Anatomy of the large cap market.

Below freezing, the markets in both locations finally rebounded slightly. After opening high, the Hong Kong stock market fluctuated narrowly around the opening price throughout the day, closing up 0.83%.

There are two reasons for today's rise: 1. The State-owned Assets Supervision and Administration Commission recently issued "Several Opinions on Improving and Strengthening the Value Management of Central Enterprises Holding Listed Companies," which includes nine points, mainly: first, clarifying the goals and direction of value management; second, effectively utilizing the "toolbox" for value management; third, improving work mechanisms and strengthening positive incentives; fourth, adhering to compliance bottom lines. Among these, a key point for the market is that the Opinions emphasize the importance of addressing the issue of listed companies trading below their net asset value, incorporating the resolution of this long-standing problem into annual key tasks, guiding listed companies that are long-term below net asset value to develop and promote disclosure of valuation enhancement plans, and supervising execution; for listed companies with weak business synergy, poor stock liquidity, and essentially losing functional roles, encouragement is given to deal with them through mergers, asset restructuring, and other means.

The concept of value management has been around for a long time, but this time it is an improved and strengthened version, and substantial advancement is expected in the near future. The aim is to encourage central enterprises to grow stronger and improve efficiency and competitiveness on one hand, while increasing market value will also stabilize the stock market. This can also be seen as a form of stabilizing measures. The current situation is that many central enterprises have fallen below their net asset value, and various measures need to be adopted to enhance this. Companies like China Railway (00390), CRRC Corporation (01766), China Railway Construction Corporation (01186), and CHINA COMM CONS (01800) will naturally rise, but the extent is not large, about 3 points.

As the end of the year approaches, it is also difficult to introduce specific measures, likely to be pushed to next year. Especially since restructuring cannot happen so quickly, relatively speaking, central enterprises with strong dividends, such as CHINA TOWER (00788): if the company implements a share consolidation and capital reduction plan, it will help expand the basis for distributable profits, positively impacting long-term dividend outlook. Additionally, electric power stocks, such as Huadian Power International Corporation (01071) and gas-related CHINA RES GAS (01193), are also noteworthy.

On the morning of the 18th, the central bank had discussions with some aggressively trading financial institutions in the current bond market, requesting them to pay attention to their own interest rate risks and strengthen the stability of bond investments. The reason is that bonds are in a bull market and rising too rapidly, pulling funds towards them, which is naturally unfavorable for the stock market. However, from another perspective, the act of scrambling for bonds itself implies expectations for subsequent RRR cuts and interest rate reductions, along with cautious expectations concerning the economy. This is the main reason for the sudden surge in the market during the afternoon.

Today, state-owned enterprises beginning with Middle Letter are not the main players in the market; AI and Autos are. At today's Volcano Engine Force dynamic conference, Doubao released a visual understanding model that possesses stronger content recognition, comprehension, reasoning, and visual description capabilities. The president of Volcano Engine, Tan Dai, announced that the price of the Doubao visual understanding model has been reduced to 0.003 yuan per thousand tokens, an 85% decrease from the industry average price. Additionally, the next generation video generation large model from Byte Doubao will be officially released in January next year. Moreover, Douyin's image and video generation tool, Dream AI, showcased a new generation image generation model and dynamic poster functionality.

As of now, the daily tokens usage of the Doubao large model has exceeded 4 trillion, growing more than 33 times in the past seven months. Whenever a related AI application makes new advancements, AI+ usually links together, mainly involving FOURTH PARADIGM (06682), MOBVISTA (01860), MEITU (01357), and INNOVATION INTELLIGENCE (02121). It was previously mentioned that these varieties would show recurring activity. The most rapidly fermenting sector is Crystal Technology (2228), which has announced a strategic partnership through its pillar enterprise—Golden Light Financial Group—with the powerful Indonesian first financial group. It also signed a strategic cooperation memorandum with Microsoft China, essentially moving in the direction of AI empowerment, and saw nearly a 30% surge today.

The rapid growth in Doubao's users will lead to the expansion of computing centers, subsequently driving an increase in demand for AI Servers; mainly including ZTE (00763) mentioned yesterday and LENOVO GROUP (00992).

Looking at the automotive direction, on Tuesday, Tesla's stock price hit a historic high for the fifth consecutive day, rising 3.64% to close at $479.86. Since Donald Trump, the President of the USA, won his second term, Tesla has consistently benefitted, with its stock price increasing by over 90% cumulatively. In the early stages of this round of Tesla's launch, it was noted that Tesla's logic has fundamentally changed; its own fundamentals are no longer the main logic, the strongest driving force being the pressure for Trump to win. Musk, who made significant contributions, will undoubtedly reap substantial rewards, and how can Tesla's stock not rise significantly?

Moving forward, many of Trump's policies are advantageous for Tesla but detrimental for competitors, including plans to ease regulations on autonomous vehicles and end the tax credit for electric vehicles, among others. Moreover, Tesla also has stories to tell regarding robots and AI.

Riding on the wave of Tesla's surge, domestic auto stocks have also strengthened, such as LEAPMOTOR (09863) launching new models (C10/C16) in 2024, with overall sales experiencing rapid growth (cumulative year-on-year +100% from January to November 2024) and monthly sales reaching new highs (over 40,000 in November). Today, it rose over 6%, with other strong sellers like LI AUTO (02015) and GEELY AUTO (00175) also performing well. Furthermore, BRILLIANCE CHI (01114) revised its dividend policy, aiming to distribute at least 50% of the after-tax profits for the relevant fiscal year, exceeding market expectations. It also rose over 6%.

