Zhitong Hong Kong Stock Analysis | Stagnant Precious Metals All Surge, Hainan Free Trade Port Unexpectedly Gains Favor

[Market Dissection]

Due to concerns about the U.S. stock market trends and waiting for tonight's non-farm payroll data, Hong Kong stocks fluctuated throughout the day, with the Hang Seng Index closing down 0.48%.

In the face of the shockwave from Trump's tariffs and the looming trillion-dollar deficit, Goldman Sachs took the lead in activating its risk control mechanism—proactively reducing risk exposure and hoarding liquidity ammunition. As one of the barometers of Wall Street, Goldman Sachs has a significant impact on global capital.

Unexpectedly, Trump and the world's richest man, Elon Musk, ended up "fighting" with each other, as Musk revealed "big news" about Trump on the social media platform X. He stated that Trump's name appeared in Epstein's files. Trump threatened to revoke government contracts for Musk's companies; as a result, Tesla's stock price fell more than 14% on Thursday, evaporating $152 billion (approximately 1.0922 trillion RMB) in market value, marking the largest single-day drop in history and falling below the $1 trillion threshold.

The core of the conflict between Musk and Trump lies in the latter's push for the "Big and Beautiful" tax reform bill. This bill plans to eliminate electric vehicle tax credits, cut clean energy subsidies, while expanding support for the oil and gas industry, involving $1.5 trillion in spending cuts and $4 trillion in tax reductions. Musk believes this bill will exacerbate the fiscal deficit and harm the interests of his companies, Tesla and SpaceX. Ultimately, it's all about interests; there’s no deep-seated hatred, and there's no need to get too involved. It could very well be a performance by both sides, driving down stock prices, then buying back at lower levels, followed by a reconciliation, and stock prices rising again—it's all a game of capital harvesting.

On the evening of June 5, President Xi Jinping spoke on the phone with U.S. President Trump at Trump's request. This was the first conversation between the leaders of China and the U.S. since Trump took office on January 20 this year. Trump stated on social media on the 5th that the call, which lasted about an hour and a half, was "very good" and brought "very positive results" for both countries. Trump also mentioned that the two heads of state had invited each other to visit their respective countries. While no specific outcomes were seen, at least after communication, differences can be managed and will not worsen. It is estimated that Trump is feeling the pressure from rare earths, and it remains to be seen how both sides will communicate further. Today, there was an adjustment in rare earths. Li Jiachao responded again to Cheung Kong (00001) selling the port, emphasizing the need to weigh the relationship between overall interests and personal interests. Discussing this topic at this point is actually quite sensitive.

The China Securities Regulatory Commission stated that it is currently working with global regulatory agencies to curb the activities of illegal financial influencers, indicating that these financial influencers put millions of social media users at risk by illegally selling financial products or services. The CSRC stated that during the week starting June 2, relevant regulatory agencies participated in the "Global Campaign Against Illegal Financial Influencers Week." Regulatory rectification is necessary, but emotions may be affected.

Against the backdrop of gold prices being around $3,400, funds have begun to target other precious metals that have lagged in price increases. Spot silver prices surged by 4.5% during trading on Thursday, reaching the highest level since February 2012 at $36.06 per ounce; spot platinum prices also soared by 4.8% overnight, further refreshing the highest level since March 2022 at $1,152 per ounce during Friday's Asian session. Naturally, related stocks reacted, with China Silver Group (00815) soaring over 26% Wanguo Gold Group (03939) surged over 10%, while other non-ferrous companies such as Minmetals Resources (01208), China Hongqiao (01378), Jiangxi Copper (00358), and Luoyang Molybdenum (03993) all rose over 4%. If the non-farm payroll data remains poor tonight, it will bring us one step closer to interest rate cuts. After the rate cuts begin, it will be beneficial for Hong Kong's real estate stocks, as the Hong Kong dollar operates under a peg to the US dollar, and the Hong Kong dollar will also follow the rate cuts. Local Hong Kong real estate stocks such as Hysan Development (00014) rose over 4%, and Wharf Holdings (00004) rose nearly 3%. Swire Properties (01972) has already reached a new annual high.

In a weak market, funds continue to revolve around the mainline pharmaceutical speculation. CSPC Pharmaceutical Group (01093) announced on May 10 that the group is in discussions with several independent third parties regarding three potential transactions, with a total BD amount possibly reaching about $5 billion. This is a huge sum, and one of the three potential transactions is currently in the later stages, expected to be completed by June 2025. Today, it surged over 12%, likely betting on the realization of this news, perhaps the timing is close. Other innovative drugs that are showing signs of results will also be stimulated, such as Genscript (01548), whose CARTITUDE-1 has made positive progress, rising over 8% today. Luye Pharma (02186): The Rotigotine patch for treating Parkinson's has been launched in the UK and has also been launched in Germany. The company plans to partner with collaborators to introduce this product to more countries globally. Today, it rose over 4%.

AI applications are performing actively. On June 6, Kuaishou (01024)'s Keling AI celebrated its first anniversary. Information from Kuaishou's official website shows that Keling AI's annualized revenue run rate exceeded $100 million after 10 months of launch (i.e., in March this year). Recently, Keling AI reached a deep cooperation with Lovart, which integrates Keling API as the core engine in the video generation process, supporting the automatic generation of complete video content exceeding one minute in a single task, covering various scenarios such as advertising marketing and Vlogs, significantly improving content creation efficiency. Kuaishou rose over 8%; pharmaceutical AI also performed well, with good gains for Yaoshi Bang (09885) and Yidu Tech (02158).

