Ruijun Asset Annual Reflection: Policy turning point is very clear, 2025 is a brave game for the semiconductor industry.

This year, there is something special about the annual thoughts of Ru Jun Assets. The PPT template does not use the usual deep and rigorous indigo color, but a blend of light blue and orange, giving a warm and bright feeling. In the words of Dong Chengfei, the managing partner and research director of Ru Jun Assets, the "perceived" economy in 2025 will improve significantly compared to 2024, and there are multiple instances of being "more optimistic", giving us a visual sense. "The most important reason for optimism is that the turning point of policies is very clear." "In 2025, we are relatively optimistic about real estate." "From the analysis of the performance of listed companies, we are also more optimistic." "Compared to 2024, we believe that the dividends are halfway, looking ahead to 2025, our view may further advance: dividend investments have absolute returns, but not relative returns." "At the moment, the semiconductor industry is no longer the best time to get in, with high valuations and large gains. So we position the semiconductor industry as a game for the brave, with very large stock fluctuations." "I have always believed that utilities have the biggest fundamental changes in all industries, and new energy has brought about revolutionary changes in the industry's status, profit model, and profit." "In the Hong Kong market, choose growth stocks, companies must be profitable, continually growing, and their business models must withstand scrutiny from international investors." The "Rui Thought" opinions are elaborated one by one, and Dong Chengfei states that within his "understanding range", the judgments remain clear. This is also the third annual sharing of the Ru Jun Asset research team. We have been listening to the "Rui Thought" for the past two years, and the uniqueness of this year lies in the fact that, in addition to reviewing the opportunities of 2024 and looking ahead to 2025, Dong Chengfei also deeply shared two inspiring cases. One is Pinduoduo, and the other is an overview of the development of the American internet. Dong Chengfei spent a long time narrating his entire thought process from understanding Pinduoduo, researching Pinduoduo, to thinking about Pinduoduo. He said, "Pinduoduo's customer-centric closed-loop model has increased the value of the entire industry chain. The threshold for using this method is high, but once this path is cleared, it is sustainable, away from the sea of homogeneous competition." This kind of business culture of "win-win prosperity" established with customers, employees, partners, and even competitors, in Dong Chengfei's view, "is also meaningful and worth learning for our society." He jokingly said that he is somewhat persistent in "offline scenarios" and "establishing trust" in business. And by reviewing the development of the American internet and examining the current AI landscape through this, especially whether the stock prices of companies like Nvidia will "pause", Dong Chengfei did not provide an answer, but presented detailed data systematically. Comparing it with Cisco, which was doing the same "shovel business" at the time, we might all ask the question, "If AI really goes through an adjustment, will Nvidia face significant trouble?" It must be said that in the current age where AI tools can facilitate quick answers for us, independent thinking is becoming increasingly luxurious. Investors who have personality and love thinking like this are silently earning extra points in our hearts. Below is the full content of Ru Jun Assets' annual thoughts, which have been authentically compiled and shared with intelligent investors. Especially the reflections on the two cases are highly worth pondering. Every year, we discuss some interesting issues and review the issues from the previous year. This is the third year that we have launched the "Rui Thought" annual thoughts report. This is not a traditional annual strategy report. It only records and expresses our thoughts on some interesting issues. Let's first look at the review of 2024, where we presented three viewpoints at this time last year. Review Checkpoint One: 2024 is the "final real estate shockwave" 2024 was the year with the biggest impact of real estate on the economy. Our title was "The Final Real Estate Shockwave". At that time, through some horizontal comparisons between the United States and Japan, we felt that in terms of the decline in prices, by 2024, the adjustment of the real estate market was almost in place, and the probability of subsequent government policies being implemented was increasing. In terms of actual results, throughout 2024, the government's policy measures towards real estate were increasing, and we also saw an improvement in actual transactions, with a month-on-month sales area achieving a positive growth by the end of the year. Subjectively, the second-hand housing market in Shanghai was also quite active. Looking ahead to 2025, we are still relatively optimistic about real estate. From our compiled data and inventory cycle perspective, residential properties have been destocking for four consecutive years. In the past three years (2022-2024), destocking exceeded 