Overweight, focusing on increasing travel miles in Mumbai [15]. - **HPCL and BPCL**: Preferred over IOCL due to improved balance sheet quality and higher dividends [14]. Market Dynamics - **Energy Market Reforms**: The conference highlights significant reforms in India's energy market, including diesel price deregulation and gas price adjustments linked to global prices [8][9]. - **Gas Demand Growth**: India targets a 15% share for gas in its energy mix by 2030, up from the current 6-7%, with expected gas consumption growth at a CAGR of 7.8% from FY25 to FY29 [12]. Financial Projections - **Earnings Growth**: Reliance is expected to achieve a 15% EPS CAGR over FY25-FY27, driven by multiple business triggers [12]. - **Valuation Multiples**: - Reliance: P/E of 8.1x for FY25e, indicating attractive valuation [6]. - GAIL: P/E of 25.0x for FY25e, reflecting market appreciation [6]. - ONGC: P/E of 9.6x for FY25e, with a strong production outlook [6]. Risks and Opportunities - **Global Gas Glut**: The impact of a global gas glut is expected to benefit price-sensitive markets like India, enhancing gas demand [12]. - **Decarbonization Initiatives**: India's evolving policy framework for decarbonization includes significant investments in renewable energy and hydrogen production [10][11]. Additional Insights - **Stock Performance**: The conference notes recent stock performance trends, with various companies experiencing declines over the past month and year, indicating market volatility [6]. - **Investment Opportunities**: The focus on integrated energy companies and the potential for significant upside in share prices presents attractive investment opportunities in the Indian energy sector [12][15]. Conclusion - The conference emphasizes a positive outlook for large-cap energy companies in India, driven by structural reforms, increasing domestic demand, and strategic investments in new energy sources. The potential for earnings growth and favorable market conditions positions these companies as attractive investment opportunities in the near to medium term [2][12][14].

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Materials, specifically focusing on metals and construction materials in the Asia Pacific region [1][6] - **Current Situation**: The industry is experiencing slow demand recovery post-holiday, with various materials showing mixed price movements and inventory changes [1][6] Core Insights and Arguments Steel Industry - **Anti-Dumping Duties**: Korea has imposed preliminary anti-dumping duties on Chinese steel plates ranging from 27.91% to 38.02% [1][3][17] - **Price Movements**: - Shanghai HRC prices increased by 1.8% WoW, while CRC prices rose by 0.5% WoW [3][9] - Tangshan billet prices increased by 3.0% WoW [3][9] - Rebar prices decreased by 0.2% WoW [3][9] - **Inventory Changes**: Long steel inventories increased by 4.6% WoW, while flat steel inventories decreased by 0.5% WoW [3][9] Base Metals - **Copper Prices**: Shanghai copper prices decreased by 0.2% WoW, with inventories up by 12.9% [2][9] - **Aluminum Prices**: Shanghai aluminum prices increased by 1.1% WoW, with inventories down by 17.5% [2][9] Battery Metals - **Lithium Prices**: - Domestic industrial-grade lithium hydroxide prices increased by 0.1% WoW to Rmb63,800/t, while battery-grade prices decreased by 0.1% WoW to Rmb70,450/t [2][9] - Industrial-grade lithium carbonate prices rose by 0.3% WoW to Rmb73,650/t, while battery-grade prices fell by 0.3% WoW to Rmb76,220/t [2][9] - **Government Initiatives**: The Ministry of Industry and Information Technology (MIIT) is promoting the exploration of domestic lithium, cobalt, and nickel resources [2][20] Coal Industry - **Price Movements**: Coal prices (5,500 kcal) decreased by 0.6% WoW to Rmb699/t, with inventories up by 3.4% [4][9] - **Capacity Closure**: Inner Mongolia closed 1.8 million tons of coal capacity as part of state guidelines [4][26] Cement and Glass Industries - **Cement Prices**: Cement prices decreased by 2.1% WoW to Rmb386/t [3][9] - **Glass Prices**: Float glass prices decreased by 0.4% WoW to Rmb1,343/m2, while glass fiber prices remained flat [5][9] Additional Important Insights - **Market Dynamics**: The overall demand for construction materials remains weak, with a notable decline in production and sales in various sectors [1][17] - **Investment Trends**: The new energy battery industry saw Rmb37.1 billion invested in January 2025, indicating a gradual recovery in expansion [20][22] - **Global Supply Chain**: The first shipment of high-quality bauxite from South America has arrived in China, highlighting ongoing resource diversification efforts [20][22] Conclusion The China Materials sector is currently navigating a complex landscape characterized by regulatory challenges, fluctuating prices, and mixed inventory trends. The imposition of anti-dumping duties and government initiatives to promote domestic resource exploration are key factors influencing market dynamics.