Today, there was also significant movement regarding Lidar. According to media reports, Tesla has designed its own Lidar and is collaborating with Continental Group to integrate the radar technology developed for future vehicles into its systems. Supcon (02498), a leader in the industry, has a market share of 35.1%, ranking first in the industry for ten consecutive months, according to reports from the Gaishi Automotive Research Institute publishing Lidar supplier installation amounts from January to October 2024. If Tesla adopts Lidar on a large scale, the industry outlook will need to be reassessed, with a nearly 18% increase today.

Amidst fierce competition among Chinese auto manufacturers, foreign brands are also seeking changes actively. On December 18th, it was reported that Honda Motor and Nissan Motor are preparing for negotiations regarding a possible merger, and both companies plan to eventually bring Mitsubishi Motors under a holding company. Currently, Nissan is the largest shareholder of Mitsubishi Motors, holding 24% of the shares. The combined annual sales of the three automakers are expected to exceed 8 million vehicles, sufficient to challenge global giants Toyota and Volkswagen, thus becoming the world's third-largest automotive group. The three parties are indeed discussing various possibilities for future cooperation, but no decisions have been made yet.

The backdrop of this transformation is the continuous decline in the market share of Japanese cars in China for three consecutive years. According to sales data from the Passenger Car Association for November, Honda's terminal car sales in China amounted to 76,773 units, a year-on-year decline of 28.02%. Nissan's sales in China, including Passenger Vehicles and light commercial vehicles in its two business segments, totaled 63,545 units, down 15.14% year-on-year. Based on a merger logic, DONGFENG GROUP (00489), with its major joint ventures being Dongfeng Nissan and Dongfeng Honda, saw its stock price rise over 6% today.

The first China Brain-Computer Intelligence Conference (ChinaBMI) will be held on December 20-21 in Hangzhou. Professor Hong Bo from Tsinghua University's School of Biomedical Engineering revealed at the conference that China's independently developed NEO brain-computer interface devices will be applied in about 10 centers across the country and in 30-50 cases of brain-computer interface implantation surgery next year. On December 28, 2024, the world's first brain-computer interface product based on AI AGI algorithms for dream detection and reconstruction, Dreamgear, will be officially released. This groundbreaking product has attracted widespread attention in the tech community and is expected to open new possibilities for the popularization and application of brain-computer interface technology. Nanjing Panda Electronics (00553) rose over 17% today due to its participation in the "Key Technology R&D for Multimodal Human-Machine Interaction Systems Based on Brain-Computer Interface Technology" project organized by the Ministry of Science and Technology.

At 3 AM Beijing time on Thursday, the Federal Reserve is about to announce the highly anticipated December interest rate decision, with Fed Chair Powell scheduled to speak at the regular press conference half an hour later (3:30). A further rate cut of 25 basis points is no longer in suspense as the Dow Jones has declined for 9 consecutive days, needing urgent relief. The focus will be on whether the Fed will hint at pausing rate cuts in January and look at the dot plot.

Sector Focus

The Doubao visual understanding model is quite remarkable: it includes spatial recognition, memory, association, search ability, object identification, and mathematical reasoning skills, with very short response times; this demonstrates the rapid enhancement of AI agents' capabilities in edge hardware and their imaginative applications. Bullish for AI glasses.

Additionally, Meta is upgrading its smart glasses. Meta announced on Monday that it is updating the Ray-Ban Meta smart glasses, which will feature real-time AI video capabilities and real-time language translation capabilities.

Hong Kong stock related varieties:

1. KONITA Optical (02276): rose more than 11% on December 18. The company has signed a product supply framework agreement with a multinational consumer electronics company to provide customized lenses for AI glasses and other products, as well as establishing an XR R&D and service center.

2. SUNNY OPTICAL (02382): has technological layout and product solutions in AI glasses vision solutions, covering fields such as scene interaction, information interaction, and imaging.

[Stock Exploration]

KINGSOFT (03888): third-quarter performance shows steady growth with gaming business revenue exceeding expectations.

The company announced its third-quarter 2024 performance, with revenue of approximately 2.915 billion yuan, a year-on-year increase of 42% and a quarter-on-quarter increase of 18%. Operating profit was approximately 1.144 billion yuan, up 204% year-on-year and 44% quarter-on-quarter.

Commentary: KINGSOFT's third-quarter performance is solid, exceeding market expectations by 13%. Among them, gaming revenue increased by 78% year-on-year, and enterprise software business revenue remained stable, supported by the recovery of domestic personal subscriptions and institutional authorizations, with a year-on-year revenue increase of 10%. In addition, the company's net profit during the period also exceeded market expectations by 14%. Kingsoft Cloud's third-quarter performance was robust, surpassing market expectations.

In 3Q24, public cloud revenue reached 1.18 billion yuan, representing a year-on-year increase of 15.6%; 3Q24 AI revenue reached 0.36 billion yuan, accounting for 31% of public cloud business revenue. The expansion of the AI business has further diversified the company's customer and industry distribution. The company's gaming business share exceeded expectations, primarily benefiting from the significant contribution of "Dust White Restricted Area" and the successful launch of "Jian Wang 3: Wujie," as well as the ongoing growth of subscriptions from individual and institutional users in domestic office software.

WPS AI has entered the overseas public testing stage, and its enhanced product features are expected to provide lasting value enhancement for office business, with paid user scale and ARPU potentially achieving a dual increase. As cloud usage grows, especially regarding AI demands related to WPS Office and Xiaomi's Internet of Things, smartphones, and electric vehicles, revenue contributions from KINGSOFT and Xiaomi are expected to increase from about 20% in 2024 to over 40% by 2027, driving the company's revenue compound annual growth rate to 13% from 2025 to 2027.