2.5 billion square meters each year, with a cumulative destocking volume exceeding 7.5 billion square meters. By 2024, the newly started area had decreased to a level of 500 million square meters, and we believe that the industry is gradually moving towards a balance between supply and demand. In my view, the trend of real estate as an asset is closely related to market confidence and expectations. The current perception of the real estate industry is somewhat similar to the market's perception of the stock market before September 2024. Personally, I am more optimistic about the real estate market in first-tier cities, as these cities' real estate tends to be more core assets and has a closer connection to the capital market. For example, in Shenzhen, there is a large concentration of technology innovation enterprises, while Shanghai has a dense population of financial professionals. We believe that the drag of real estate on the economy in 2025 can basically be negligible. Looking back at the sales area of the past few years, from a peak of 1.6 billion square meters to halving to 800 million square meters, this will inevitably have a severe negative impact on the economy. The bottom has been reached up to now, but industry recovery will still take time. Therefore, in 2025, we remain firm in our view from last year: 2024 was the last year of real estate impacting the economy. Review Checkpoint Two: Speculating on market styles At the beginning of 2024, we had a seemingly wild idea, which was to see opportunities in small-cap technology growth. Starting from 2021, until September 2024, the only subjectively effective long strategy in the market was dividend investment, which was evident to all. At the time, we compared the market situations in the United States and China, and combined with the current environmentAfter a boundary analysis, it is believed that for a long period of time in the future, market styles will not switch frequently. Once the market stabilizes, small-cap technology growth styles are expected to become mainstream.chain system ? 2025 2025 A 2025 Looking at the results, in the first three quarters of 2024, the market did continue the trend dominated by dividends, but after "9.24", there was a huge and drastic change in the overall market style, which can be clearly seen from the performance of various indices. How should we proceed from here? I always feel that dividends in the market often represent certainty. When the market is bad, people have a low risk appetite, and the dividends they receive are certain. Growth actually represents the potential for a company's future development. Market styles always switch back and forth between certainty and potential. So far, the A-share market has had very strong reactions, as has the Hong Kong stock market. I believe that the small-cap technology growth style can continue under the condition that there are a group of small-cap technology stocks that can deliver performance. Fortunately, in certain areas, some companies are slowly starting to show their performance, such as some companies in the field of semiconductor chip design, whose performance growth rates are good. So up to now, we still have confidence in this area. I have always had a view: China's semiconductor industry is like a long taper of snow, and in the future, it should be able to nurture some large companies. Review Three Points: Halfway through the dividend journey By early 2024, dividend investments had already delivered good returns for three consecutive years, so at that time we proposed a view: halfway through the dividend journey. Looking ahead to 2025, our view may go further: dividend investments provide absolute returns, but not relative returns. Behind this is our relatively optimistic outlook for the market in 2025. Because once the market is optimistic, dividend investments, due to their bond-like properties, are unlikely to outperform the growth sectors. 2025 Think One: Undervalued "Pang Donglai" In 2025, the first case study we most want to share with everyone is the story of Pang Donglai. I have been studying Yonghui Superstores for more than a decade, and I noticed Pang Donglai because last June and July, Pang Donglai assisted in the renovation of Yonghui Superstores' store in Zhengzhou. The renovated store was very successful. Many customers were lining up, and there were significant changes in various aspects of the store. After the inspection, I further studied Pang Donglai, not on the operational level, but Pang Donglai's concept brought me a great deal of inspiration. So, in 2025, the first thought of "Wisdom" is to share with everyone my understanding of Pang Donglai from my perspective. Pang Donglai put a lot of effort into consumer experience from the beginning, aiming for extremes in product selection, pricing, service, after-sales, and more. Many products at Pang Donglai are clearly priced, and it's interesting that non-standard products like tea have performed exceptionally well. In my opinion, they have successfully earned the trust of their customers through these initiatives. In today's business environment filled with false information, gaining the trust of consumers is very difficult. In fact, by earning the trust of customers, many costs can be significantly reduced