CMSC: Extreme differentiation between new and old economy in Hong Kong stocks. Information technology, pharmaceuticals, and internet sectors are thriving.

CMSC released a research report stating that the revenue growth rate of Hong Kong stocks in the first half of 2025 is at a historical low, but overall profitability has improved. The differentiation between new and old economies is evident, with information technology, pharmaceuticals, and optional consumption showing outstanding performance. The downstream industry chain has the most optimal supply-demand structure, with technology, consumption, and pharmaceuticals in an active restocking cycle. Combining mid-year performance reports and recent internal and external liquidity catalysts, it continues to recommend three directions: Internet, non-ferrous metals, and non-banking sectors. Key points from CMSC: Overall overview: Revenue growth has slowed down and is at a historically low level; net profit growth has improved. In the first half of 2025, all Hong Kong listed companies saw a 0.9% decrease in revenue, while all Hong Kong listed companies (excluding finance, oil, and real estate) saw a 0.5% growth in revenue. Hang Seng Index component companies saw a 2.6% increase in revenue, all slowing down compared to the same period last year. In the past 7 years, revenue growth has been at a historical low level, consistent with the downward trend of the macroeconomic cycle. In terms of net profit, all Hong Kong listed companies saw a 5.4% increase in net profit, surpassing the same period last year and at a historical mid-level. Overall improvement in profitability, initial results of "anti-involution." The gross profit margin and operating profit margin of Hong Kong listed companies have both improved on a year-on-year and quarter-on-quarter basis. Apart from the Hong Kong Index being dragged down by weighted stocks, the overall net profit margin of listed companies in Hong Kong has seen year-on-year and quarter-on-quarter improvements. The competitive landscape and profitability of enterprises have both improved, with ROE (TTM) reaching 7.0%, an improvement compared to last year and currently at historical average levels. Clear differentiation in industry structure, new economic growth is remarkable. In terms of revenue, information technology, optional consumption, and finance industries saw the fastest year-on-year growth, reaching 12.3%, 8.5%, and 5.2% respectively; real estate, energy, and utilities saw the largest declines, at -20.9%, -9%, and -4.8%. In terms of net profit, healthcare, information technology, and raw materials saw the fastest year-on-year growth, reaching 202.9%, 60.9%, and 52.2% respectively. The pharmaceutical industry continues to achieve substantial innovative drug BD, with high business prospects; companies in the information technology sector, represented by Xiaomi, have seen rapid profit growth; the raw materials sector has benefited from the buoyant metal prices. New economy revenue saw a year-on-year growth of 8.4%, with net profit increasing by 31.7%; while old economy revenue decreased by 2.5%, with net profit stagnating. Inventory cycle: Downstream technology, consumption, and pharmaceuticals have the best supply-demand structure. Hong Kong stocks as a whole are currently experiencing a destocking cycle. The upstream industry continues to destock, while the middle and downstream industries are entering a restocking cycle. The new economy is entering a continuous restocking phase, while the old economy still sees double-digit contraction in supply. Looking at different industries, information technology, optional consumption, and healthcare are in an "active restocking" phase with favorable supply-demand conditions; energy, utilities, and real estate are still in an "active destocking" phase, at the bottom of the cycle; communication services, raw materials, and others are starting to see "passive destocking", with supply-demand conditions gradually improving. Capital expenditures have significantly decreased, with limited production expansion intentions. During the economic downturn, most industries have significantly reduced capital expenditures. Industries with the lowest intention to expand production include real estate, healthcare, and energy. Only the e-commerce and automotive sectors have seen an expansion in capital expenditures, but the ratio of capital expenditures to revenue has not significantly increased, remaining as maintenance expenses. Large companies have seen a noticeable improvement in operational cash flow year-on-year, indicating stronger willingness for capital expenditures; while small and medium enterprises have decreased capital expenditures and paid off debts due to poor cash flow. Summary of industry fundamentals: Industries with high business prospects include information technology, distribution and retail of non-essential consumer goods (with an emphasis on e-commerce), and healthcare. Lower-performing industries include energy (with an emphasis on petroleum), real estate, capital goods in the industrial sector (mainly cyclical and traditional manufacturing industries), and consumer services in the optional consumption sector (mainly catering and tourism). Generally speaking, industries with stronger growth potential in downstream industry chains and weaker connections to the Chinese macroeconomy have seen better mid-year results. Industries leaning towards traditional economy and strongly linked to the Chinese macroeconomy are facing performance pressures. Investors focusing on fundamentals are advised to pay attention to investment opportunities in technology growth stocks. Risk warning: Unexpected tightening of US Federal Reserve monetary policy, and unexpected tightening of overseas policies.