Zhitong Hong Kong Stock Analysis | May's Strong Start Continues to Focus on Technology, Outstanding Performance of Key Stocks

[Market Dissection]

In the last trading day, it was mentioned: "Stability at the end of the month brings expectations for May." Entering the first trading day of May, the Hang Seng Index rose 1.74%, while the Hang Seng TECH Index surged 3.08%.

Despite the seemingly good performance of the U.S. stock market, funds are actually flowing out. Bank of America cited EPFR data showing that as of Wednesday, $8.9 billion flowed out of the U.S. stock market, while Japanese and European stock markets saw inflows. U.S. Treasury funds experienced an outflow of $4.5 billion, the largest since December 2023.

Ultimately, it still comes down to tariffs. On April 30, local time, U.S. President Trump had to admit after a cabinet meeting at the White House that his tariff policies and trade wars might lead to emptier shelves and higher prices in stores, especially toy stores. Trump acknowledged: "I used to be able to buy 30 toys, now I can only buy two." It's not just toys. On May 2, the U.S. Chamber of Commerce, representing over 3 million businesses and organizations across the U.S. and one of the largest and most influential business organizations globally, sent a letter to the Trump administration urging the immediate implementation of a "tariff exemption mechanism" to prevent the U.S. economy from falling into recession and to avoid "irreparable harm" to small businesses. The White House cannot ignore this issue.

Today, the spokesperson for the Ministry of Commerce answered reporters' questions regarding the China-U.S. economic and trade dialogue. The spokesperson stated that China has noted that U.S. officials have repeatedly expressed a willingness to negotiate on tariff issues. At the same time, the U.S. has recently actively conveyed information to China through relevant channels, hoping to engage in talks. In response, China is currently evaluating the situation. Today's statement shows a significant change compared to previous ones, where there were constant denials, and this time there is a positive response, indicating that discussions are at least being considered.

The FTSE China A50 Index futures reacted significantly in the morning, rising over 0.9% at one point. Additionally, on May 2, the offshore yuan surged more than 500 points against the U.S. dollar, rising over 0.7% during the day to 7.226, before slightly narrowing its gains. Correspondingly, gold saw its first weekly outflow of funds since January. Chifeng Jilong Gold Mining (06693) fell nearly 4%.

The latest tariff adjustments have arrived. The U.S. Customs and Border Protection confirmed on May 1 that auto parts manufactured in Canada and Mexico are part of the United States-Mexico-Canada Agreement (USMCA) and will be exempt from the 25% tariff, which will take effect on May 3.

Automobile stocks were active again today. As of April, XPeng (09868) has delivered over 30,000 vehicles for six consecutive months, setting a new record. Specifically, the XPeng MONA M03 has accumulated over 100,000 deliveries in eight months since its launch; the XPeng P7+ has completed its 50,000th new vehicle off the production line after five months of launch. Today, it rose over 6%.

According to data released yesterday by Leapmotor (09863) on its official WeChat account, the monthly delivery volume for Leapmotor in April 2025 reached 41,039 vehicles, a year-on-year increase of 173%. As mentioned earlier, this stock benefits the most from tariff adjustments, surging over 7% today. Another stock, Xiaomi Group (01810), rose over 6% Xiaomi Automobile delivered over 28,000 vehicles in April.

The CXO sector is also highly sensitive to tariffs. Kanglong Chemical (03759) announced its first-quarter performance, with revenue of 3.099 billion yuan, a year-on-year increase of 16.03%; net profit attributable to the parent company was 306 million yuan, a year-on-year increase of 32.54%. WuXi AppTec (02359) also rose over 7% today.

In the technology sector, major US companies like Meta, Microsoft, and Apple continue to report impressive earnings, showing no signs of tariff impact; importantly, these giants have reiterated their aggressive artificial intelligence investment plans. It is evident that this industry, which is a battleground for the high ground between China and the US, continues to attract significant capital. Related computing power stocks, such as GDS Holdings (09698), surged over 7% as a May stock pick, while another May stock pick, Kingsoft (03888), which encompasses major themes like gaming, office software, Kingsoft Cloud, HarmonyOS, and Xinchuang, also rose nearly 7% today.

The US non-farm payroll report for April, set to be released tonight, is also drawing market attention, as this data will directly influence market bets on Federal Reserve interest rate cuts. Economists expect the April US employment report to show an increase of 135,000 jobs, down from 228,000 in March. Mark Zandi, chief economist at Moody's Analytics, warned that financial markets may need to prepare for disappointment from Friday's non-farm data. Specifically, he is focused on job growth below 100,000, which he anticipates will lead to negative economic sentiment dominating. Overall, this non-farm data is not expected to have a significant impact on the upcoming Federal Reserve meeting, with market expectations leaning towards no rate cuts this time.

