Shenwan Hongyuan Group A-share 2026 Industry Mid-term Report Analysis: The Resonance of the AI Industry Chain and Energy Cycle Products.

Shenwan Hongyuan Group released a research report stating that in the second quarter of 2026, the prosperity of the artificial intelligence industry chain will continue to accelerate. Popular applications represented by AI Coding are rapidly advancing in terms of commercial implementation, driving continuous performance growth in computing power, models, and application layers, with the industry's profit growth rate reaching new heights. Specifically, in the electronics sector, the cumulative revenue and non-recurring net profit growth rates for Q2 2026 reached 38% and 211%, respectively, with the current ROE-TTM at 12%, standing at a historical high; in the communication equipment segment of the AI hardware industry chain, the cumulative revenue and non-recurring net profit growth rates for Q2 2026 were 32% and 86%, respectively, with the current ROE-TTM at 15%, also a record high. Meanwhile, losses in computer software on the AI application side continue to shrink. Although the media sector saw a cumulative decline in non-recurring net profit growth for Q2 2026, the rate of negative growth continues to contract, with cumulative net profit growth, gross profit margin-TTM, and ROE-TTM showing marginal improvements. The main points of Shenwan Hongyuan Group are as follows: 1. Comparing absolute and relative prosperity through financial indicators: The AI industry chain and energy cyclical goods are showing upward trends, while consumer goods are under pressure at the bottom. From a comparative perspective, we use the cumulative growth rate of non-recurring net profit and the current historical percentile of ROE-TTM as representations of absolute prosperity, while also using the year-on-year changes of six indicators: revenue cumulative growth rate, non-recurring net profit cumulative growth rate, ROE-TTM, gross profit margin-TTM, inventory turnover-TTM, and accounts receivable turnover-TTM, as representations of prosperity improvement. Among the major sectors, technology (TMT), cyclical goods, financial real estate, and pharmaceuticals saw five financial indicators improve in Q2 2026, advanced manufacturing improved by three, while the consumption sector saw a complete deterioration in all six financial indicators. (1) In Q2 2026, the prosperity of the AI industry chain will continue to accelerate. Popular applications represented by AI Coding are rapidly advancing in terms of commercial implementation, driving sustained performance growth in computing power, models, and application layers, with the industry's profit growth rate reaching new heights. Specifically, in the electronics sector, the cumulative revenue and non-recurring net profit growth rates for Q2 2026 reached 38% and 211%, respectively, with the current ROE-TTM at 12%, standing at a historical high; in the communication equipment segment of the AI hardware industry chain, the cumulative revenue and non-recurring net profit growth rates for Q2 2026 were 32% and 86%, respectively, with the current ROE-TTM at 15%, also a record high. Meanwhile, losses in computer software on the AI application side continue to shrink. Although the media sector saw a cumulative decline in non-recurring net profit growth for Q2 2026, the rate of negative growth continues to contract, with cumulative net profit growth, gross profit margin-TTM, and ROE-TTM showing marginal improvements. (2) There is significant differentiation within the cyclical sector. Energy cyclical goods benefit from the deepening energy security strategy and marginal improvements in supply-demand patterns, with a continuous recovery at the fundamental bottom and profit stabilization; while domestic demand cyclical goods remain in a performance bottoming phase. In Q2 2026, oil prices surged rapidly due to the impact of the US-Iran conflict, leading to cumulative non-recurring net profit growth rates of 35% and 19%, respectively, for oil, petrochemical, and coal sectors, with all six key financial indicators showing improvement. The chemical sector continues to perform well on the back of supply-side improvements and price differential advantages, achieving cumulative revenue and non-recurring net profit growth rates of 13% and 38% in Q2 2026, with five of the six major financial indicators improving except for inventory turnover. In contrast, domestic demand cyclical goods such as building materials, construction, and steel still reported negative cumulative non-recurring net profit growth rates in Q2 2026, with all six financial indicators in the building materials sector showing deteriorating trends. (3) In the advanced manufacturing sector, the overseas prosperity trend continues. However, against the backdrop of the appreciation of the renminbi, foreign exchange losses have exerted a noticeable drag on the profits of export-oriented enterprises. The advanced manufacturing sector achieved an 11% revenue growth in Q2 2026, but the profit growth rate was only 7%, lagging behind revenue growth, partly due to foreign exchange losses. Additionally, the advanced manufacturing sector achieved improvements in three financial indicators in Q2 2026, although the marginal growth of revenue, profit, and inventory turnover has slowed. Within this sector, the machinery sector, particularly automated equipment driven by AI, performed well, with cumulative revenue and non-recurring net profit growth rates of 22% and 36% in Q2 2026, respectively; the power equipment sector saw cumulative revenue and profit growth rates of 20% and 30%, respectively, a slowdown compared to Q1 2026, mainly due to photovoltaic