[ET Net News Agency, 19 November 2024] Chinese characteristics stocks rebounded for the
second consecutive day last night, with the Hang Seng Index reporting 19,640 at midday, up
64 points or 0.3%, with the main board trading volume exceeding HKD 63.3 billion. The Hang
Seng China Enterprises Index reported 7073, up 16 points or 0.2%. The Hang Seng Tech Index
reported 4,378, up 37 points or 0.9%.

"Nip Chun Pong: short-term resistance at 19,900 is significant, but support at 19,000
below is not small"

Recently, the release of the CSRC's guidelines on market value management of listed
companies has led to a rebound in A-shares from low levels. The Hang Seng Index found
support at 19,300 the previous day and showed some stability this morning, with a slight
increase. Nip Chun Pong, the Chief Strategist at Blackwell Global Securities, told ET Net
News Agency that the guidelines have boosted the performance of domestic bank stocks, but
as domestic bank stocks now have reduced weight within the Hang Seng Index compared to
before, their contribution to the index's gains has lessened. He mentioned that the recent
weakness in the Renminbi has dampened the stimulative effect of positive news and believes
that significant positive news is needed to drive the Hang Seng Index higher.
Nip Chun Pong expects 19,600 to be a key dividing line for the Hang Seng Index in the
short term. Despite the index's multiple attempts to climb higher in recent days, it has
struggled to maintain stability. To challenge the next resistance level at 19,900, the
index must successfully close above 19,600 today, which marks the bottom of the upward gap
from 26th to 27th September. If this level is not held, Nip Chun Pong anticipates that the
support at 19,000 below is also significant.

"Market value management is not the best method; stable Renminbi exchange rate is key to
valuation"

The Mainland China has issued guidelines on market value management for listed
companies, requiring companies to use various methods such as mergers and acquisitions,
equity incentives, information disclosure, and share repurchases to ensure that the
investment value of listed companies reflects their quality reasonably. Nip Chun Pong
analyses that the current stock market trading is relatively quiet, with stock performance
announcements failing to attract enough buyers regardless of being good or bad, making it
difficult for stock prices to rise. He suggests that the central government needs to find
ways to stimulate trading, and attracting funds into the market is the most direct method.
However, he believes that a stronger Renminbi exchange rate can naturally help increase
the valuation of listed companies. He argues that stabilizing the exchange rate is more
fundamental in improving stock valuation.

"Xiaomi outperforms significantly; it is expected to hit resistance at HKD 30
post-earnings"

Xiaomi (01810) announced its third-quarter earnings up to September, with a net profit
increasing by 9.8% year-on-year to RMB 5.352 billion; adjusted net profit increased by
4.4% year-on-year to RMB 6.252 billion, surpassing expectations of RMB 5.907 billion.
Revenue increased by 30.5% year-on-year to RMB 92.506 billion, also surpassing
expectations. Revenue from the smartphone business in the quarter increased by 13.9%
year-on-year to RMB 47.552 billion, but the gross profit margin for the segment sharply
declined from 16.6% to 11.7% year-on-year. Xiaomi Group CEO Lu Weibing emphasized that the
third quarter has reached its lowest point and anticipates an improvement in the gross
profit margin in the fourth quarter. Xiaomi's stock price opened approximately 1% higher
this morning but quickly retraced, falling nearly 3% by midday.
Major institutions continue to be bullish on Xiaomi post-earnings, but Nip Chun Pong
believes that Xiaomi's retracement today indicates that based on its current performance,
it will struggle to surpass the HKD 30 mark, which was a significant resistance level in
July 2021. Xiaomi's stock surged earlier due to the success of the SU7 sales, along with
being less affected by US pressure compared to other tech stocks, supporting its
outperformance. However, with the current market conditions turning weaker and Xiaomi's
performance not being stellar, Nip Chun Pong predicts that the HKD 30 mark will remain a
barrier in the short term.

"Xiaomi tests market response with smartphones; anticipates improvement in gross profit
margin next quarter"

Xiaomi's most significant profit driver currently remains its smartphone business.
Despite a significant drop in the gross profit margin for this segment in the quarter, the
management is confident that the worst is over. Nip Chun Pong believes that there is room
to anticipate a rebound in performance in the fourth quarter, but the actual extent of
recovery still needs to be verified. The primary reason for the decline in the gross
profit margin is rising raw material costs, including chips and lenses. Although Xiaomi
has raised its smartphone prices, the brand, known for its value for money, still faces
significant challenges in pricing.
Facing cost increases, Xiaomi has raised prices to compete, but this move has impacted
the gross profit margin. Nip Chun Pong suggests that Xiaomi's prices, even after the
increase, remain lower compared to Apple and Samsung, indicating that Xiaomi still retains
a competitive edge. However, market response will ultimately determine the success of this
strategy. He mentions that Xiaomi, facing pressure in the low-price market, has also
launched the Redmi and Poco series alongside its flagship models to test market response.
The aim is to identify which line performs best for potential development, but this
testing phase is expected to take some time, likely needing one to two years for Xiaomi to
gauge market reactions effectively.

"Automotive business is unlikely to turn profitable in the next year"

Regarding the automotive sector, Xiaomi's revenue from smart electric vehicles reached
RMB 9.5 billion in the quarter, but innovative businesses such as smart electric vehicles
still recorded an adjusted net loss of RMB 1.5 billion. Nip Chun Pong points out that the
road to profitability for the electric vehicle business still remains quite long. Among
new players, only Xpeng (02015) has successfully turned a profit, while Nio (09866) and Li
Auto (09868) are yet to demonstrate their profitability. He expects that for some time,
Xiaomi will have to rely on profits from its smartphone business to subsidize its
automotive sector. Despite the frequent announcements of strong sales for the SU7, with
the annual sales target increased from 100,000 to 130,000 units, Nip Chun Pong believes
that Xiaomi's weekly sales volume remains in the mid-range within the industry, suggesting
that there is still room for improvement in market share. Therefore, he predicts that it
will be challenging to achieve a balanced income and expenditure for Xiaomi's electric
vehicle business in the next year.