According to the Zhixun Finance app, Tianfeng Securities released a report stating that the development of AI on the end and cloud sides has driven an increase in the usage of passive components, while the demand for high-end products such as high-capacity MLCC, low-loss one-piece molding power inductors withstanding large currents has significantly increased. The Q2 profits of domestic MLCC manufacturers have shown significant YoY and QoQ growth. The "car-road-cloud integration" empowers many automatic driving projects: Changchun initiated the construction of "car-road-cloud integration", and plans to launch an airport automatic driving bus project in the next three years. Hainan's Smart Transportation Construction has taken a major step forward. Tianfeng Securities is bullish on the revival of the passive components market and the increased demand for AI-driven incremental components.

For passive components, the Q2 profits of domestic MLCC manufacturers have shown significant YoY and QoQ growth. The median growth rates of Sanhua's 2024 H1 performance forecast's net income after deducting non-recurring gains and losses are 44% YoY and 36% QoQ, while that of Fenghua's 2024 H1 performance forecast's net income attributable to shareholders are 412% YoY and 88% QoQ, with significant high YoY and QoQ growth. Domestic passive component giants Yageo and Walsin Technology of Taiwan are confident that inventory levels will return to a healthy level and AI customers will drive demand in the second half of the year. The development of AI on the end and cloud sides has driven an increase in the usage of passive components, while the demand for high-end products such as high-capacity MLCC, low-loss one-piece molding power inductors withstanding large currents has significantly increased.

In terms of automotive electronics, Changchun initiated the construction of "car-road-cloud integration", and plans to launch an airport automatic driving bus project in the next three years. The Smart Transportation Construction of Hainan Free Trade Port has taken a major step forward. The automatic driving bus project at Haikou Meilan Airport has been launched, bringing Hainan's Smart Transportation Construction investment to 12.7 billion yuan. The "car-road-cloud integration" empowers many automatic driving projects. Haikou Meilan has taken a major step forward. The automatic driving bus project of Haikou Meilan Airport has been launched, bringing Hainan's Smart Transportation Construction investment to a major milestone.

In Q2 of 2024, the mobile phone market showed a recovery trend, with a 6.5% YoY increase in shipments. Honor and ByteDance deepen their AI layout by collaborating on a large-scale model of AI-powered smartphones. Apple is concerned about the durability of folding screens for reduced price machines, while the Honor MagicV3 will be released on July 19 and places a heavy emphasis on thinness and screen strength. In terms of new machines, Apple has obtained a design patent for a foldable screen iPhone which focuses on how to improve the durability of the folding screen. 1) In Q2 of 2024, shipments of smartphones increased by 6.5% YoY, reaching 0.2854 billion units. The second quarter seems to be more of a prelude to the launch of more AI-powered smartphones in the second half of the year, which could become the next growth driver after 5G and folding smartphones. 2) In terms of AI, Honor has already reached a cooperation agreement with ByteDance's large-scale model family to upgrade "Intelligent Office", and multiple models such as voice recognition and role play will help Honor establish a basic capability for applying vertical models in mobile office field. 3) In terms of new machines: Apple has obtained a design patent for a foldable screen iPhone which focuses on how to improve the durability of the folding screen. On July 19, the Honor MagicV3 folding screen mobile phone was officially launched. The mobile phone is equipped with a Qualcomm Snapdragon 8 Gen3 processor and uses aerospace special fiber body, with a thickness of only 2.84mm. The "King of Fibers", with the hardness of 5800 MPa, is applied to the black version of Honor Magic V3. The folding hinge is made of the second-generation Honor Shield Tunnel Steel, which is about

In terms of PCs, AIPC's penetration rate has increased and the update cycle of Windows 11 has driven upstream growth in the industry chain, with shipments of PCs increasing by 3.4% YoY in Q2. The new machine ProArt Create 16 of Asus provides professional creative support for creative workers and virtual designers with its iconic virtual knob function. 1) PC shipments: In Q2 of 2024, the penetration rate of desktop PCs and the update cycle of Windows 11 have driven upstream growth in the industry chain, with PC shipments increasing by 3.4% YoY, and shipments of the new machine ProArt Create 16 and laptop reaching 62.8 million units, a YoY increase of 3.4%, and global personal computer (PC) market in full force growth. Shipments of laptops (including mobile workstations) reached 50 million units, an increase of 4% YoY, and desktops (including desktop workstations) accounted for 20% of the total PC market. On July 17, Asus released the ProArt Create 162024 laptop, accounting for 20% of the market in Asus and slightly increasing by 1%, with a total shipments of 12.8 million units. 2) In terms of new machines, the iconic virtual knob function of ProArt Create series has deep cooperation with many creative software, the computer is equipped with a 4K OLED screen, covering 100% P3 wide color gamut, with a maximum brightness of 600 nits, supporting ten-point touch and ASUS Pen handwriting pen.

