CITIC SEC: The electronic industry continues to be in a high boom, firmly optimistic about four major directions.

CITIC SEC released a research report stating that demand for AI data centers in the third quarter continued to grow rapidly, with strong growth in mobile phone shipments, strong demand for new Apple devices, strong demand for cars, and continued recovery in downstream demand in other industrial sectors; from the perspective of domestic substitution, the trend of local computing power breakthrough is clear, with market share continuing to rise, expectations for increased production capacity in downstream advanced storage and advanced logic, stable revenue growth for equipment companies, short-term profit differentiation, and excellent performance for storage and related companies. Segments with relatively bright performance include: PCBs related to computing power, leading domestic computing power chips, leading storage/running chips, leading fruit companies, and leading equipment companies. The main points of CITIC SEC are as follows: Summary of the electronic sector's third quarter 2025 report: Strong demand for AI, accelerated domestic substitution, steady growth in consumer electronics, with industry revenue up 15% year-on-year and net profit up 46% year-on-year. The electronic industry's total revenue in the third quarter of 2025 reached approximately 898.49 billion yuan, up 15% year-on-year; net profit attributable to shareholders was 53.14 billion yuan, up 46% year-on-year; gross profit margin was 19.1%, up 0.7 percentage points year-on-year. From a demand perspective, demand for AI data centers continued to grow at a high speed, with an increase in mobile phone shipments, strong demand for Apple's new devices, strong demand for cars, and continued recovery in downstream industries such as other industrial sectors; from the perspective of domestic substitution, the trend of local computing power breakthrough is clear, with market share continuing to rise, expectations for increased production capacity in downstream advanced storage and advanced logic, stable revenue growth for equipment companies, short-term profit differentiation, and excellent performance for storage and related companies. Consumer electronics sector: Strong demand for new Apple devices in the mobile phone segment, marginal slowdown in SoC performance in the IoT segment. According to Wind, the consumer electronics (CITIC) industry's total revenue in the third quarter of 2025 was approximately 390.08 billion yuan, an increase of 17% year-on-year; net profit attributable to shareholders was 18.11 billion yuan, an increase of 19% year-on-year; gross profit margin was 15.4%, an increase of 0.2 percentage points year-on-year. From the end demand perspective, according to Omdia, global smartphone shipments in the third quarter were 320 million units, up 3% year-on-year. Among them, Apple shipped 56.5 million iPhones in the third quarter, up 4% year-on-year; Android shipped 264 million smartphones, up 3% year-on-year. IDC estimates that global smartphone shipments in 2025 will reach 1.26 billion units, up 2.3% year-on-year. 1) In terms of Apple, iPhone 17 market feedback is positive, with varying degrees of additional orders for the base model/Pro/Pro Max. According to Omdia, Apple shipped 56.5 million iPhones in the third quarter, up 4% year-on-year. Looking at the performance of core suppliers, companies such as Lingyi Itech (net profit attributable to shareholders in the third quarter of 2025 increased by 39% year-on-year) and Lens Technology (net profit attributable to shareholders in the third quarter of 2025 increased by 13% year-on-year) have achieved steady growth in performance. 2) On the Android side, companies with growth logic and new business positioning, such as Sitewell (net profit attributable to shareholders in the third quarter of 2025 increased by 145% year-on-year), Shenzhen Goodix Technology (net profit attributable to shareholders in the third quarter of 2025 increased by 88% year-on-year), Dongguan Aohai Technology (net profit attributable to shareholders in the third quarter of 2025 increased by 82% year-on-year), and Jiangsu Gian Technology (net profit attributable to shareholders in the third quarter of 2025 increased by 73% year-on-year), performed well. Relatively speaking, on the brand side, performance is relatively flat due to stable demand and rising storage costs. In terms of RF and other links, due to demand and competitive factors, they are still in a trough stage. 