CITIC SEC: Going overseas remains one of the strong clues for better-than-expected performance.

CITIC SEC released a research report stating that the A-share market is gradually transitioning to an incremental market after the Hong Kong stock market, and the most important thing is to continuously seek new sectors with expected discrepancies and future consensus formation, with the possibility of overseas expansion after the mid-year report season as a new direction. From the mid-year report previews, overseas expansion is still one of the strong clues of performance exceeding expectations; based on the experience of the past few years, overseas expansion has a noticeable positive impact on company ROE and profit margins, and is also a proactive form of "anti-internal competition" and improving profit margins; looking ahead, once the logic of global revenue exposure is explained, it will bring stability to stock allocation and valuation premiums, which is the necessary path for emerging markets to enter mature markets. The report pointed out that this year, overseas expansion is one of the best performance clues, but due to the trade war causing market volatility and always displaying a scattered, bottom-up driven state. With the trade war expectations gradually stabilizing after August, and the end of the mid-year earnings season, overseas expansion may once again form a sector-wide market trend. In terms of allocation, from now until the end of the mid-year earnings season, it is still recommended to rotate around Hengke, non-ferrous metals, communications, innovative medicine, defense industry, and gaming, with a current bias towards Hengseng Technology. The main points are as follows: - From the mid-year report previews, overseas expansion is still a strong performance clue exceeding expectations. - The disturbances caused by the trade war in the second quarter have limited overall impact on exports, with China's exports in June increasing by 5.8% year-on-year, which was 1 percentage point higher than in May and exceeded market expectations by 2.6 percentage points. Cautious investors attribute this to "export grabbing" and continuously shifting away from the expectation of declining exports, however, the relatively strong demand in North America continues, the effects of tax cuts are gradually being felt, and with the stabilization of expectations of the US-China tariff war, we believe that the probability of exports continuing to exceed expectations in the second half of the year is actually increasing. As seen from the mid-year earnings season previews of listed companies, overseas expansion remains an important indicator of performance exceeding expectations. We calculated the companies that have already disclosed their previews and the consistent estimates of profit adjustments by Wind from the preview release to July 19th and found notable upward revisions in the secondary industries such as computer equipment (profit forecast raised by 3.2%, the same below), general equipment (2.3%), agricultural chemicals (2.2%), home appliances (1.7%), etc., all with a foreign revenue contribution exceeding 40% of total revenue. From the revenue expectation perspective, among the 12 first-tier industries in the CITIC index, companies with overseas revenue contribution exceeding 30% have seen more significant upward revisions in revenue expectations this year compared to companies with lower overseas contributions, indicating a clear advantage of "going global" over "not going global". - Based on the experience of the past few years, overseas expansion has a significant impact on ROE and profit margins. - Looking ahead, the logic of global revenue exposure will bring stability to stock allocation and valuation premiums. This year, overseas expansion is one of the best performing sectors, but the trade war has caused market volatility and has always been in a scattered state. After August, trade war expectations may stabilize, and with the end of the mid-year earnings season, overseas expansion may once again form a sector-wide market trend.