Broker: UOB Kay Hian
Date of Report: 03 July 2025

China Stock Market Outlook: July 2025 Alpha Picks and Sector Insights

Market Recap and Strategy for July 2025

The Hang Seng Index (HSI) and MSCI China Index posted strong gains in June 2025, up 3.4% and 4.0% month-on-month, respectively, despite short-term volatility from Middle East tensions. As the U.S. approaches a resolution on tariffs, investors should brace for increased market swings in July. UOB Kay Hian recommends focusing on domestic policy beneficiaries and sector leaders, especially within tech, healthcare, and consumer services.

Key portfolio changes for July include adding CATL, KE Holdings, Longfor, Midea Group, Tencent, and Tencent Music Entertainment to the recommended BUY list, while taking profit on Prudential. The report maintains a positive stance on current picks, emphasizing their robust fundamentals and policy tailwinds.

Portfolio Overview and Performance

• Top June performers: Innovent (+26.6%), Sino Biopharm (+18.2%), Xiaomi (+17.7%)
• Portfolio returns outperformed the HSI across most weighting methodologies

Company Analysis and Investment Rationale

Alibaba (9988 HK)

Alibaba is well-positioned to capture the benefits of AI integration and continued robust growth in China’s online retail sector, especially with its domestic-focused Taobao Tmall Group. Key drivers include:

• 8% YoY CMR revenue growth forecast for FY26, reaching RMB247 billion
• Expansion of “one-hour delivery” into a “Flash Purchase” channel and partnerships with Ele.me for improved real-time delivery
• Cloud business momentum with 18% YoY revenue growth in 4QFY25 and EBITA margin rising to 8%
• AliCloud’s AI-related revenue up over 100% for seven consecutive quarters
• Stock trades at 12.7x FY26F PE, 1SD below historical mean

Target Price: HK\$165.00 (16.3x FY26F PE)

CATL (3750 HK)

CATL, the global leader in lithium-ion batteries, controls a 38% market share and is set to benefit from the surge in vehicle electrification and renewables. Growth catalysts include:

• Innovations in sodium-ion, solid-state batteries, and advanced architectures
• Expansion of “swap station” ecosystem to 3,000 stations by 2027, unlocking recurring battery-as-a-service revenues
• Major overseas expansion, notably the 100GWh Hungary plant targeting Europe
• Expected net profit CAGR of 23% from 2024-27

Target Price: RMB390.00 (A-share) / HK\$420.00 (H-share), 26x 2025F PE

China Resources Beer (CR Beer, 291 HK)

CR Beer aims for single-digit volume growth and faster profit growth than revenue in 2025, supported by:

• Potentially stronger peak season and healthy inventory levels
• Disciplined cost control and growing presence on O2O platforms
• Chairman’s expected resignation not seen as impacting strategy

Target Price: HK\$35.00, 10.3x 2025F EV/EBITDA

Han’s Laser (002008 CH)

As a vital Apple supply chain partner, Han’s Laser stands to benefit from Apple’s manufacturing expansion in Southeast Asia and product design updates. Additional drivers:

• Apple business expected to grow over 30% in 2025
• PCB tools segment benefits from import substitution and rising AI-related demand
• High-power laser tools and pan-semi (LED, packaging) tools poised for cyclical recovery

Target Price: RMB32.20, 26.1x 2025F PE

Innovent (1801 HK)

Innovent has demonstrated robust product revenue growth, driven by new drug approvals and a strong pipeline:

• New obesity drug Mazdutide approved, alongside promising oncology pipeline updates
• 1Q25 product revenue exceeded RMB2.4 billion, up 40% YoY
• Targets RMB20 billion drug sales by 2027 (30%+ CAGR for 2024-27)
• Out-licensed IBI3009 to Roche, securing an \$80 million upfront payment plus milestones

Target Price: HK\$110.00, DCF-based

JD Logistics (2618 HK)

JD Logistics is set to deliver steady core earnings growth (7.8% CAGR, 2025-27) backed by:

• Further penetration of Taobao/Tmall merchants and international expansion
• 95%+ revenue exposure to the domestic market, minimizing global trade risk
• Beneficiary of China’s domestic consumption stimulus, including trade-in programs
• Attractive valuation: 11.0x 2025F PE (5.0x ex-cash)

Target Price: HK\$22.00, DCF-based

KE Holdings (2423 HK)

KE Holdings (Beike) is well-positioned in China’s internet property sector with:

• Anticipated sustained policy support for domestic demand
• Moderate recovery in existing-home transactions; new-home sales decline narrowing
• First half of May existing-home GTV up 10-15% YoY
• 2H25 revenue forecast to grow 11% on average, non-GAAP net profit up 52% YoY
• Continued AI investment to enhance service efficiency

Target Price: HK\$66.00, 26x 2025F PE

Longfor (960 HK)

Despite contracting property sales, Longfor demonstrates operational resilience with rental income growth, making it a preferred pick for potential policy easing:

• May 2025 contracted sales down 25.5% YoY; 5M25 recurring income and rental income up 2.5% and 5.5% YoY, respectively
• Sector-wide hopes for policy support at the July Politburo meeting

Target Price: HK\$11.58

Midea Group (000333 CH)

Midea led the home appliance sector during the 618 shopping festival, with strong retail sales growth and future demand drivers:

• 618 festival retail sales up over 20% with >RMB3 billion in trade-in subsidies
• Third round of national trade-in subsidies expected to further stimulate demand
• Overseas sales growth and OBM business expansion outpacing domestic

Target Price: RMB111.90, 19.5x 2025F PE (SOTP valuation)

Shuanghuan Driveline (002472 CH)

Shuanghuan Driveline is set to benefit from the rise of EVs and smart actuators:

• EV gear and smart actuator content per vehicle now exceeds RMB1,000 in specific projects
• Double-digit growth expected in core businesses, with long-term upside in robotic reducers for humanoid robots

Target Price: RMB41.90, 27.3x 2025F PE

Sino Biopharm (1177 HK)

Sino Biopharm’s innovation pipeline is maturing, and its oncology portfolio is delivering strong results:

• Received approval for Anlotinib + chemotherapy for STS, the world’s first such combination
• Innovative drug revenue up 10% YoY in 2024, oncology drugs up 22% YoY
• Six new drugs in 2024 to drive double-digit revenue growth in 2025; innovative products to contribute 50% of revenue in 2025
• Targeting 10+ new innovative product launches in 2025-27

Target Price: HK\$7.70 (SOTP: HK\$2.20 for existing drugs, HK\$5.50 pipeline value)

Tencent (700 HK)

Tencent’s robust fundamentals are underpinned by its gaming and advertising ecosystem:

• Online game revenue forecast to grow 12% YoY to RMB222 billion in 2025
• Non-GAAP net profit to rise 11% YoY to RMB246 billion in 2025
• Deferred revenue up 15% YoY in 1Q25, strong game pipeline including 13 new in-house titles revealed at SPARK 2025 conference
• AI integration in games and declining revenue sharing fees to support margin growth

Target Price: HK\$650.00, 22x 2025F PE

Tencent Music Entertainment Group (1698 HK)

TME is poised for above-industry growth in online music services, with a focus on monetization and content expansion:

• Online music services revenue to grow 15-16% YoY in 2025-26
• Super VIP (SVIP) package to drive ARPPU CAGR of 6.2% (2025-28)
• Paying subscribers to grow at 5.5% CAGR (2025-28)
• Acquisition of Ximalaya to boost audio content and user retention

Target Price: HK\$85.00 (US\$22.00), 28x 2025F PE

Xiaomi Corp (1810 HK)

Beyond smartphones, Xiaomi’s influence in IoT and EVs strengthens its AI ecosystem:

• Launch of the YU7 SUV attracted 240,000 non-refundable orders in 24 hours
• Further order and delivery updates for the YU7, plus strong 2Q25 results expected
• SOTP-based valuation: HK\$52.10 for core business (30x 2025F PE), HK\$17.80 for EV business (10-year DCF, 5.1x 2025F P/S)

Target Price: HK\$69.90

Key Takeaways for Investors

• Focus on domestic policy beneficiaries amid tariff and geopolitical uncertainty
• Tech, healthcare, and consumer services remain preferred sectors
• Look for catalysts in policy announcements, new product launches, and operational metrics (e.g., deferred revenue, ARPPU, drug approvals)
• Portfolio returns continue to outperform the broader market, with strong upside in select names

Valuation Table of Alpha Picks

Conclusion

July 2025 presents both challenges and opportunities for China equities. UOB Kay Hian’s Alpha Picks highlight sector leaders with strong policy tailwinds and innovative growth drivers. Investors should watch for policy signals, earnings announcements, and product launches that could drive further outperformance in the months ahead.