Panel: Global TV panel shipments in June decreased month-on-month and year-on-year. Companies in the OLED industry saw a significant decrease in losses in the second quarter, while companies in the LCD industry generated profits beyond expectations. The earnings capacity of panel manufacturers is expected to continue to improve, and their cash flow is stable. 1) Large size: In terms of price, it is expected that the prices of all mainstream LCD TV panels will remain stable. In terms of shipment volume, global TV panel shipments in June decreased month-on-month and year-on-year. 2) Medium size: In terms of price, it is predicted that higher-level panel prices will continue to decline in June. Regarding the shipment of global MNT panels in the first half of the year, three major factors drove the year-on-year growth of MNT panel prices to continue to shrink, TN panel prices rose slightly, with mainstream prices increasing by 10%. However, due to the fact that the active panel purchases in the first half of the year could not effectively digest the prices of 16:9 panels, inventory for brands and channels has increased, which overdrafted the demand in the second half of the year, and there is a risk of decline in the second half of the year. 3) Small size: During the first half of 2024, OLED Huaxing and Caihong Display Devices had large profits, while Qunhui and Yuda's revenue growth increased in the second quarter, and the losses of Shentianma and CPT Technology shrank. TCL Corporation is expected to see its net profit attributable to shareholders rise in the first half of the year, with smartphone shipments increasing by 43% year-on-year, and revenue increasing by 7% year-on-year. Meanwhile, smart phone panel prices are seeing a trend of stability and decline. 4) Panel factory’s performance in Q2: TCL 180%-210%, net profit attributable to shareholders is RMB 0.95-1.05 billion yuan. Caihong Display Devices is expected to have a net profit of RMB 0.85-0.95 billion yuan in the first half of the year, while Yuda's Q2 revenue exceeded NTD 74.3 billion, with a year-on-year increase of 17.4%. Qunchuang increased by 70.51%, and CPT Technology had a net loss of RMB 0.554-0.574 billion in the first half of the year. 5) Upstream: South Korea's display material company saw Q2 revenue of NTD 56.9 billion, a year-on-year increase of 3.2%. Shentianma is expected to have a net loss of RMB 0.42-0.56 billion attributable to shareholders in the first half of the year, with profits increasing by 60.68% YoY, while Weforms invests in the 8th generation OLED OMM production line. Sharp will introduce LCD factories into advanced semiconductor panel packaging production lines, where they will produce Aoi FOLP.

Recommendations:

Passive components: Upstream raw materials: Zhejiang Jiemei Electronic and Technology Co., Ltd./Shandong Sinocera Functional Material Co., Ltd.; MLCC: Chaozhou Three-Circle(Group)/Guangdong Fenghua Advanced Technology/Thaitanium Electronics Co., Ltd. (TTC); Inductor: Shenzhen Sunlord Electronics Co., Ltd./Shenzhen Microgate Technology Co., Ltd./POCO HOLDING CO., LTD.; Crystal: TKD Science and Technology Co., Ltd./Guangdong Faith Long Crystal Technology Co., Ltd.; Connector and harness manufacturers: Connectors and related: Luxshare Precision Industry Co., Ltd./Hua Feng Technology Co., Ltd./AVIC Jonhon Optronic Technology/ DONGGUAN DINGTONG PRECISION METAL CO.,LTD./Ningbo Boway Alloy Material Co., Ltd.; Harness: Shenzhen Woer Heat-Shrinkable Material Co., Ltd./Xinya Electronic Co., Ltd./Zhejiang Zhaolong Interconnect Technology Co., Ltd./Kingsignal Technology Co., Ltd./Electric Connector Technology Co., Ltd.