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses developments in the **Artificial Intelligence (AI)** industry, particularly focusing on **Generative AI (GenAI)** and its implications for various sectors, including finance and technology [4][6][26]. Core Insights and Arguments 1. **AI Readiness and Revenue Generation**: J.P. Morgan is leading in AI readiness among peers, with initiatives generating tangible revenue and enhancing productivity [4][4]. 2. **Predictions for AI Evolution**: The year 2025 is anticipated to be pivotal for AI, with expectations of advancements in **Generative AI**, **Agentic AI**, and **Physical AI** [6][6]. 3. **AI Price Dynamics**: A significant price war in AI is noted, with companies like Anthropic, OpenAI, and Google reducing prices by up to 75%, which is expected to increase demand due to Jevons Paradox [19][19]. 4. **Hardware Innovations**: Companies are investing heavily in new AI hardware, with notable advancements from NVIDIA, AMD, and others, which are crucial for supporting the growing demands of AI models [19][19]. 5. **Open Source vs. Closed Source**: The competition between open-source and closed-source AI models is highlighted, with closed-source models expected to dominate AGI advancements [10][11]. 6. **AI in Science and National Security**: AI is projected to accelerate discoveries in natural sciences and collaborate with national security agencies for various applications [12][12]. Notable Developments in AI Models 1. **Model Releases**: Various companies have released new AI models, including IBM's WatsonX, Microsoft's Phi-3-Mini, and DeepSeek's models, showcasing significant advancements in capabilities and efficiency [27][29]. 2. **Performance Benchmarks**: Models like Codellama-70B have achieved state-of-the-art scores, indicating rapid advancements in AI capabilities [27][27]. 3. **AI in Financial Services**: Financial institutions are increasingly adopting AI tools for customer service, fraud prevention, and market analysis, with notable implementations by firms like Wells Fargo and Goldman Sachs [62][62]. Emerging Trends and Technologies 1. **Robotics and Physical AI**: The emergence of humanoid robots is noted, with several models nearing production, indicating a shift towards more physical applications of AI [8][75]. 2. **DeepFake Technology**: The potential for both positive and negative applications of DeepFake technology is discussed, emphasizing its impact on media and security [9][53]. 3. **Ethics and Regulation**: The evolving landscape of AI ethics and regulation is highlighted, with new frameworks being developed to ensure responsible AI deployment [55][57]. Additional Insights - **Market Sentiment**: The sentiment towards AI among top companies remains largely positive, with notable exceptions [33][34]. - **Job Market Impact**: The integration of AI in workplaces is leading to significant shifts in job roles, with many companies restructuring to focus on AI capabilities [49][51]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the AI industry.

Summary of Key Points from the Investor Presentation on Utilities & Infrastructure in Southeast Asia Industry Overview - The electricity markets in Southeast Asia are tightening due to a doubling in power consumption growth, driven by increasing demand from data centers and AI applications [1][10] - Malaysia is identified as a significant beneficiary of the revised electricity demand estimates, which have been adjusted upward by 130 basis points since 2023 [2] Core Companies and Recommendations - Preferred companies in the sector include: - **Tenaga**: Overweight rating, expected to benefit from energy transition and increased demand from data centers [10] - **SembCorp Industries (SCI)**: Overweight rating, anticipated to maintain strong returns due to tight electricity markets [10][12] - **ICT**: Overweight rating, expected to sustain outperformance with top-quartile yield management [11] - **Keppel**: Overweight rating, projected to turn around with strong infrastructure earnings [10] - Other companies mentioned include Manila Electric, Aboitiz, and PGAS, with varying ratings from overweight to underweight [9] Market Dynamics - Electricity markets in Singapore and India are expected to remain tight through 2026, with Singapore experiencing decade-high electricity prices due to low reserve margins [12][30] - The Philippines is projected to see strong electricity demand growth into 2025, with potential upside from new gas power plants and LNG import terminals [12] - The overall demand trajectory for ASEAN electricity is expected to continue its pre-COVID growth pattern, keeping generation markets tight [19] Financial Metrics and Projections - Key financial metrics for preferred companies include: - **Tenaga**: Price target of MYR 20.60, current price MYR 13.86, representing a 49% upside [9] - **SembCorp**: Price target of SGD 7.20, current price SGD 5.63, representing a 28% upside [9] - **ICT**: Price target of PHP 460.00, current price PHP 347.00, representing a 33% upside [9] - Average return on equity (ROE) for SCI is expected to sustain above 17% in the coming years [12] Regional Comparisons - ASEAN countries, particularly Thailand, the Philippines, and Malaysia, are positioned similarly in terms of renewable opportunities and demand, while Singapore faces challenges due to tight supply conditions [13] - Electricity prices in Singapore and the Philippines are among the highest in the region, with Singapore's spot power price projected to remain elevated [47][48] Additional Insights - The demand for data centers in ASEAN is expected to grow significantly, with Malaysia identified as a key beneficiary of this trend [51][53] - The cost of electricity generation varies across ASEAN, with Malaysia having a generation tariff of US cents 7.5/kWh, which is competitive compared to other countries in the region [79] - The transition to renewable energy is ongoing, but ASEAN's generation mix is still lagging behind global peers, with a significant reliance on coal and natural gas [81][82] This summary encapsulates the critical insights from the investor presentation, highlighting the dynamics of the utilities and infrastructure sector in Southeast Asia, key players, and financial projections.