Anatomy of the large cap market.

Below freezing point, the two markets finally rebounded slightly. After a strong opening, 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 increase: 1. The State-owned Assets Supervision and Administration Commission of the State Council recently issued several opinions on improving and strengthening the market value management of central enterprises' holding listed companies. There are nine opinions in total, which mainly include: first, clarifying the goals and direction of market value management; second, effectively utilizing the 'toolbox' of market value management; third, improving the working mechanism and enhancing positive incentives; fourth, adhering to compliance bottom lines. Among these, it is particularly key that the opinions emphasize the importance of addressing the problem of holding listed companies trading below net asset value, incorporating the resolution of long-term trading below net asset value into annual key tasks, and guiding long-term trading below net asset value listed companies to develop and supervise their disclosure of valuation enhancement plans; for those listed companies that have weak business synergy, poor stock liquidity, and have essentially lost their function while trading below net asset value, it encourages resolution through mergers, asset restructuring, and other methods.

The concept of market value management has been around for a long time, but this time it is an improved and strengthened version, and it is expected to enter a stage of substantial advancement. The purpose is to encourage central enterprises to expand and strengthen their efficiency and competitiveness on one hand, while on the other hand, increasing market value is beneficial for the stability of the stock market. This can also be considered a form of implicit stability maintenance. The current situation is that many central enterprises have fallen below net assets, and various measures need to be taken to enhance their value. Companies like China Railway (00390), CRRC Corporation (01766), China Railway Construction Corporation (01186), and CHINA COMM CONS (01800) naturally need to increase, but the extent is not large, around 3 points.

As the year end approaches, it is also very difficult to introduce specific measures, which is expected to be delayed until next year. Particularly, restructuring cannot happen so quickly, but relatively better are central enterprises with strong dividends, such as CHINA TOWER (00788): the company, if it implements a share consolidation and capital reduction program, will help to expand the basis for distributable profits, positively affecting long-term dividend outlook. Additionally, there are electric power stocks, such as Huadian Power International Corporation (01071) and gas stocks like CHINA RES GAS (01193).

On the morning of the 18th, the central bank interviewed some financial institutions that traded aggressively in this round of the bond market, requiring 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, rising too rapidly, and funds are flooding into bonds, which naturally affects the stock market negatively. However, from another perspective, the act of grabbing bonds itself implies an expectation for the upcoming reserve requirement ratio cuts and interest rate cuts, while also demonstrating caution regarding economic expectations. This is the main reason for the sudden surge in trading during the afternoon.

Today, central enterprises Beginning with Middle Letter are not the main players in the market, AI and Autos are. At today's Volcano Engine Force Power Conference, Doubao released a visual understanding model that has stronger capabilities in content recognition, understanding, reasoning, and visual description. The president of Volcano Engine, Tan Dai, announced that the price of Doubao's visual understanding model has been reduced to 0.003 yuan per thousand tokens, which is 85% lower than the industry average. In addition, Doubao's new generation video generation large model will be officially released in January next year. Furthermore, Douyin’s image and video generation tool, Dream AI, showcased a new generation image generation model and dynamic poster features.

As of now, the daily token usage of Doubao's large model has exceeded 4 trillion, growing more than 33 times in the seven months since its release. As long as there are new developments in AI applications, the AI+ trend will continue to resonate, primarily involving FOURTH PARADIGM (06682), MOBVISTA (01860), MEITU (01357), and INNOVATIVE INTELLIGENCE (02121), which were also mentioned before as likely to be active repeatedly. Among these, the most rapidly developing is Jingtai Technology (2228), which recently announced a strategic cooperation with the powerful Indonesian conglomerate, Golden Agri-Resources, through its key subsidiary, Golden Agri Financial Group. Subsequently, they signed a strategic cooperation memorandum with Microsoft China, moving towards AI empowerment, with a surge of nearly 30% today.

The rapid growth of Doubao's users will lead to the expansion of computing centers, which in turn will drive the demand for AI Servers; primarily involving ZTE (00763) and LENOVO GROUP (00992) mentioned yesterday.

Looking at the automotive sector, on Tuesday, Tesla's stock price reached a historic high for the fifth consecutive day, closing up 3.64% at $479.86. Since Donald Trump was elected President of the USA and won his second term, Tesla has continually received favorable conditions, with its stock price having cumulatively risen over 90%. At the beginning of this rally for Tesla, it was mentioned that Tesla's logic had fundamentally changed, and its fundamentals were not the main logic; the strongest driving force was that Trump had to win, and Musk, who contributed significantly, was bound to receive substantial returns. How could Tesla's stock not surge?

Following this, many of Trump's policies are favorable to Tesla and unfavorable to competitors, including plans to loosen regulations on autonomous vehicles and end tax credits for electric vehicles. Moreover, Tesla also has stories to tell involving robots and AI.

Riding on Tesla’s soaring stock, domestic automotive stocks are also strengthening. For example, LEAPMOTOR (09863) will launch new models (C10/C16) in 2024, with overall sales growing rapidly (cumulative year-on-year +100% from January to November 2024), and monthly sales reaching new highs (over 40,000 units in November). Today's increase was over 6%, along with other strong performers like LI AUTO (02015) and GEELY AUTO (00175). Additionally, BRILLIANCE CHI (01114) revised its dividend policy, aiming to distribute no less than 50% of after-tax profits for the relevant fiscal year, exceeding market expectations. It also increased by over 6%.