According to the latest news from the South China Morning Post, Hainan Free Trade Port recently announced the opening of global internet access in certain areas. This historic breakthrough not only injects a boost into the construction of the free trade port but also brings opportunities for cross-border data flow infrastructure and the VPN industry. This policy will directly enhance enterprises' demand for international internet resources, promote network infrastructure upgrades, cloud service expansions, and the development of cross-border data services. This is first beneficial for the three major telecom operators, such as China Mobile (00941), China Telecom (00728), and China Unicom (00762), and also beneficial for ZTE Corporation (00763): Operators need to procure new generation routers and switch equipment to meet enterprises' international access needs. The company is a global leader in communication equipment and solutions, with strong technical capabilities in network security and communication infrastructure construction. Its products and solutions may be applied in the construction and optimization of VPN networks, providing users with secure and efficient network connections Investors are also watching the U.S. non-farm payroll report for May, which will be released on Friday evening. Given the poor performance of the small non-farm ADP data and initial jobless claims data on Wednesday and Thursday, market expectations for at least two interest rate cuts by the Federal Reserve this year have been strengthened. It all depends on the final data.

【Sector Focus】

According to industry chain research, domestic leading power battery manufacturers have made significant progress in solid-state batteries: 1. In terms of performance, the cycle life has reached 300-400 times at 90% SOC, and it can achieve commercial purposes at 80% SOC, with an energy density of 350Wh/kg-350Wh/kg; 2. In terms of material selection, the electrolyte uses a sulfide route, the positive electrode uses a high-nickel system, and the negative electrode uses artificial graphite + silicon-carbon negative electrode, with a small portion using no negative electrode technology; 3. In terms of process, isostatic pressing equipment is used to solve solid-solid interface issues, currently using wet processes, with a possibility of adopting dry processes in the future; 4. In terms of progress, the pilot production line has been completed, with plans to install 50 vehicles for road testing with solid-state batteries within the year. The leading full solid-state battery is about to be installed for road testing, and the industry progress is beyond expectations. Previously, Guoxuan High-Tech had released related solid-state battery products, and more industrial catalysts for solid-state batteries are expected in the future.

Shanghai Xiba's first-generation high-energy soft-pack solid-state lithium-ion battery has completed testing, achieving an energy density of 340Wh/kg (exceeding the set target of 320Wh/kg), and is expected to be first applied in eVTOL, also suitable for humanoid robots, robotic dogs, and other fields. Solid-state batteries are continuously making breakthroughs, and there is huge incremental space for future replacements.

Main varieties: Contemporary Amperex Technology Co., Limited (03750), Ganfeng Lithium (01772), Tianqi Lithium (09696).

【Stock Picking】

China Resources Power (00836): Policy benefits are expected to enhance performance, several aspects highlight the company's development prospects

On June 4, the National Energy Administration issued a notice on organizing the first batch of pilot projects for the construction of a new power system. The notice pointed out that pilot work will be carried out around seven directions: grid-type technology, system-friendly renewable energy power stations, intelligent microgrids, synergy between computing power and electricity, virtual power plants, large-scale high-proportion renewable energy delivery, and new generation coal power.

Commentary: Policy catalysts are expected to enhance performance, and with the upcoming high-temperature weather and increased AI demand, electricity supply is also entering a peak period. Additionally, by the end of 2024, the proportion of renewable energy installed capacity is expected to approach 50%, and plans to split and return to A-shares for listing are expected to enhance the company's valuation. The company is the only power entity under China Resources Group, which is headquartered in Hong Kong, and its unique geographical location and early work nature have established its market-oriented gene. Since its listing, China Resources Power has never reported a loss and has successfully passed two major tests in thermal power (2008 and 2021). The diluted ROE average from 2004 to 2024 is 11.49%, which is 4.72 percentage points higher than Huaneng International. Since its listing, China Resources Power has distributed a total of HKD 54.4 billion in dividends, accounting for 41% of cumulative net profit attributable to the parent. An excellent management mechanism and operational capability are important guarantees for the company to navigate through cycles. Reviewing the company's stock price and valuation over the past decade, 1) when there are no positive benefits in the industry (or even when the fundamentals deteriorate), the company's stock price has stronger support 2) When the industry fundamentals improve, China Resources Power's stock price significantly outperforms its peers. In the logic of thermal power recovery, China Resources Power's stock price increase leads among national leaders; in the green electricity revaluation logic after the dual carbon strategy, the company's performance is second only to the pure green leader Longyuan Power (00916).

In 2024, the company's renewable energy segment is expected to achieve a net profit attributable to the parent company of HKD 9.228 billion, with core profit at HKD 9.029 billion. In comparison, Longyuan Power, which has a larger installed capacity in new energy, is expected to have a net profit attributable to the parent company of RMB 6.345 billion in 2024. Against the backdrop of subsidy arrears, the company's existing new energy units are mainly located in provinces such as South China and Central China, where the benchmark coal power electricity price is generally higher, and the unit cash flow from installed capacity is also significantly better than the industry average. The profitability of the company's thermal power assets also leads its peers and is expected to play a greater role under the new power system. Tracing back to the source, the excellent profitability of China Resources Power's assets is due to a stronger market-oriented gene and effective incentive measures, which better leverage the initiative of power plants. Compared to Huaneng International, which also has its main units located in the eastern coastal region, the company's electricity profit from 2022 to 2024 is consistently about RMB 0.032 per kilowatt-hour higher than that of Huaneng International. In the current context of declining coal prices, strong management capabilities will help release the company's performance. Looking ahead, if the proportion of capacity electricity price revenue increases in the future, the stability of the company's performance will further improve, and the weakening of cyclical attributes is expected to lower the company's discount rate, thereby enhancing its valuation