in various aspects of a business. For example, during this year's Spring Festival, when confronted with the "red shorts incident, Pang Donglai always emphasizes putting customers first in handling similar situations, not just saying it but actually practicing it. Regarding their treatment of suppliers and employees, Pang Donglai also excels in this area. For suppliers, Pang Donglai not only does not delay payments but also ensures that suppliers can receive payments on time, and even cares about the welfare of supplier employees. In terms of employee management, Pang Donglai has adopted a unique and effective approach. On one hand, employee salaries are high, and on the other hand, there is a clear distinction between rewards and punishments. This work environment has made positions at Pang Donglai very desirable, with everyone cherishing their roles. Interestingly, most of Pang Donglai's salary structure is non-performance-based KPIs. In many companies where KPIs are the guiding force, Pang Donglai's basic salary accounts for only 40%, while the remaining 60% relates to cultural beliefs and competency abilities. Yonghui Superstores and Pang Donglai represent two completely different models. I witnessed Yonghui's journey from its inception to becoming China's top supermarket, once competing against Walmart and then gradually fading. Pang Donglai's supermarket, on the other hand, is like a tourist attraction, forging its own successful path in a unique way. As I mentioned earlier, last year Pang Donglai assisted Yonghui. In fact, as early as 2022, Pang Donglai began helping poorly managed peers, starting with some small community supermarkets, mainly in third and fourth-tier cities, which might not be well-known to everyone. Only after helping Yonghui, with more media coverage, did people become aware of Pang Donglai's assistance to its peers. When I went to inspect Pang Donglai, I thought it might be an extension of a business model. I thought that by operating physical stores, it might not want to expand beyond Xuchang, as expanding nationwide is difficult regardless of the model used. But its supply chain capabilities are particularly strong, which is clearly evident, and its own categories are also very good. So at that time, I thought that its business model possibly aimed to create a second growth curve through the supply chain, by empowering competitors. After all, when Yonghui's supply chain was strong, it also envisioned this business model, relying on strong business operations to supply itself and other community supermarkets. However, when I visited the site and interacted with Yonghui's people, the information I learned was particularly shocking. Yonghui's people said that Pang Donglai showed them their entire supplier system without reservation, even informing them about the procurement sources for each category, purchase prices, essentially allowing Yonghui to entirely replicate it. Regarding its own brand products, adding one or two percentage points when supplying to other supermarkets is very normal. But Pang Donglai had no reservations at all, showing Yonghui the core of the supermarket's supply chain system. So it is quite obvious that Pang Donglai is not looking to empower competitors through the supply chain, but rather hopes to improve the industry's supply chain level by giving strong supply chain resources to competitors. This kind of business concept is remarkable. They are not concerned about others taking away their ideas; on the contrary, they are willing to share. In Silicon Valley, the culture of sharing has always been important, so what's wrong with jointly improving the industry's standards? Pang Donglai is indeed a very unique company, and its business model is very practical and meaningful. From this case, it can be seen that there are still many opportunities in the market. Pang Donglai's corporate spirit and business philosophy are worth contemplating. 43. I have visited many companies all over the place, but often find that there aren't many truly influential companies. Pang Donglai not only has a successful business model but also a business spirit that is admirable. 2025 Think Two: Differentiation under Valuation Bubble If there is a significant difference in the valuation of various sectors in the market in 2025 or if there is a clear valuation bubble, our thinking will go even further. For example, the valuation bubble in the A-share consumer giant sector may be particularly evident, as there are already signs of this. Our view of the market is not set in stone; the market situation is constantly changing, and we are constantly adjusting our thinking. 