China Galaxy Securities: The communication + new infrastructure sectors are expected to be upgraded, preferred targets for marginal improvement in economic sentiment.

China Galaxy Securities released a research report stating that against the backdrop of continuous policy upgrades such as Digital China and the continuous introduction of new AI applications, the new infrastructure of the digital economy is expected to solidify, helping to upgrade the computing power network, and the telecommunications + new infrastructure sector is expected to see upward revisions. The recovery of the ICT cornerstone optical network industry chain will catalyze further growth in demand for optical modules, temperature control energy saving, and other requirements. The application of 5G in industrial Internet is also a key focus for future policies and demand, with the combination of high prosperity and low valuation being the key direction for stock selection. Recommended focuses: Digital economy new infrastructure: ICT-related stocks such as Suzhou TFC Optical Communication (300394.SZ), Zhongji Innolight (300308.SZ), Eoptolink Technology Inc. (300502.SZ), Accelink Technologies (002281.SZ), etc.; Application sector: Satellite Internet Shanghai Huace Navigation Technology (300627.SZ), etc.; Optimistic about communication operators that build computing network infrastructure and new data elements space: China Mobile Limited (600941.SH,00941), China Telecom Corporation (601728.SH,01728), China United Network Communications (600050.SH,00762). Key points from China Galaxy Securities: The communications sector index rose last week, with subsectors such as optical devices and automotive/Internet of Things performing well. This week, the Shanghai Composite Index rose by 2.31%; the Shenzhen Component Index rose by 3.73%; the ChiNext Index rose by 4.66%; within the first-level industry index, the communications sector rose by 6.13%. According to the data on the division of subsectors within the telecommunications industry, subsectors such as optical devices and automotive/Internet of Things performed well, with increases of 14.46% and 10.31% respectively. Among the individual stocks in the communications sector, the percentages of stocks that rose, remained the same, and fell were 88.55%, 1.53%, and 9.92%, respectively. AI continues to drive high-speed optical module market growth, and the development of hollow-core optical fiber technology brings new opportunities to the industry. The deployment of artificial intelligence is driving growth in the data communication optical module market, with Cignal AI predicting that the market for high-speed data communication optical modules will exceed $9 billion by 2024, and the shipping volumes of 400G and 800G optical modules will achieve nearly four times growth for the year. Despite facing a cyclical downturn in the optical fiber cable industry in 2024, the development of hollow-core optical fiber technology brings innovative vitality to the industry, and its potential disruptive innovation characteristics are receiving attention. In terms of operators, the Beijing node of China Mobile Limited's computing center (Changping Information Port) is currently entering a period of rapid development. This node, as the core of intelligent computing power in the Beijing-Tianjin-Hebei region, has seen its smart computing power applied to multiple important client projects such as PetroChina, Sinochem, and China Construction since its completion in June 2024. It has served five major industries and over 30 clients, reporting over 3000P of computing power resources as a computing power provider, helping to solidify the computing power foundation for the rapid development of Beijing's digital economy and artificial intelligence industry. China Telecom Corporation recently completed the world's first "two satellites and three networks" integration test, which achieved quantum encrypted 5G VoNR voice calls, 5G messages, and 5G data communication based on quantum satellite key distribution and high-throughput satellite transmission for the first time, breaking through traditional inaccessible scenarios in land-based networks. By using quantum satellites to distribute wide-area free-space quantum keys, the test achieved the capability to distribute quantum keys online to equipment such as small-sized ground stations. China United Network Communications' Aliyun Wanka Green Computing project has been officially completed, marking a breakthrough in the construction of large-scale intelligent computing infrastructure in Qinghai Province, injecting new momentum into Qinghai's digital economy development. In terms of major equipment suppliers, Huawei performed well in the mainland China intelligent smartphone market in 2024, with annual shipments reaching 46 million units, market share reaching 16%, and a 37% year-on-year growth. ZTE Corporation, in conjunction with Jiangsu Mobile's Nanjing Branch, successfully piloted a 50G PON miniaturized optical module, which is small in size, strong in heat dissipation, compatible with existing equipment, and improves network integration. The pilot achieved a rate of 9.8Gbps, supporting digital transformation, representing an important step forward in the commercial use of 50G PON. Risk warning: Risks of AI application promotion falling short of expectations; uncertainties related to domestic and international policy and technology frictions; risks of 5G commercialization progress falling short of expectations, etc.