A Lidar has also been spurred today. According to media reports, Tesla has designed its own Lidar and is collaborating with Continental AG to integrate the radar technology developed for future vehicles into its systems. SUTENG JIUCHUANG (02498) is a leader in the industry and according to the data released by the GaiShi Automotive Research Institute on the ranking of Lidar suppliers from January to October 2024, SUTENG JIUCHUANG has a market share of 35.1%, occupying the first place in industry market share for ten consecutive months. If Tesla adopts Lidar on a large scale, the industry’s outlook needs to be reevaluated, with a surge of nearly 18% today.

Amidst the intense competition among Chinese automotive companies, foreign brands are also actively seeking change. On December 18, news emerged that Honda Motor and Nissan are preparing to engage in merger discussions, with plans to eventually bring Mitsubishi Motors under their holding company. Currently, Nissan is the largest shareholder of Mitsubishi, holding 24% of its shares. The combined annual sales of the three automakers are expected to exceed 8 million vehicles, competently challenging global giants Toyota and Volkswagen, thus becoming the third largest automotive group in the world. The three companies are indeed discussing various possibilities for future cooperation, but no decisions have been made yet.

The background of this transformation is that the market share of Japanese cars in China has been declining for three consecutive years. Sales data from the Passenger Car Association for November shows that Honda's terminal car sales in China were 76,773 units, a year-on-year decline of 28.02%. Nissan's sales in China, including Passenger Vehicle and light commercial vehicle sectors, were 63,545 units, a year-on-year decline of 15.14%. Based on the merger logic, DONGFENG GROUP (00489) has major joint ventures with Dongfeng Nissan and Dongfeng Honda, and today it rose over 6%.

The first China Brain-Computer Intelligent 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 device will be applied in approximately 10 centers nationwide 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 – Dreamgear will be officially launched. This groundbreaking product has garnered widespread attention in the technology community and is expected to open up new possibilities for the popularization and application of Brain-Computer Interface technology. Nanjing Panda Electronics (00553) rose over 17% today for participating in the "Key Technology Development for Multi-Modal Human-Computer Interaction System Integration Based on Brain-Computer Interface Technology" project organized by the Ministry of Science and Technology.

At 3:00 AM Beijing time on Thursday, the Federal Reserve is about to announce the highly anticipated December interest rate decision, and Fed Chairman Powell will speak at the customary press conference half an hour later (3:30). A further 25 basis points rate cut is no longer a suspense. This is because the Dow Jones has already fallen for 9 consecutive days and urgently needs rescue. The focus will be on whether the Fed will hint at pausing rate cuts in January and looking at the dot plot for interest rates.

Sector Focus

The Doubao visual understanding model is quite impressive: it includes location cognition, memory ability, associative ability, search ability, object recognition ability, and mathematical reasoning ability, with a very short response time; it is evident that the capability of AI agents in edge hardware is rapidly improving and the application imagination is expanding. Bullish for AI glasses.

In addition, Meta is upgrading its smart glasses. On Monday, Meta announced that it is updating the Ray-Ban Meta smart glasses, which have real-time AI video features and real-time language translation capabilities.

Hong Kong stock related products:

1. Kangnait Optical (02276): rose over 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, and has also established an XR R&D and service center.

2. SUNNY OPTICAL (02382): There is a technical layout and product plan for AI glasses vision solutions, covering areas such as scene interaction, information interaction, and imaging.

[Stock Exploration]

KINGSOFT (03888): Third-quarter performance showed steady growth, with gaming business revenue exceeding expectations.

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

Commentary: KINGSOFT's third-quarter performance was solid, exceeding market expectations by 13%. Among this, game revenue grew by 78% year-on-year, while the enterprise software business showed stable performance, supported by the recovery in domestic personal subscriptions and institutional licenses, with revenue up 10% year-on-year. Additionally, the company's net profit during the period also exceeded market expectations by 14%. Kingsoft Cloud's third-quarter performance was stable and surpassed market expectations.

In Q3 2024, public cloud revenue reached 1.18 billion yuan, a 15.6% increase year-on-year; Q3 2024 AI revenue reached 0.36 billion yuan, accounting for 31% of public cloud business revenue. The expansion of the AI business has led to further diversification in the company's customer and industry distribution. The share of the gaming business has exceeded expectations, mainly due to the significant contribution from 'Dust White Zone' and the successful launch of 'Jian Wang 3: Unlimited', as well as the continuous growth of subscriptions from personal and institutional users in domestic office software.

WPS AI has entered the overseas public testing phase, and its enhanced product features are expected to provide lasting value improvements for office business, with the scale of paying users and ARPU likely to both increase. As cloud usage grows, particularly for WPS Office and AI demand related to Xiaomi's Internet of Things, smart phones, and electric vehicles, revenue contribution from KINGSOFT and Xiaomi is expected to rise from about 20% in 2024 to over 40% by 2027, driving the company's revenue compound annual growth rate to reach 13% from 2025 to 2027.