2025 Think Three: Industrial Chain Advantages and Market Responses In the future, we are optimistic about the advantages of the industrial chain and blockchain, which are important directions after the market style shift. In this area, we will continue to expand our research and find companies with significant potential. Reflecting on the past and looking ahead has been our way of thinking. In our continuous exploration, we hope to find more valuable information and provide investors with more comprehensive decision support.The channel secrets have all been exposed. AIWhen faced with a node, there will be trouble, just like the experience shown by Cisco, but no one knows when they will reach that node.Although some people believe that Cisco's P/E ratio was very high at that time (reaching 200 times), on the other hand, currently Nvidia is not considered expensive (around 30 times dynamic), profit forecasting for tech companies has always been difficult, and future expectations are full of uncertainty. Looking at the "softer" companies, in 2000, the representative of the Internet application field in the United States was AOL. It once shocked the world by acquiring Time Warner. At that time, AOL's market value was less than Time Warner's, with the hope of creating synergy, but it ended tragically, and the two companies parted ways soon after the completion of the project. Then, AOL failed to keep up with the development of DSL broadband internet access methods and gradually declined. This situation is similar to the current situation of large models. OpenAI originally planned to monopolize large models, continuously investing in technology and computing power to build a moat to monopolize large models. However, with the emergence of DeepSeek, people now have some doubts about where the moat of large models is? Will it be valuable? Similarly, AOL initially sought to monopolize customers, acquire Time Warner to provide high-quality content, and build an ecosystem. The market logic at that time was similar. In 2000, there were also some typical cases, such as Netscape being hit hard by Microsoft and having to offer its services for free; Yahoo was also a leader in the application field at the time, providing services such as email, advertising, and news, but later surpassed by Google. However, Yahoo's fate was relatively better as it learned from Google's business model and became the second-largest search engine in the United States, experiencing a second spring; Amazon's market value in 2000 was only $30 billion, a small company starting out. In the adjustment wave that started in 2000, its stock price fell by 90%. But due to its gradually increasing competitiveness, it began to rebound in January 2002 and had multiplied several times by the end of 2003. This growth, however, seems modest compared to what followed, as it has maintained a dominant position in the U.S. internet market. By analyzing the development of "hard" companies (such as Cisco) and "soft" companies (such as AOL, Yahoo, Amazon, etc.), we can see that 2000 was a crucial turning point in the development of the Internet, transitioning from an early stage to an adjustment period. Currently, looking at the trend of industrial development, AI is still in its early stages. However, the stock price trends make people feel like "the tree has grown to the sky." Here is an immature idea we would like to present. Overall, I think the environment in the United States in 2000 is very similar to the present: First, the stock market had been rising for a long time. From 1982 to 2000, the U.S. stock market had been rising for more than ten years, and the current bull market started in 2009. The duration is also significant. Second, the economic situation was good. The 1990s was a "golden decade" for the U.S., with high growth, low inflation, high happiness index. Currently, the U.S. economy is performing well globally, with the impact of Fed rate hikes being minimal (the Fed began raising rates in 1999, and the economy showed more resilience afterwards). Third, investors were generally optimistic. The rise of the internet in 2000, and now the rise of AI, show clear industrial trends and no one doubts their potential. Interestingly, Warren Buffett's behavior during these two periods also has similarities. In 2000, he reduced his holdings, and this time he is quietly accumulating cash. The difference is that in 2000, Buffett was mocked for reducing his holdings, but this time, no one is mocking him; in fact, some even see it as a market signal. Of course, accurately predicting the future is very difficult, as evidenced by a famous debate in internet history: in January 1997, Bill Gurley, an analyst at Deutsche Bank, issued a bearish report on Netscape. Two days later, the "Internet Queen" Mary Meeker upgraded Netscape from "Buy" to "Strong Buy." Looking back, the Internet Queen's judgment was wrong, but both of them had successful developments later on, with the analyst transitioning into successful investing. Through this story, for trends like AI, we have concerns (will there be adjustments similar to the development of the internet), but we are just posing questions and expressing uncertainties. If AI does face a correction, Nvidia might face significant trouble. 