Southwest: The electronic industry's recovery and prosperity in 2025 may be beneficial to holding stocks. Consumption and AI at the edge should be given special attention.

Southwest released a research report stating that in 2025, continuing the previous logic, the main predictions for 2025 are as follows: It is expected that small-cap styles will still dominate before 25Q2, while mid to large market cap styles with excellent growth potential will present good opportunities for opening and adding positions. Benefiting from domestic demand and AI empowerment, Xiong'an New Power Technology, including consumer-related components such as automobiles and semiconductors, will become the most important investment theme for the entire year of 2025. In addition, AI computing power and edge computing will be the growth themes for 2025, with significant changes and catalysts in areas such as high-density PCBs, switch PCBs, and general IoT, especially AI glasses. Fruitchain will be another growth theme for 2025, with the iPhone 17 expected to have the largest upgrade in recent years. Foldable screens, non-invasive blood glucose monitoring watches, TWS earbuds with cameras, smart glasses, and a new generation of MR headsets will also provide significant valuation catalysts. Key points from Southwest: Recovery to prosperity, hold onto stocks From a valuation safety margin perspective, as of December 26, 2024, the PB valuations of the Electronics (CITIC) Index had risen to historical median levels, and the PB valuations of the Semiconductor (Shenwan) Index had risen above historical median levels. The bank believes that the current overall valuation of the electronics industry reflects expectations for the transition from recovery to prosperity in the electronics cycle for 2025-2026. Before observing an EPS inflection point, overall sector fluctuations will be mainly influenced by liquidity and policy expectations. The bank believes that the market may start trading with expectations for an upward EPS inflection point from 25Q2, with electronics prosperity transitioning from recovery to prosperity in 25H2 and continuing until 2026. The bank maintains its trading view from mid-2024, suggesting holding onto stocks now, with the potential opportunity to open or add positions during any volatile periods before 25Q2. Consumer+AI edge computing should be emphasized Looking at the cyclical demand-supply, expectations for AI-drivenPCs and smartphones were lower than expected in 24H2, but global general IoT demand exceeded market expectations. The bank believes that under the assumption of healthy inventory levels in the consumer electronics supply chain, and benefiting from more stimulus policies for 2025 domestic consumption of automobiles and home appliances, as well as the release of many innovative points by Fruitchain, domestic consumption will be the most important theme for electronics in 2025. The impact of AI on PC, mobile phone, and IoT device replacement demand remains to be observed, but its valuation elasticity should not be underestimated. In addition, global industrial and automotive restocking demand began to show from 24Q3 with limited elasticity. With more effective depletion of inventory, the bank believes that the new order cycle for global communication, auto, and other industries is approaching, and those who position themselves well may reap significant benefits. Overall, the bank suggests paying more attention to areas in the midstream with full capacity utilization, as 2025 may bring significant price elasticity. In terms of technical supply, the main themes for electronic growth in 2025 are still AI computing power, AI edge computing, and Fruitchain innovation, with localization still being a major long-term trend. In terms of AI computing power, the bank focuses on opportunities in PCB high-density, switch PCBs, and high-speed copper laminate related areas. For AI edge computing, the bank focuses on the supply chain elasticity opportunities involved in new industrial products such as AI glasses and MR. In terms of localization, the bank continues to be optimistic about the competitiveness enhancement of CIS, improvement in MLCC industrial and automotive penetration rates, as well as the elasticity brought by localization in equipment, materials, and components. Key targets: Shengyi Technology (600183.SH), Chaozhou Three-Circle(Group) (300408.SZ), SG Micro Corp(300661.SZ), etc. Risk warning: Downward demand after short-term restocking, lower-than-expected sales of AI edge computing devices.