Zhitong Hong Kong Stock Analysis | Consumption Relay and Cyclical Recovery, Tencent Hits Annual High

[Market Dissection]

In a favorable atmosphere, Hong Kong stocks continued to strengthen without any suspense, jumping steadily today with the Hang Seng Index closing up 1.62%.

According to the Ministry of Foreign Affairs website, a spokesperson announced on July 21 that, as agreed by both China and Europe, European Council President Charles Michel and European Commission President Ursula von der Leyen will visit China on July 24. The key topics of this summit will be bilateral relations and global geopolitical challenges, including the Ukraine crisis. Additionally, the leaders will discuss how to ensure a more balanced and mutually beneficial trade relationship, as well as common concerns such as climate change, biodiversity, and promoting green transformation. Expectations are high for achieving results, and yesterday there was some speculative trading in photovoltaic polysilicon stocks like GCL-Poly Energy (03800), looking forward to news catalysts.

As Europe is set to discuss with us, the United States has also taken the initiative to sign an agreement with Japan. On Tuesday Eastern Time, U.S. President Trump announced that a trade agreement had been reached between the U.S. and Japan. The U.S. will reduce the tariff rate on Japan from the previously announced 25% to 15%. Japan will invest $550 billion in the U.S. and open its market for rice and other agricultural products.

This agreement is essentially a compromise, with Japan originally demanding a 10% reduction, which is still acceptable. On the other hand, Philippine President Marcos proactively went to the U.S. to discuss tariffs with Trump, only receiving a symbolic reduction of 1%, from 20% to 19%, and was told by Trump: "I don't mind you getting along with China, as we also have a good relationship with China." This is quite awkward and shows a complete lack of respect. Being reduced to a pawn leads to such outcomes.

Additionally, the third round of U.S.-China trade negotiations will be held next Monday and Tuesday in Stockholm, Sweden. This time, the U.S. has added content regarding the second round of sanctions against Russia, which is highly unlikely to be accepted. Next, the U.S. will negotiate with the EU, which are all critical junctures. From the market feedback, it seems that whether the talks go well or poorly won't have a significant impact on us.

The stocks related to the Yaxia Hydropower Station, which have been hot for several days, saw adjustments today, which is normal; a rapid rise cannot be sustained every day. These adjustments do not affect the overall situation; as market confidence rises, other stocks will follow suit.

The long-silent internet giants stood up today, with Tencent (00700) taking the lead. The National Press and Publication Administration announced on July 22 the approval results for a new batch of game licenses, with 127 domestic and 7 imported games approved, including the imported game "Ultimate Showdown" operated by Tencent's Chengdu Shiyu. The normalization of license issuance has boosted confidence.

Moreover, the domestically produced game "Ming Dynasty: The Feather of Abyss" is set to be officially released in less than a day, and some media ratings have already been published, with the globally renowned gaming media IGN giving "Ming Dynasty" a score of 8. While it cannot compare to "Black Myth: Wukong," it is still quite impressive. This shows that the influence of domestic games is gradually gaining recognition in the international market, and today Tencent (00700) surged nearly 5%, reaching an annual high. Other stocks like NetEase (09999), Alibaba-W (09988), and Meituan (03690) also saw increases of nearly 3%.

On July 23, the President of the Hong Kong Monetary Authority, Eddie Yu, published an article discussing stablecoins: "We have also noticed recent rumors regarding the application process in the market. We will announce a summary of the 'Stablecoin Issuer Licensing System' next week, which will outline the arrangements for the HKMA to accept and process license applications." As the time for stablecoins approaches, securities stocks are also performing positively, with Zhongzhou Securities (01375), CITIC Securities (06030), and GF Securities (01776) all rising over 3%.

During this cyclical adjustment, consumer stocks are starting to show movement. "The world's number one internet celebrity" MrBeast (real name Jimmy Donaldson) announced that he will launch his Chinese internet platform live broadcast debut in the United States, scheduled to air on July 26 on Kuaishou (01024). It is reported that MrBeast has 415 million followers on YouTube, with approximately 800 million followers across all platforms, making him even more popular than the American internet celebrity "Hyperthyroid Brother" IShowSpeed, who came to China in March this year. Kuaishou (01024) directly benefited, rising over 7%.

Similar concept superstar Legend (06683) surged over 24% today due to the entry of Chinese music superstar Jay Chou into Douyin on July 9, as the market has high expectations for the wealth realization brought by such high-traffic stars.

The innovative drug sector continues to see performance catalysts, with WuXi AppTec (02268) announcing that the group expects revenue in the first half of 2025 to grow by over 60% year-on-year, adjusted net profit (excluding interest income and expenses) to grow by over 67% year-on-year, and net profit to grow by over 50% year-on-year, rising 8% today; Kingsoft (01548) released a profit warning, expecting to turn a profit in the first half of 2025, with adjusted pre-tax profit estimated at approximately USD 175.4 million to USD 204.6 million, compared to a pre-tax loss of approximately USD 127.9 million in the same period last year. It rose nearly 7% today; in fact, after WuXi AppTec (02359) announced strong results last time, the market had good expectations for CXO types, with other varieties like Kanglong Huacheng (03759) also rising nearly 8%.