2025 Reflection Three: Where is the Investment Cake The third part is our outlook for the entire market in 2025. Overall, we believe that the "perceived" state of the economy in 2025 will be significantly better than in 2024. The use of the term "perceived" is because in 2024, many people generally felt that the economic situation was poor. Even now, many still believe that the economy is not doing well. We believe that by the end of 2025, people's perception will be better than in 2024. The most important reason for this optimism is that the turning point in policies is very clear. Negative factors come from external impacts. However, I still believe that as long as China prioritizes its economy, our policies still have room to maneuver. The second reason for optimism is the relatively positive outlook for real estate. China's residents' perceptions are largely related to property prices, as sixty to seventy percent of our wealth is tied up in real estate. Will the real estate market stabilize? Will property prices in first-tier cities see a turning point? I believe this possibility cannot be ruled out. Of course, third and fourth-tier cities may still need time, considering the significant decline in property prices. Those who are less optimistic tend to predict from a "grand narrative" perspective, such as declining population and aging. But just like before September 24, 2024, when many felt there were no new funds entering the stock market, a week later, the market saw an influx of new capital entering. So I believe that for things with an asset aspect, one should not have a linear mindset. We believe that once inventory is reduced to a certain level, a change will occur. Even for ordinary goods, once the inventory is reduced to a certain level, supply and demand will be balanced. Once supply and demand are balanced, prices will stabilize. Things with an asset aspect are typically bought in times of growth. Just like in the stock market, once it starts to rise, you don't understand why there is suddenly so much demand for stocks. On the performance side of listed companies, we are also leaning towards optimism. This table contains data we compiled ourselves. We selected the "constituent stocks" as the "CSI 800+CSI 1000," equivalent to the top 1800 companies, excluding 40 banks. Source: Ruijun Asset From a quantitative perspective, these 1800 companies...The family company accounts for one-third of the total number of companies in the market and is predominantly a large company. If we add the profits of 40 banks, its profits would account for 90% of the total market profits.We exclude bank profits because banks are unique, and the remaining data better represents the profitability of entities outside the banking sector. Before conducting this data analysis, we always thought that there would be continued negative growth in 2024, with huge losses in photovoltaics. From the data, it can be seen that the economic situation in 2021 was very good, with a fast pace of company performance growth. Economic growth in 2022 and 2023 continued to decline, as did corporate growth. However, looking at the data from the first three quarters of 2024, compared to the first three quarters of 2023, there was a year-on-year increase, although the growth rate was small, only around 1%. Considering some provisions for 2024, I adjusted it to negative growth when annualized. Of course, the final result will be reviewed after the annual report is released. Although people feel very negative about the economy in 2024, investor confidence and the confidence of listed company bosses have been affected. But in reality, this data quietly tells us that the economic downturn is already converging, with positive growth in the first three quarters of 2024. The emphasis on the concept of "feel" is because comparing the data with the feelings of investors before September of the previous year, the sentiment is much better now. So I think, if the economy in 2025 improves a bit, the performance of listed companies is likely to have positive growth. The increase in risk appetite is not elaborated upon, but those in the market understand that it is no longer a simple matter of increase. Based on our views on the macroeconomy, performance, and risk appetite, we are somewhat optimistic about the capital market in 2025. We have also briefly considered our views on some industries. In recent years, we have been discussing the semiconductor industry. Currently, it is not the best time to invest in semiconductor companies, as valuations are high and returns have been substantial. Therefore, we see the semiconductor industry as a game for the brave, with significant stock price volatility. In terms of investment environment, we are more bullish on materials and design, as their prospects are definitely on the rise, while the prospects for equipment are diminishing. It is difficult for us to judge the manufacturing sector as there is oversupply. Relatively speaking, we are more optimistic about the end-side, as this is where Chinese companies excel. Regarding the data center sector, I have always said that the leading companies benefiting from it are not listed. We have a heavy position in utilities, but the market has a deep bias against these companies. Currently, stock prices have basically returned to the levels of 2022, when these industries were all severely in the red, but eventually became profitable, and now they are just back to where they started. In 2024, China added 277GW of photovoltaic installed capacity and 79GW of wind power, which basically meets the 5.5% electricity growth in China. I believe that China's new energy revolution is indeed happening. In the past two years, we have correctly predicted coal prices. In 2022, we clearly stated our pessimism about energy prices, believing that they would not remain high. Indeed, coal prices have been very weak in the past two years. However, the dilemma is that power