Core view
The beta attribute of the computer industry is strong, and the trend of the sector is highly consistent with the fluctuation of valuation. Compared with developed countries, China’s computer software and hardware industry is backward, the overall product rate is low, and the business models of most companies are poor. Combined with the impact of China’s economic and policy cycle, the sustainability and predictability of sector performance growth are relatively weak. Reviewing the historical trend of the sector, the computer industry index is highly consistent with the TTM valuation trend of the sector, reflecting that among the two factors that determine the stock price, profit and PE, valuation often has a greater impact on the trend of the computer sector.
The sector has been adjusted for nearly two years, and the valuation shows the characteristics of historical bottom. After the high point in July 2020, the sector continued to fluctuate downward. As of March 16, 2022, the highest point of the lowest point of the computer (Shenwan) index has been reduced by 38%. At present, observing the 22-year expected valuation of individual stocks in the industry, the 22-year valuation of most companies has been between 15-30 times, which is very similar to the three historical bottoms. However, the following factors should be considered at the same time: 1) the current valuation is the 22-year consensus expectation valuation, and analysts’ consensus expectation is usually high; 2) Computer is a typical post economic cycle industry. The reversal of industry fundamentals lags behind the reversal of GDP for about half a year to a year. Under the current economic background, the industry may still have the risk of continuous downward revision of performance; 3) The repeated covid-19 epidemic, the US interest rate hike, the Russian Ukrainian war and other external factors may compress the valuation of growth stocks.
The logic of the sustained growth of the computer industry over the past 15 years is: on the one hand, policies accelerate the improvement of localization rate and informatization rate, on the other hand, technological changes trigger new business models and market demand. Summarizing the situation of the computer sector in the past 15 years, we believe that the large-scale market of the computer sector has four characteristics: low valuation, performance driven, main track and enterprise appeal. From the history of the past 15 years, every five years, the computer sector will breed a round of super market, and the main line of the market and the target with the best increase are basically in the five-year policy and industrial main line.
Technological and industrial changes often occur gradually, and policy is the clearest reversal signal. Looking back on previous bottom reversals, new policies with landing are reversal signals, while in a round of big market, technology and industrial direction tend to show greater flexibility and toughness.
The policy and industrial direction in the 14th Five Year Plan period are gradually clear, waiting for reversal. Since this year, documents including the 14th five year plan for the development of digital economy and the government work report have repeatedly defined the major policy direction in the next few years, and the industrial direction represented by 5g Internet of things has become more and more clear. Under the background of uncertainty in the current sector performance and external environment, we suggest to pay close attention to the main line of policies and industries, select the priority allocation of targets with high certainty of performance growth, low risk of downward revision, and matching growth with valuation, and wait for the signal of industry beta to rise again.
Investment recommendations: focus on the recommended energy. It’s the direction of the energy it direction Longshine Technology Group Co.Ltd(300682) , Hundsun Technologies Inc(600570) etc.
Risk warning: 5g progress is lower than expected; The business process of industrial Internet and Internet of vehicles is less than expected; Macroeconomic downturn, investment less than expected; The policy effect is less than expected.
