China Galaxy Securities: Policy Drives Emerging Industries and AI Industry Synergy, Telecommunications Industry Focuses on Four Major Directions.

China Galaxy Securities released a research report stating that the main DRIVE of the current communication industry has formed a new paradigm based on the optimization of operators' capital expenditure structure, resonance of artificial intelligence, and divergence of segmented sub-industries. The development of emerging industries and the future AI-empowered industries will be important topics during the "15th Five-Year Plan" period. Further refining into the communication industry, the company believes that this is mainly reflected in the marginal improvement of the computing power AI industry chain, the rapid development of satellite internet + quantum technology, and specific subsectors in operators, optical communications, satellite internet, and quantum technology. Main points of China Galaxy Securities: 1. Policy guidance is consistent, and the importance of technological innovation and new quality productivity is gradually increasing. The country's focus on the development of the technology industry has been consistent and gradually increasing. The "13th Five-Year Plan" strategically positioned the technology industry as innovation-driven development, with the core task being technological system reform and basic research layout. By the "14th Five-Year Plan" period, the strategic positioning of technology has been elevated from the previous innovation-driven development to self-reliance in technology. Looking ahead to the "15th Five-Year Plan", according to the meeting transcript of the Central Political Bureau held on July 30th and the continuous promotion of "new quality productivity", the company believes that the "15th Five-Year Plan" will further lead innovation based on new quality productivity. 2. The main DRIVE of the current communication industry has formed a new paradigm based on the optimization of operators' capital expenditure structure, resonance of artificial intelligence, and divergence of segmented sub-industries. The overall performance of the communication industry is relatively stable, with the rapid development of the global artificial intelligence industry driving the growth of the communication industry. After removing operators, the gross profit level continues to increase, and revenue has significantly improved. In terms of expense ratios, the cost control of the communication industry has been further strengthened, with high management expense ratios and sales expense ratios. Excluding operators, the research and development expense ratio is high, and companies with high research and development expense ratios are expected to empower the second growth curve of related companies with sustainability. 3. New quality productivity as a foundation, technological innovation leading, resonance of emerging industries + AI industries. Looking ahead to the "15th Five-Year Plan", the company believes that its guidance for the technology industry will focus on new quality productivity as the foundation, technological innovation as the core, and artificial intelligence driving the rapid development of various industries. The development of emerging industries and the future AI-empowered industries will be important topics during the "15th Five-Year Plan". Looking further into the communication industry, the company believes... (1) Operators: Undervalued stable growth, operators' profitabilit... (2) Optical Communications: Cloud AI capital expenditure growth driving the vigorous development of related industries such as PCB, GPU, optical communications, and copper cables. It is expected that domestic substitution and... (3) Satellite Internet: In the process of upgrading from 5G to 6G, the function of satellite internet is indispensable. With the gradual maturity of commercial rocket development, increasing government capital expenditure... (4) Quantum Technology: With the construction of integrated aerospace communication in China, the quantum information industry is showing high growth potential, and the market size of quantum communication is expected to continue to rise. The application scenarios during the "15th Five-Year Plan" will further expand. Investment advice: The main driving factors of the current communication industry are mainly based on the optimization of operators' capital expenditure structure and the rapid development of artificial intelligence. It is recommended to pay attention to sectors such as operators, optical modules, optical devices/optical chips and optical engines, copper connections, satellite internet, and quantum technology. Risk warning: Risks of uncertainty in the international situation; risks of intensified competition in the computing industry; risks of the satellite industry chain developing below expectations; risks of the technology and application development of quantum technology not meeting expectations, etc.