generation companies do not have a good business model, somewhat like airline stocks, with too many influencing factors such as electricity prices, coal prices, electricity generation hours, wind, sunlight, policies, etc. The most criticized aspect is the impairment provisions made every fourth quarter. We are optimistic about the underlying logic of power generation companies. We believe that under the new energy revolution, electricity companies will have more say in the industry chain and will dominate the coal-power game. Previously, the coal power industry chain could earn over one cent for each kilowatt-hour of electricity generated, but power generation companies could only get two cents from that. Even so, many people still find it unsustainable. In 2022, coal companies earned 0.15 yuan per kWh, while power generation companies lost six to seven cents per kWh, with profits being taken by coal companies. Now, integrated power generation methods can earn 0.1 yuan per kWh, wind power can earn 0.15 yuan per kWh, photovoltaics, nuclear power, and hydropower can earn over one cent per kWh, but their ROE and ROIC will not be too high, probably around 8% to 9%, while coal power only earned 0.02 yuan per kWh in the first half of the year. New power generation methods will break away from the dependence on coal. From this perspective, I believe that the profitability of electricity companies may still be in competition with coal companies. I have always believed that utilities are undergoing the most significant fundamental changes among all industries. I used to joke that I had never invested in power companies in the past 20 years. However, I think that the new energy has brought about revolutionary changes in the industry's position, profit model, and earnings, though the market has not fully recognized it yet. Our views on consumption are somewhat contradictory. On one hand, the consumption sector has been in a dilemma for the past two years. In early 2023, we published an article "The Challenges of Consumption", covering every aspect of consumption. At that time, we felt that the overall environment for consumption was not optimistic for the foreseeable future, and after two to three years, the situation has largely matched our expectations, with valuations in the consumption industry continuing to decline. However, the business models in the consumption sector are very favorable, and there are some excellent companies, so there is still a group of investors who have a strong faith in the consumption industry. As for the consumption industry in 2025, personally, I can only describe it as "conflicted". Without significant policy interventions, I believe that the consumption industry may still be trapped by long-standing factors, struggling to break free. The key variable here is policy, much like the stock market last year. Therefore, my views on the consumption sector are very conflicted. From a valuation perspective, it is definitely not expensive compared to historical data; the key lies in expectations for the future. I believe that there is potential in consumption, but it will require a significant external force to change everyone's expectations for its future performance. Lastly, let's talk about the growth stocks in the Hong Kong stock market. In the past two years, we have only dared to invest in value stocks in the Hong Kong market. We used two indexes for analysis. One is the dividend index of the Hong Kong Stock Connect. After the peak in early 2021, the dividend index has shown good sustainability. The other is the growth stock index represented by the Hang Seng Tech Index. We chose the Hang Seng Tech Index as a representative because many growth stocks in Hong Kong have seen declines of up to 90%, especially for smaller companies with small market capitalization. In the past two years, most people preferred to invest in value stocks in Hong Kong. However, starting in 2024, A shares...The market's growth trend is slowly emerging.If the funds of growth stocks gradually dominate the market, some funds will overflow into the Hong Kong stock market. We are also selecting some growth stocks in the Hong Kong market now. In 2024, for various reasons such as poor liquidity in the Hong Kong market, we dare not buy growth stocks at all. But this year, we will buy some small-cap growth stocks in the Hong Kong market that we have repeatedly researched and demonstrated, especially high-quality growth stocks in the Hong Kong market. Countless facts have proven that thematic investments must not be made in the Hong Kong market. So when choosing growth stocks in the Hong Kong market, companies must be profitable, continuously growing, and their business models must withstand the scrutiny of international investors. Investors' requirements for high-quality growth stocks in the Hong Kong market are more stringent than for growth stocks in A shares. Once the right stocks are chosen for investment in the Hong Kong stock market, the increase is also astonishing. When it falls, it may decline for several years without turning back, but when it rises, the momentum is strong and there is no need to worry about future trends. Overall, I think there will still be opportunities for high-quality growth stocks in the Hong Kong market in 2025.