Guotai Junan: Profit margins in the computer industry are stabilizing, optimistic about the three main directions leading the reversal of economic conditions.

Guotai Junan has released a research report stating that the profit growth rate of the computer industry will continue to be under pressure in 2024, but the year-on-year decline will continue to narrow. They are optimistic about the three major directions of emerging industries, car networking, and low-altitude economy that are expected to see a turnaround in business sentiment. In terms of emerging industries, with the implementation of local government debt measures and the strengthening of industrial support policies, government bids for emerging industries are accelerating, and industry business sentiment continues to rise. In terms of car networking and low-altitude economy, these two sectors are both in the field of transportation, and companies in the industry chain are expected to perform better than expected in this trillion-dollar market as policy research progresses, core technologies advance, business models are established, and funding is secured. Guotai Junan's main points are as follows: From a fundamental perspective, business sentiment remains low, but profit margins are stabilizing. In 2024 Q1-Q3, the overall revenue growth rate of the computer industry was 5.99%, with a year-on-year increase of 1.12%, showing a slight increase from the previous year. However, the median growth rate of revenue was 0.26%, with a year-on-year decrease of 2.75%, continuing to decline compared to the first half of the year and reaching a new low since Q3 2020. The industry sentiment remains low and has not shown a clear turning point. The profit growth rate of the industry in 2024 continues to be under pressure, but the year-on-year decline is narrowing. In 2024 Q1-Q3, the overall net profit of the computer industry was 16.45 billion yuan, the lowest level in the past five years, with a year-on-year decline of 26.07%. Compared to the first half of 2024, the profit growth rate in Q1-Q3 has risen, with an overall net profit margin of 1.94%, a year-on-year decrease of 0.84%, but an increase of 0.32% compared to the previous quarter. Although the profit margin is still significantly down year-on-year, it has stabilized above the breakeven line, and it is expected that with the reversal of business sentiment in the future, industry profits will see better-than-expected growth. Looking at specific industries, most sub-industries saw a marginal decline in business sentiment in Q1-Q3 2024. In terms of the median revenue growth rate in the first three quarters of 2024, the autonomous driving and car networking sub-industry had the highest growth rate at 24.96%, with a marginal increase from Q1. The industrial software industry's business sentiment continued to decline from 33.59% in Q1 to 12.22%. Compared to the first half of 2024, the industries with improved business sentiment in the first three quarters were energy IT, AI, and applications. Due to reduced government spending, the business sentiment in government IT, construction IT, education IT, and satellite remote sensing industries continued to be low. Comparing overall growth rate data, the revenue volume of government IT, network security, industrial software, and general management software saw a significant decline, with revenue contraction mainly evident in leading companies in these industries. From a fund holding perspective, the overweight ratio reached a new low, and herding behavior decreased. As of Q3 2024, the proportion of fund holdings in heavy positions had decreased to 2.04%, down 0.13% from the previous quarter. The overweight ratio was -1.88%, down 0.48% from the previous quarter, both reaching new lows since Q2 2022. At the same time, the concentration of fund holdings in the computer industry decreased, and there was less herding behavior among funds. In Q3 2024, the concentration ratios (CR10) for the number of holdings, funds held, and market value held in the computer industry were 55.71%, 48.05%, and 67.80% respectively, down from Q2 by -5.72%, -6.85%, and -4.10% respectively. Based on changes in holdings, the top ten funds increased their positions in the emerging industries and decreased their positions in IDC computing power and remote sensing satellites. Risk warning: Risks of macroeconomic fluctuations, risks of technological advancements falling short of expectations, and risks of intensifying US-China rivalry.