The anti-involution coal stock Yancoal Australia (03668) mentioned yesterday rose over 5% again, and today this wind has reached the paper industry. Recently, the website of the People's Government of Beihai City, Guangxi, published a public consultation draft for the environmental impact assessment of the quality improvement and efficiency enhancement technical transformation project of Nine Dragons Paper. The company plans to upgrade existing projects while building a production line for 800,000 tons of unbleached chemical pulp and a production line for 500,000 tons of kraft paper, along with a soda recovery system (including lime kiln) and supporting environmental protection projects, ultimately aiming to control low-end capacity and develop towards high-end production.

Recently, Nine Dragons Paper (02689) announced another price increase of 30 yuan/ton. This is the third round of price increase notices issued by the paper company since July 1 and July 10, with the reason still being "rising operating costs." It rose nearly 9% today; other varieties like Lee & Man Paper (02314) rose nearly 6%.

Today, Upwind New Materials (688585.SH) hit the limit up again, recording an 11-day consecutive rise at one point during the trading session. The cumulative increase over 11 trading days exceeds 630%. The reason behind this is that Shanghai Zhiyuan New Technology Co., Ltd., founded by "Huawei genius" Zhi Hui Jun, plans to acquire at least 63.62% of its shares, indicating the market's crazy pursuit of the robotics industry, with UBTECH (09880) rising nearly 6% again today.

Yesterday, it was mentioned that Nio (09866) has officially started pre-sales of the L90 on July 10. As of mid-July data, the order volume has reached 30,000 to 35,000 units, exceeding market expectations. Some sales representatives indicated that during the pre-sale period of the L90, store foot traffic increased by 3-4 times, and nearly half of the customers are comparing the Li Auto L8 and i8, showing a high level of market attention It seems that the competitiveness is indeed strong, rising nearly 9% today.

【Sector Focus】

On July 23, the National Copyright Administration issued the "Opinions on Accelerating the High-Quality Development of Copyright Undertakings," which pointed out the need to deepen the promotion of software legalization. It emphasized the importance of the inter-ministerial joint meeting mechanism for promoting the use of legitimate software, continuously consolidating the achievements of software legalization in government agencies, state-owned enterprises, and financial institutions, and further advancing software legalization in key industries and fields such as education and health care. It will conduct supervision and inspection of software legalization and continuously transform the institutional advantages of promoting the use of legitimate software into governance effectiveness.

This legitimate software mainly refers to domestically produced software. Software used by government agencies, state-owned enterprises, and financial institutions belongs to important national sectors and involves the safety of national economy and people's livelihood, making the adoption of domestically produced legitimate software an inevitable trend.

Main Beneficiaries: Kingdee International (00268), Kingsoft (03888), Chalk (02469), Inspur Digital Enterprise (00596).

【Stock Picking】

Tongcheng Travel (00780): Core OTA business shows considerable growth, international business performs brilliantly

This morning, the Yunnan Financial Regulatory Bureau issued a statement promoting financial support to boost consumption, encouraging banking institutions to increase the supply of consumer finance and expand the application scenarios of consumer finance. In the past month, financial regulatory bureaus in Yunnan, Fujian, Qinghai, Jilin, and other regions have issued documents and deployed work related to financial promotion of consumption, with regulatory departments clearly stating that "financial support for boosting consumption will be included in daily supervision."

Commentary: Promoting financial support for consumption should significantly benefit the tourism industry. The company's first-quarter performance exceeded expectations, with significant growth in both revenue and net profit, releasing brand effects. Although tourism business revenue decreased by 11.8% year-on-year, domestic demand remains strong, and international business is growing rapidly. The company is a leading one-stop travel service platform in China and has successfully entered the top three in the OTA industry, engaging in deep cooperation with its two major shareholders, Tencent and Trip.com.

The company is actively expanding its hotel management and resort businesses and is gradually exploring international markets, which is expected to bring incremental performance. By business segment: Core OTA business: Revenue increased by 18.4% year-on-year, exceeding market expectations by 1%; International business: International flight tickets and hotel night stays increased by over 40% and 50% year-on-year, respectively, and it is expected to increase user consumption frequency and ARPU in the future, improving profit margins.

The company's flight ticket business maintains strong growth momentum, with market share steadily increasing. Domestic flight ticket volume has low single-digit growth, while international ticket volume has increased by over 40%, contributing single-digit revenue to transportation. It is expected that the company's sales expense ratio will further decline year-on-year in Q2 2025, and the core OTA profit margin will continue to improve year-on-year.

Additionally, the company announced on April 17, 2025, the acquisition of Wanda Hotel Management, which is expected to fill the gap in high-end hotel management and create a more complete hotel management brand matrix, likely increasing revenue and profit in the future. Tongcheng Travel, backed by Tencent and Trip.com's traffic and inventory resources, has a prominent competitive advantage, and its domestic business competitiveness continues to improve; benefiting from the core OTA's cost reduction and efficiency enhancement, the OTA business has considerable growth potential and is gradually exploring international markets, which is expected to further contribute to performance increment