Consumer electronics components & assembly: Foxconn Industrial Internet, Luxshare Precision, Wingtech Technology, Lingyi itech, Borqs Technologies, Avary Holding, Lens Technology, Goertek Inc., Shenzhen Everwin Precision Technology, BOE, Guoguang Electric, Wuhu Token Sciences, Sunny Optical Technology (Hong Kong), Cowell, Suzhou Dongshan Precision Manufacturing, Shenzhen Desay Battery Technology, Sunwoda Electronic, Shenzhen Sunway Communication, Kunshan Kersen Science & Technology, Universal Scientific Industrial (Shanghai) Co., Ltd., Zhejiang Zhaolong Interconnect Technology, BYD Electronic (Hong Kong), Zhidi Technology, Shenzhen Rapoo Technology, Innovation New Material Technology;

Consumer electronic automation equipment: Shenzhen Colibri Technologies (combined with machinery group), Zhilifang (combined with machinery group), Silintong, Han's Laser Technology Industry Group, Suzhou Secote Precision Electronic, Shenzhen JPT Opto-Electronics, Suzhou Hyc Technology, Zhuhai Bojay Electronics, Rongqi Technology, Suzhou Tztek Technology (combined with Electric New Group and Machinery Group), Lingyun Light, Wuhan Jingce Electronic Group (combined with Machinery Group), Bozhong Precision (Machinery group coverage);

Consumer electronics brands: Shenzhen Transsion Holdings Co., Ltd./Edifier Technology Co., Ltd./Anker Innovations Technology Co., Ltd./Xiaomi Corporation (Hong Kong Stock Exchange); Consumer electronics materials: Innovation New Material Technology Co.,Ltd./Sichuan Furong Technology Co., Ltd./Jones Tech PLC/Suzhou Shihua New Material Technology Co., Ltd.;

CCL & copper foil & PCB: KB Laminates Co., Ltd./Shengyi Technology Co., Ltd./Goldenmax International Technology Ltd./Nanya New Material Technology Corporation (NAN YA PCB)/Zhejiang Wazam New Materials Co., Ltd./Zhongding Sealing Parts Co., Ltd./Guangdong Jiayuan Technology Co., Ltd./Nuode New Materials Co., Ltd./Defu Technology Co., Ltd./Guangzhou Fangbang Electronics Co., Ltd./Avary Holding (Shenzhen Woer Heat-Shrinkable Material Co., Ltd. and WNSCM jointly covered)/Suzhou Dongshan Precision Manufacturing Co., Ltd./Shennan Circuits Co., Ltd./Shenzhen Fastprint Circuit Tech Co., Ltd. (jointly covered with the communications group)/Shenzhen Kinwong Electronic Co., Ltd./Victory Giant Technology (Huizhou) Co., Ltd.;

Automotive electronics: Electric Connector Technology Co., Ltd./Zhejiang Crystal-Optech Co., Ltd./Sunney Optical Technology Co., Ltd./Lianchuang Electronic Technology Co., Ltd./Suzhou Santaisi Precision Electronics Co., Ltd./Shenzhen H&T Intelligent Control Co., Ltd./KEBODA Technology/(Huizhou Desay SV Automotive)/Lingyun automotive/electric and electronic control technology (covered jointly with the automotive group)/Hunanoil Pump/Forward Electronics Co., Ltd. (jointly covered with the automotive group)/Anhui Zhongding Sealing Parts Co., Ltd./Caihong Display Devices Co., Ltd./Hangzhou Hikvision Digital Technology Co., Ltd.

Autonomous driving: HeSaitech/Shenzhen Tu Da Tong Technology Co., Ltd./NavInfo Co., Ltd./Baidu Group/Horizon Robotics/Nanfang Black Sesame Group/Tesla Tech Innovations Inc. (Huizhou)/Foryou Corporation/Anker Innovations Technology Co., Ltd./Sichuan Changhong Electric Co., Ltd./Huayang New Energy Automobile Co., Ltd./Neusoft Corporation/Shanghai Baolong Automotive Corporation/Speedata/China National Software & Service Co., Ltd./AVIC DAS; SAIC Motor Corporation Limited/Byd Company Limited.

Panel: BOE Technology Group Co Ltd, TCL Corporation, Shentianma Group (combined with the labor group for coverage), LITE-ON Technology Corp., Shenzhen Qingyi Photomask, Hubei Feilihua Quartz Glass, Shenzhen SED Industry Co., Ltd, Qingdao Jiuzhou Electronic Co., Ltd, Beijing TianDeE-Tech Co Ltd, Will Semiconductor, Sino Wealth Electronic, Shenzhen ETMADE Automatic Equipment, Hubei Oled Material Tech, Hubei Dinglong (combined with the basic chemical group

Risk Warning: Unfulfilled demand for consumer electronics, less innovation in new product development, geopolitical conflicts, and the impact of the shift of the consumer electronics industry chain on domestic manufacturers' share.