equipment. In the military sector, only the naval equipment is in a prosperous cycle, while other subfields saw negative profit growth in Q2 2026, remaining in a bottom area; the automotive sector faced increased competition and foreign exchange fluctuations, achieving only a 3% cumulative revenue growth and a 22% decline in cumulative non-recurring net profit growth in Q2 2026. (4) In the pharmaceutical and biotechnology field, the CXO and innovative drug industry chains are showing early signs of performance recovery, driven by warming demand and improved order visibility, with prosperity continuing to trend positively. Overall, the pharmaceutical and biotechnology sectors continue the profit growth pattern from the previous quarter, with cumulative revenue and non-recurring net profit growth rates for Q2 2026 at 2% and 18%, respectively, while five out of six financial indicators, excluding revenue, improved. Structurally, medical devices and bioproducts exhibit stable profit growth characteristics; CXOs and innovative drugs continue their upward trajectory, with the ROE-TTM for medical services hitting 11%, at the historical 80th percentile. (5) The financial real estate sector is recovering from the bottom. The overall financial real estate sector saw cumulative revenue growth of 9% and cumulative non-recurring net profit growth of 18% in Q2 2026, with revenue growth, profit growth, and ROE all seeing improvement compared to Q1 2026. Structurally, non-bank financial services benefited from active trading in the equity market during the second quarter, with significant growth in performance recorded, where brokerage firms achieved cumulative revenue and non-recurring net profit growth rates of 44% and 62% respectively, with insurance reaching 24% and 71%, both significantly above Q1 2026 levels. The banking sector maintained steady performance, with cumulative revenue and non-recurring net profit growth rates of 7% and 3%, respectively. Although the real estate sector remains in a loss state, the loss margin has narrowed. (6) In the consumption sector, performance continued to be downgraded in Q2. Weak terminal demand, coupled with inventory destocking pressure, keeps profits under pressure at the bottom, with the recovery pace generally slower than expected. The overall consumption sector saw a 25% decline in cumulative non-recurring net profit in Q2 2026, with a cumulative revenue growth rate of 0%. Both revenue and profit continued to weaken compared to Q1 2026, and the sector's overall ROE-TTM is at a low point not seen since 2010, with all six financial indicators further deteriorating compared to Q1 2026. In sub-sectors, food and beverage, agriculture, forestry, animal husbandry, fishery, home appliances, social services, beauty care, and light manufacturing all recorded negative growth in non-recurring net profit for Q2 2026, with each industry's ROE-TTM at historical lows. Retail trade achieved a 3% positive cumulative revenue growth in Q2 2026 on a low base, while cumulative non-recurring net profit growth reached 32%. Further screening of sub-industries shows that those with a non-recurring net profit growth rate greater than 30% and without a low base effect mainly include: cyclical resource products (energy metals, minor metals, industrial metals, chemical fibers, chemical raw materials, precious metals, non-metallic materials, agricultural chemical products), technology manufacturing (semiconductors, other electronics, communication equipment, components, computer equipment, automation equipment, consumer electronics, gaming, naval equipment, batteries), finance (securities, insurance, diversified finance), and large consumption (medical services, bioproducts, travel retail). However, as of Q2 2026, industries where the absolute value of non-recurring net profit remains negative include: real estate chain (real estate development, cement, ordinary steel, coking), Shenzhen Agricultural Power Group (animal husbandry, feed), technology and manufacturing (photovoltaic equipment, software development, IT services, film distribution, internet e-commerce). 2. Examining changes in the supply-demand pattern of the industry from the perspective of personnel and funds Demand side: From the perspective of forward-looking demand indicators, fixed asset turnover (leading revenue) and contract liabilities (leading income recognition) can effectively predict the direction of prosperity. In Q2 2026, manufacturing sub-sectors with marginal upward trends in fixed asset turnover and high growth in contract liabilities are concentrated in electronics, communications, new energy, non-ferrous metals, and chemicals, such as energy metals, communication equipment, new metal materials, batteries, consumer electronics, components, minor metals, automation equipment, chemical fibers, chemical raw materials, etc., indicating improvements in industry capacity utilization and abundant orders on hand. Supply side: (1) From the number of employees, in H1 2026, the growth rate of employees in electronics, military, and non-ferrous metals reached 10%-16% (above the 80th historical percentile), indicating a rapid expansion phase; while the automotive, real estate chain, and some consumer industries are experiencing negative employee growth (below the 13th historical percentile), proactively shrinking manpower to expedite clearing. (2) From the perspective of capital expenditure, after undergoing capacity destocking through 2023-2025, most manufacturing supply cycles are below the 50th historical percentile. Components, industrial metals, communication equipment, consumer electronics, minor metals, etc., are in a "dual high" phase of added capacity and inventory, benefiting from the AI industry chain; renovation materials, home products, packaging and printing, apparel and home textiles, and cultural and entertainment goods are in a "dual low" industry clearing phase. 