Note that on May 1 local time, US President Trump posted on social media that any country or individual purchasing oil or petrochemical products from Iran will face US sanctions and will be prohibited from doing business with the US. This is clearly a pointed statement, expected to serve merely as a bargaining chip.

At 9 PM Beijing time this Saturday, the Berkshire Hathaway annual shareholder meeting will be held in Omaha again. "Oracle of Omaha" Warren Buffett, along with his designated successor Greg Abel and insurance business head Ajit Jain, will once again take the stage to answer questions from global shareholders. Over the past year, Buffett's main actions included drastically cutting his Apple stock holdings by two-thirds and continuously reducing his stake in Bank of America, while amassing cash to a staggering $334.2 billion. This shareholder meeting will provide insights into Buffett's views on the market, economy, or tariffs, as well as his plans for when to buy the dip or continue holding cash.

【Sector Focus】

The end of AI is electricity. In response to climate change and the urgent demand for clean, low-carbon energy from large tech companies, there is a global surge in the development of small modular nuclear reactors. In October last year, Google announced a power purchase agreement with Kairos Power, which plans to deploy seven small modular reactors around 2030 to meet Google's electricity needs. China has made significant progress in the development of small reactor technology, leading in the deployment of land-based small pressurized water reactors, and has developed 12 types of small reactor technologies for different purposes, power levels, and reactor types On May 1st, the assembly work for the Hefei Compact Fusion Energy Experimental Device (BEST) project started officially at the comprehensive research facility park for the key systems of the fusion reactor, two months ahead of the original schedule.

The BEST device will demonstrate fusion energy generation for the first time based on the first-generation Chinese artificial sun EAST device, leading research in burning plasma physics and making forward-looking and pioneering contributions to the development of fusion energy in China. Related stocks mainly include: Shanghai Electric (02727), China General Nuclear Power Corporation Mining (01164).

【Stock Picking】

China State Construction International (03311): Steady Growth in Q1 Performance with Increased Contribution from Technology Revenue

The company achieved a revenue of 23.9 billion yuan in Q1 2025, a year-on-year increase of 5.5%, with operating profit and share of profits from joint ventures reaching 3.96 billion yuan, a year-on-year increase of 10.8%. The new contract amount signed in Q1 2025 was 50.5 billion yuan, a year-on-year decrease of 29.1%.

Commentary: The company's performance in Q1 maintained steady growth. The order structure has been optimized, showing strong performance after excluding the impact of major projects. Although the new contract amount signed in Q1 2025 decreased by 29.1% year-on-year, if we exclude the high base effect of the major project for the expansion of the landfill area in the New Territories of Hong Kong in 2024, the new contract amount increased by 59% year-on-year, growing by 21.5% compared to the same period in 2023; the two-year compound growth rate of orders reached 10.2%, indicating that the company's order growth remains robust.

By business segment, technology-related orders still accounted for a large proportion, with an increase in the growth rate of construction-related orders. Revenue from technology-driven segments grew rapidly, accounting for 20%. In Q1 2025, the company achieved revenues of 4.8 billion / 11.4 billion / 6.2 billion / 500 million yuan from technology-driven / investment-driven / construction-related / operational segments, with year-on-year growth of +22% / +5% / -9% / +11%, accounting for 20% / 48% / 26% / 2%, with changes of +2.7 / -0.4 / -4.1 / +0.1 percentage points. With the advancement of the Northern Metropolis development in Hong Kong, the basic engineering expenditure is expected to increase to about 120 billion Hong Kong dollars annually over the next five years. As a leading construction company in Hong Kong, the company is expected to fully benefit from market prosperity.

The company's MiC has been included in the national promotion list, and its BIPV products have received certification from TÜV Rheinland. Recently, the company completed the comprehensive renovation project for Beijing's No. 14 Middle School, becoming the first modular building school in Beijing and the second MiC project in Beijing for the group. With its smart, efficient, and environmentally friendly MiC technology, the company is expected to capture market share in the mainland.

Overall, considering that the company's new contracts maintain double-digit growth, cash flow continues to improve, and mid-to-long-term technological empowerment is expected to optimize its business model and profitability, emerging projects may contribute to the company's performance growth