[Editor-in-Chief Observes Market]

The impact of Trump's formal inauguration on the market is gradually becoming evident, but overall it has not been as intense as expected, with the Hang Seng Index returning to the 20,000 point mark last week.

This week is the last week before the Spring Festival, and the trading time is very short. Following the domestic policies that guided medium and long-term funds into the market last week, the China Securities Regulatory Commission issued the "Action Plan for Promoting the High-Quality Development of Index Investment in the Capital Markets" over the weekend, which leads to the expectation that the market will continue to remain promising after the Spring Festival.

The external environment is also improving. On January 23, during the annual meeting of the World Economic Forum in Davos, Swiss Franc, President Trump stated that he would ask Saudi Arabia and other members of the oil-exporting organization to lower oil prices, and indicated that he believes this would lead to a Federal Reserve rate cut. However, Powell emphasized the importance of the Fed's independence and stated that the results of the presidential election will not directly impact the Fed's policy decisions in the short term.

Note that the Federal Reserve's interest rate decision will be announced at midnight this Thursday, Beijing time. Against the backdrop of strong demand and persistent inflation, the market generally expects no change, while in December's meeting, policymakers indicated that there would only be two rate cuts this year. The focus will be on forward guidance, as the Federal Reserve needs to assess the potential impact of new import tariffs on inflation. Additionally, an executive order to deport undocumented immigrants has been signed, which may weaken the growing labor supply, leading to potential wage and price pressures. This week, earnings reports from major giants like Apple, Microsoft, Meta, and Tesla will be concentrated on Wednesday and Thursday, and their performance will impact Hong Kong's technology stocks.

In terms of hot sectors, the robotics sector has been stimulated by recent news and is undergoing repeated developments. The AI sector also remains hot; on January 24, the DeepSeek-R1 benchmark test rose to third place among all large models on the foreign model ranking Arena, ranking alongside OpenAI o1 as the top in the style control model category. Its arena score reached 1357, slightly surpassing OpenAI o1's score of 1352. Related collaborative model types are worth paying attention to.

[This Week's Golden Stock]

AAC TECH (02018)

The company announced that on January 23, 2025, it spent 11.7723 million Hong Kong dollars to buy back 0.3045 million shares at a price ranging from 38.35 to 39.65 Hong Kong dollars per share. AAC TECH has the largest revenue growth in 2024 among its peers and ranks second in net income growth, showcasing outstanding performance.

The company’s ongoing buybacks highlight a positive outlook, with AAC TECH being a global leader in acoustics, providing acoustic solutions for over 90% of flagship smart phones worldwide. Benefitting from the continued introduction of high-end acoustic platforms into main models, as well as an increase in speaker shipments. In the first half of this year, the combined revenue of AAC TECH's Consumer Electronics Acoustics and Automotive Acoustics PSS companies reached 4.98 billion yuan. Moreover, the PSS company acquired by AAC TECH last year had a consolidated revenue of 1.52 billion yuan in the first half of this year, with a gross margin of 25.0%. Typically, the second half of the year is a peak season for the consumer electronics industry, and AAC TECH’s revenue from its Consumer Electronics Acoustics business (excluding automotive acoustics) reached 4.18 billion yuan in the second half of last year. The SLS master-level speaker aimed at the mid-to-high end market maintains rapid growth, with shipments exceeding 12 million units, a year-on-year increase of nearly 200%. According to incomplete media statistics, popular models such as Xiaomi SU7, Wenjie M9, Li Xiang L7-L9 series, and Xiaopeng MONA M03 all use AAC TECH/PSS's speaker products.

In terms of scale, the acoustic business will become AAC TECH's first important product line exceeding 10 billion, and it is expected to reach a scale of 20 billion in the medium to long term. The gross margin of micro-acoustics in the consumer electronics sector is expected to maintain around 30%. In 2024, global shipments of AI smart glasses are expected to reach 2.34 million pairs, representing a year-on-year increase of 588%. Looking ahead to 2025, the AI smart glasses market will continue to see robust growth, with an expected year-on-year increase of 135%, reaching 5.5 million units, benefitting from strong product launches from Meta/Xiaomi/ByteDance/Thunderbird/Rokid.