3) In the IoT sector, on the brand side, companies like Anker Innovations Technology, Arashi Vision Inc., and Ugreen Group Limited maintained high revenue growth in the third quarter of 2025, with growth rates of 20%, 93%, and 60% respectively. Supply chain companies such as Actions Technology also achieved a 47% increase in revenue in the third quarter. On one hand, overseas demand is higher than domestic demand, and all three brands have overseas exposure; on the other hand, Arashi Vision Inc. and Ugreen Group Limited are still in high-growth segments such as intelligent imaging and NAS. Among upstream SoC companies, due to high bases in the same period last year and the early boost in demand from domestic subsidies and tariff removal in the first half of this year, growth rates have generally slowed down, such as Rockchip Electronics (revenue in the third quarter of 2025 increased by 20% year-on-year and decreased by 6% quarter-on-quarter). Semiconductor sector: Industry sentiment continues to improve, with a surge in domestic computing power. According to Wind, the semiconductor (CITIC) industry's total revenue in the third quarter of 2025 was approximately 128.99 billion yuan, up 5% year-on-year; net profit attributable to shareholders was 14.10 billion yuan, up 65% year-on-year; gross profit margin was 28.7%, up 3.3 percentage points year-on-year. 1) Manufacturing/Testing: In the third quarter, driven by downstream demand, capacity utilization is expected to remain high. As of November 1, 2025, Semiconductor Manufacturing International Corporation and HUA HONG SEMI have not disclosed their third-quarter performance, but based on the companies' guidance from the previous quarter and performance exchanges, we expect both companies to maintain full capacity utilization. Semiconductor testing companies continue to benefit from the recovery in downstream demand, domestic substitution for analog chips, and capacity utilization is continuing to rise. Major factories have capacity utilization rates of 80-90%, with overall revenue shifting upward year-on-year, and some companies' production lines are at full capacity. 2) Semiconductor Equipment/Components: Due to the expansion of production capacity by domestic memory customers and the recovery of semiconductor demand, performance of storage and testing-related equipment companies is outstanding. Companies such as NAURA Technology Group (revenue in the third quarter of 2025 increased by 38% year-on-year), Advanced Micro-Fabrication Equipment Inc. China (revenue in the third quarter of 2025 increased by 51% year-on-year), Piotech Inc. (revenue in the third quarter of 2025 increased by 124% year-on-year), and Beijing Huafeng Test & Control Technology (revenue in the third quarter of 2025 increased by 67% year-on-year). On the profit side, due to the high-end machine development tasks undertaken by equipment companies for advanced customers since 2023, an increase in R&D personnel in the past two years has had a negative impact on profits. However, as new products are gradually validated and generate revenue, profitability in the third quarter of 2025 has begun to gradually recover. 3) Domestic computing power: With the upgrade of domestic computing power chip architecture and accelerated product iteration, and gradually released advanced manufacturing capacity, the domestic computing power market share is expected to continue to rise. In the third quarter, Cambricon's revenue was 1.73 billion yuan, up 1333% year-on-year, and net profit was 570 million yuan, up 391% year-on-year; Verisilicon Microelectronics (Shanghai) Co., Ltd.'s revenue in the third quarter was 1.28 billion yuan, showing high growth year-on-year. Multiple companies maintained high or record levels in inventory, prepayments, contract liabilities, and in-hand orders, indicating that performance is expected to gradually improve. 4) Storage: In the third quarter, storage product prices rose across the board, leading to overall profitability for domestic module manufacturers. Demand is high for AI servers and DDR5 upgrades, with strong performance compared to the same period last year for Montage Technology and Giantec Semiconductor Corporation; DDR4 prices have surged, Flash prices have risen, and stocking has accelerated, with GigaDevice Semiconductor Inc.'s net profit attributable to shareholders in the third quarter of 2025 increasing by 61% year-on-year and 49% quarter-on-quarter. 5) Analog: Downstream industrial demand continues to lead the recovery trend. Among them, manufacturers with a high proportion of industrial revenue, such as 3peak Incorporated, saw significant increases in revenue year-on-year in the third quarter, with a growth rate of +70%/+10% quarter-on-quarter. Leading manufacturers with a higher proportion of consumer electronics revenue benefit from the arrival of the downstream peak season and continue to show good growth momentum, like Southchip Semiconductor Technology (Shanghai) and Shanghai Awinic Technology, both with revenue growth of +16%/+11% quarter-on-quarter in the third quarter of 2025. 