3. The impact of exchange rates and investment yields on profits In 2026, Chinese enterprises will continue to deepen their globalization layout, with overseas export prosperity continuing. However, in terms of pricing, since April 2025, the renminbi has appreciated significantly, creating foreign exchange pressure on overseas companies, exerting a drag on the profits of overseas manufacturing, and resulting in a significant increase in financial expense ratios for industries with high overseas revenue ratios. In terms of absolute values of foreign exchange gains and losses in the first half of 2026, typical outbound sectors such as passenger cars, white household appliances, batteries, consumer electronics, engineering machinery, and auto parts saw their foreign exchange losses reach 8.121 billion, 7.371 billion, 6.806 billion, 6.657 billion, 5.716 billion, and 5.299 billion, accounting for 89.1%, 17.0%, 10.2%, 16.2%, 33.1%, and 13.9% of their respective cumulative non-recurring net profits in the first half of 2026, with exchange rate appreciation having a phased impact on profits. (Note: A positive foreign exchange gain means a loss.) Additionally, in Q2 2026, the A-shares market witnessed a concentration of investment gains as driven by the technology bull market led by artificial intelligence, which boosted corporate profits, with some industries seeing net profit growth attributable to shareholders significantly higher than that of non-recurring net profits. Using the "Investment and Fair Value Change Net Income/Net Profit Attributable to Shareholders" as a measure of the contribution of investment returns to performance, non-banking finance, as a typical investment-driven industry, saw this ratio reach 137.6% in Q2 2026; followed by construction materials, retail trade, steel, computing, banking, and transportation at proportions of 50.6%, 50.4%, 43.9%, 42.0%, 34.2%, and 31.2%, respectively. Historically, banking and home appliance sectors have reached peak values for investment yield contributions, while communication, construction materials, steel, and electric equipment also remain in the upper 80th percentile. 4. Evaluating absolute return opportunities in the industry based on dividends and free cash flow In 2026, the total cash dividend amount of A-shares reached 713.7 billion yuan, a year-on-year increase of 12.6%, with the banking, oil and petrochemical, and communication sectors ranking in the top three for dividend scale. The absolute value of the dividend scale reflects only the current willingness to pay dividends, while the sustainability of dividends fundamentally depends on the availability of free cash flowthe free cash flow rate (free cash flow/revenue) is a key measure of this capability. Based on Shenwan's secondary industry data, the following criteria were used to filter subfields with both high dividend returns and strong sustainability in dividends: secondary industries with dividend yields exceeding 3%, and those in Q2 2026 with improved free cash flow rates compared to 2025 mainly include: oil and gas extraction, beverage and dairy, shipping and ports, communication services, traditional Chinese medicine, publishing, commercial vehicles, refining and trade, housing construction, and white goods. Improvements in the free cash flow of the above industries lay a solid foundation for raising dividend proportions or implementing stock buybacks in the future. 5. A comprehensive comparison of industry prosperity and valuation from the perspective of PB-ROE (1) First quadrant (high valuation, high profitability, high holdings): communication equipment, components, semiconductors. The alignment between valuation and prosperity is high, with pricing relatively adequate. Caution is advised regarding the potential reversal from positive to negative in the supply-demand gap over four consecutive years of prosperity expansion (measured as revenue growth rate - capital expenditure growth rate), as well as facing changes in industrial capital behaviors in 2027. (2) Second quadrant (low valuation, high profitability): securities, insurance, medical services, energy metals, batteries, etc. These sectors are undervalued but highly profitable, with the market not having fully priced them, likely presenting opportunities for a rebound. Furthermore, from a dynamic perspective, medical services, chemical raw materials, refining, and trade sectors are transitioning from the previous third and fourth quadrants to the second quadrant, with continued fundamental improvements and valuations yet to start, requiring attention going forward. (3) Third quadrant (low valuation, low profitability, low holdings): real estate chain and most consumer industries. Fundamentally, this sector remains in the left-side layout phase, but valuations have dropped to historical lows, revealing gradual odds advantages. It is recommended to continue tracking CPI trends and the recovery of domestic demand. (4) Fourth quadrant: On a market-wide basis, there are currently no extremely high valuation, low prosperity industries. For example, coal, while its valuation is at the 70th historical percentile, continues to improve in profitability, with institutional holdings relatively low, maintaining a reasonable price-performance ratio. Risk warnings: 1) Economic fundamentals may rebound less than expected; 2) Uncertainties in geopolitical risks may disrupt industry fundamentals; 3) Financial report data may exhibit certain lags and not represent future trends.