[Industry Observation]

Photovoltaic Glass is expected to accelerate the elimination of backward capacity.

Recently, the nine leading photovoltaic glass companies (XINYI, Flat Glass Group, Chengdu Rainbow Appliance(Group) Shares, Changzhou Almaden, Henan Ancai Hi—Tech, Qibin, New Fuxing China Kai Sheng, and Nanbo) initiated a "Photovoltaic Glass Industry Initiative Against Malicious Competition" to resist certain companies using toxic products to cut costs. They advocated for stronger quality self-discipline, cooperation between upstream and downstream companies to resist, and to reject malicious competition, thereby fostering a positive ecosystem.

In October 2024, a company detected that the arsenic content of a certain Photovoltaic Glass product reached an average of over 200 ppm, with some samples having arsenic levels close to 2000 ppm (national standards require control under 50 mg/kg). This was mainly due to some companies using inexpensive but highly toxic arsenic trioxide as a clarifying agent for Photovoltaic Glass to control costs. Currently, the overall profitability in the Photovoltaic Glass sector is under pressure, and some companies are taking extreme measures to reduce costs to alleviate operational pressure. However, this poses significant risks in multiple stages such as production, use, and disposal, which disrupts market order and affects the normal development of the industry. The initiative from leading enterprises to resist "toxic glass" is expected to accelerate the elimination of outdated capacity and backward enterprises, while also reflecting a favorable competitive landscape in the industry.

The reduction in production within the Photovoltaic Glass sector is quite sufficient, and the restoration of cold repair capacity takes time. It is expected that supply will remain at a low level in the short term, and after the Spring Festival, with demand recovering and downstream inventory restocking, Photovoltaic Glass is likely to continue to deplete, driving price and profit recovery. In the medium to long term, the subsequent increase in supply is limited and controllable, and under the assumption of aggressive recovery, the industry's average daily melting volume is projected to grow only 3% year-on-year by 2025, showing significant price elasticity in phases. Glass is one of the most optimal segments in the Photovoltaic industry chain, and the market share of Xinyi Glass (00868) and Flat Glass Group (06865) is expected to recover.

[Data Monitoring]

The Hong Kong Stock Exchange announced that the total number of outstanding contracts for the Hang Seng Index Futures (January) is 16,954, with a net number of 6,334 outstanding contracts. The settlement date for the Hang Seng Index Futures is January 27, 2024. This period marks the settlement of the index futures.

From the distribution of the Hang Seng Index bullish and bearish contracts, at the position of 20,066 points, the dense area of bearish certificates is close to the central axis, indicating bullish momentum for the Hang Seng Index. GUOTAI JUNAN I released a Research Report stating that the recently published domestic economic and financial data reflect a positive effect of policies, with the expected profit growth rate of Hong Kong stocks for 2025 generally increasing recently. Currently, the pricing and capital structure of the Hong Kong stock market are healthier and relatively more attractive. The Hang Seng Index is bullish this week.

[Editor's note]

Recently, Semiconductor Manufacturing International Corporation has been very strong. In 2025, not only will its strategic position be prominent, but there are also expectations for an increase in gross profit. Therefore, this round of Semiconductor Manufacturing International Corporation represents value logic, and it is no longer driven by emotion, with a new high expected soon.

The A+H share listing wave continues, and the atmosphere for new stock offerings in Hong Kong remains strong, with many participants being mainland players. Additionally, according to CICC data, the holdings of mainland public offerings in Hong Kong stocks continue to rise, with holdings reaching 492.8 billion RMB in Q4 2024, an increase from 455.8 billion RMB in Q3 2024. However, as of Q4 2024, the market value of mainland public fund holdings accounts for 14.6% of the overall southbound total, a decrease from 16.2% in the third quarter, indicating that during the significant inflow of southbound capital into Hong Kong stocks in the fourth quarter, other types of investors (retail investors) have increased their participation more.