6) Power: Overall, there is a mild improvement trend, with the IGBT sector benefiting from stable demand and clear price stabilization. Electronic Components Sector: PCB sector maintaining high performance growth, some passive component manufacturers increasing their exposure to AI, and other sectors showing overall stability. According to Wind, the electronic components (CITIC), optoelectronics (CITIC), and other electronic components (CITIC) industries' total revenue in the third quarter of 2025 were approximately 71.39 billion yuan, 211.98 billion yuan, and 95.14 billion yuan, respectively, with year-on-year growth rates of +29%, +11%, and +27%; net profit attributable to shareholders was 8.36 billion yuan, 7.69 billion yuan, and 4.88 billion yuan, respectively, with year-on-year growth rates of +69%, +34%, and +151%; gross profit margins were 25.8%, 18.8%, and 12.7%, respectively, with year-on-year changes of +2.9, -0.9, and +1.0 percentage points. 1) PCB: Leading domestic PCB companies maintained high performance growth in the third quarter of 2025: Victory Giant Technology's revenue was 5.09 billion yuan, up 79% year-on-year, with net profit of 1.1 billion yuan, up 261%; Wus Printed Circuit's revenue was 5.02 billion yuan, up 40% year-on-year, with net profit of 1.03 billion yuan, up 46%. The strong performance of PCBs also drove material and equipment sectors to see performance releases: leading copper-clad laminate producer Shengyi Technology's revenue was 7.93 billion yuan, up 55% year-on-year, with net profit of 1.02 billion yuan, up 131%; leading equipment company Shenzhen Han's CNC Technology's revenue was 1.52 billion yuan, up 95% year-on-year, with net profit of 230 million yuan, up 282%. 2) Panels: Driven by the peak season, LCD utilization rates in the third quarter rose to relatively high levels, but due to factors such as downstream inventory pace and international trade conflicts, prices of panels such as TVs fluctuated, and the performance of panel leaders remained relatively stable. For OLEDs, the structural proportion of mid-range OLED panels has increased due to factors like domestic subsidies, while overall OLED panel prices have fluctuated, but major manufacturers have managed to maintain relatively stable profitability and performance through cost reduction and increased production. 3) Passive Components: Steady recovery in industry demand and a clear increase in exposure to AI during the third quarter's peak season. 4) Security: With optimized business structures and improved cost control, leading security companies saw significant improvements in profitability, and market demand is expected to gradually rebound. 5) LED: The industry is gradually recovering from the impact of tariff conflicts in the second quarter, with business activities returning to normal and most manufacturers seeing stable and upward business performance. Risk factors: Global macroeconomic downturn, lower-than-expected downstream demand, slower-than-expected product innovation, changes in international industrial environments and escalating trade conflicts, intensifying competition in various sub-industries, significant exchange rate fluctuations, etc. Investment strategy: In the third quarter of 2025, from the perspective of demand, AI data center-related demand continued to grow rapidly, with mobile phone shipments recovering year-on-year, strong demand for new Apple devices, strong demand for cars, continued growth in domestic passenger car sales, and steady recovery in downstream industries such as other industrial sectors; from the perspective of domestic substitution, the trend of local computing power breakthrough is clear, with market share continuing to rise, expectations for increased production capacity in downstream advanced storage and advanced logic, stable revenue growth for equipment companies, short-term profit differentiation, and excellent performance for storage and related companies. In conclusion, sectors with relatively strong performance include: PCBs related to computing power, leading domestic computing power chip producers, leading storage/running chip producers, leading fruit companies, and leading equipment companies. Looking ahead, industry sentiment is expected to continue, with AI remaining the primary driving force, overseas and domestic computing power growing together, and the acceleration of advanced logic/storage expansion. We continue to have a strong positive outlook for overall sector performance, recommending investing in semiconductor equipment chains, domestic computing power chains, overall recovery in consumer electronics, and overseas computing power chains as the four main investment themes.