"Hong Kong Stock Commentary" focuses on whether the Hong Kong stock market can break through 26,500 points, paying attention to stocks with stable profitability

The Hong Kong stock commentary indicates that the Hang Seng Index has been relatively volatile this week. Although its performance has improved, recovering to 26,000 points, the overall market breadth has not significantly improved, and recent market turnover remains at a low level. At the same time, technology stocks are showing weakness, while high-dividend stocks continue to perform strongly, reflecting that investors' willingness to enter the market is not strong, and market risk aversion is high. In the short term, we will observe whether it can break through and stabilize above the October 30 high of 26,588 points. If it breaks through, it may indicate the end of this round of downward correction; otherwise, it may be better to wait for a deeper market correction before making further arrangements.

Currently, the market direction is unclear, and funds are relatively cautious, with a preference for stocks with stable profitability, sustained growth trends, and those benefiting from national policies. Investors may consider positioning in SITC (01308) and Dongfang Electric (01072).

SITC recently announced that its revenue for the first three quarters of this year increased by approximately 16.6% year-on-year to about USD 2.459 billion, with container throughput reaching 2.7498 million TEUs, an increase of about 7.8% year-on-year. Although the revenue per box and container throughput in the third quarter fell by 5.7% and 11% month-on-month, respectively, we believe this is mainly due to seasonal factors. With the arrival of the traditional peak season in the fourth quarter, we expect the aforementioned data and freight rates to rebound.

The global trade landscape is being reshaped, with higher costs and risks associated with exports to the United States. Asian companies are shifting their product exports to Europe and Southeast Asia, revitalizing the Asian container shipping market. From January to August this year, the volume of maritime container transport from Asia to Europe increased by 9.5% compared to the same period last year, with container volumes from mainland China to Europe increasing by 10.3%, Northeast Asia by 5.0%, and Southeast Asia by 7.6%. The company is currently focusing on expanding its service network in Asia and increasing route density. In the medium to long term, as the global trade landscape changes, inter-regional trade is becoming more frequent, leading to a growing demand for flexible and efficient small container vessels, with supply tightening. The reshaping of the landscape creates new demand, and we are optimistic about the resilience of future market growth in Asian container shipping, which will help drive the company's performance.

The company's financials are solid, with ample cash flow, and free cash flow has increased by approximately 1.2 times year-on-year. The debt situation is healthy, with a debt-to-asset ratio of about 22.6%, and the quick ratio and current ratio have improved to 1.9 and 2.3, respectively. The company's dividend yield is about 10 cents, making the dividend return attractive and valuable for medium-term positioning.

In addition, Dongfang Electric is a leading domestic nuclear power equipment manufacturer, with valuations lagging behind international peers and benefiting from national policies, making it worth investors' attention for its investment value.

The rapid development of artificial intelligence (AI), the construction of data centers, supercomputer operations, and the rise in computing power resulting from the upgrading of the semiconductor industry are expected to be major factors driving the continuous increase in electricity demand in mainland China. According to market forecasts, the CAGR of electricity demand in mainland China from 2024 to 2030 is expected to be 6.3%. Furthermore, 41 new nuclear power units have been approved in mainland China from 2022 to 2025, and we anticipate that the installed capacity of nuclear power in mainland China will grow at a compound annual growth rate of 15% from 2025 to 2030, which is expected to significantly benefit the company The company has the research and manufacturing capabilities for core equipment of both the nuclear island and conventional island, with market shares of approximately 30% and 50% in mainland China, respectively. Given the high manufacturing threshold for nuclear power equipment, the market share is relatively stable. As new nuclear power unit projects commence, it is expected that the company will receive new orders exceeding RMB 1 billion in the short term. With a rapid increase in electricity demand, and the zero-carbon emissions, stable output, and sustainability of nuclear power, it is one of the best power generation methods to support AI development. The market demand for nuclear power is expected to continue rising, and the nuclear power product line can enhance the company's gross profit margin in the long run. The company anticipates a price-to-earnings ratio of about 15 times, which is lower than the international peers' price-to-earnings ratios of approximately 30 to 50 times, reflecting an attractive risk-return profile and the potential to narrow the gap with international counterparts. "Everbright Securities International Product Development and Retail Research Department"

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