Electronic components: performance announcements

In January, the electronics industry underperformed the broader market. In January, the broader Shanghai-Shenzhen 300 Index fell 1.7%. The electronic components industry index trend was similar to the Shanghai and Shenzhen 300 Index in January, but the increase was smaller than the broader market, and the decline was greater than the broader market, resulting in an overall decline. 10.4% underperformed the market by nearly nine percentage points.

Announcement of January Performance Concerns In January, a total of 40 companies in the electronics industry released their 2010 results announcements, of which 28 were positive or better than previous expectations, and 12 were negative or worse than previously expected. We believe that the January announcement of the performance announcement is both positive and negative and is not optimistic. We believe that although the industry experienced strong growth during the first three quarters of 2010, many companies face pressure from rising raw material prices and rising labor costs on the one hand, and lack of bargaining power on downstream customers on the other. It has a negative impact on profit growth.

Industry indicators show continued decline in industry prosperity The North American semiconductor equipment industry has been in a sluggish state in the second half of 2010, and the order shipment ratio fell to 0.90 in December. In December 2010, global semiconductor shipments amounted to US$25.2 billion, a decrease of 4% from October, and the year-on-year growth rate continued to decline from 60% in March to 12% in December. The prosperity of the semiconductor equipment industry in Japan has been declining in the second half of 2010, and the order shipment ratio has continued to decline to 1.07 in December. The flat panel display equipment industry in Japan has been in a sluggish state in the second half of 2010, and the order shipping ratio fell from 0.97 in November to 0.74 in December. North America's printed circuit board industry's order shipment ratio was 0.96 in December, which is less than the point of 1 boom. We maintain our previous judgment that in the first quarter of this year, the revenue growth of the electronics industry will decline year-on-year, and the downward trend may continue in the second quarter.

The downward adjustment has not yet reached the bottom and maintaining the neutral rating electronic components industry index was lowered by 10.4% in December 2010, but relative to all A shares, the valuation of the electronic components and components industry is still at a relatively high level. At the end of January 2011, The price-to-earnings ratio for the electronic components industry is 53.0, which is 2.8 times that of all A shares. We believe that the downgrade in the past two months has not completely released the risk of high valuation in the industry. We are cautious about the industry's trend in the next three months and maintain a neutral rating.

It is recommended to pay attention to the annual report market and the next three months of the 12th Five-Year Plan. We recommend focusing on the support for the fourth quarter and full-year performance. However, the stocks with relatively small gains in the previous period and relatively low valuations will be gradually implemented as expected in the fourth quarter. Such stocks are expected to have compensatory growth. The share price of the electronics industry companies has generally been lowered since mid-December 2010, and some companies with large downgrades are also worthy of attention. In the next six months, we believe that the further clarification of the Twelfth Five-Year Plan will bring some opportunities to some sub-sectors. It is recommended that investors pay attention to the LED industry related to energy-saving emission reduction, the nuclear-related high-tech semiconductor industry and the Internet of Things industry. We also recommend focusing on companies with high expectations of conversions. This month, we recommend Huatian Technology, Gaode Infrared, Crystal Optoelectronics and Dry Photoelectricity.