Guotai Haitong Securities Co., Ltd. released a research report indicating that structural recovery continues, with AI+ overseas expansion serving as the core momentum drivers in Q2 earnings. The earnings growth rate of All-A excluding financials, oil and petrochemicals (All-A ex-financials) slowed in Q2 2025 while maintaining structural recovery characteristics. However, momentum within the technology growth sector is accelerating, with global AI industry resonance and overseas expansion as core drivers. Technology hardware benefited from overseas AI capital expenditure growth and domestic substitution, driving capacity expansion and earnings growth. Export rush and non-US market expansion supported manufacturing performance improvement. Pro-cyclical growth showed structural differentiation, with supply-constrained cyclical goods and new consumer sectors showing impressive growth rates. Capital market reforms combined with long-term capital inflows continued to drive non-banking sector performance improvement.

Key findings from Guotai Haitong Securities:

**Structural Recovery Continues with AI+Overseas Expansion as Core Q2 Earnings Drivers** All-A ex-financials earnings growth slowed in Q2 2025 while maintaining structural recovery characteristics. Technology growth sector momentum is accelerating internally, with global AI industry resonance and overseas expansion as core drivers. Technology hardware benefited from overseas AI capex growth and domestic substitution, achieving capacity expansion and earnings growth. Export acceleration and non-US market expansion supported manufacturing performance improvement. Pro-cyclical growth showed structural differentiation, with supply-constrained cyclical goods and new consumer industries delivering strong growth rates. Capital market reforms combined with long-term capital inflows continued to drive non-banking performance improvements.

**Total Performance Recovery Slows, Mid-Cap Growth Shows Outstanding Growth** 1) Earnings Growth: H1 2025 All-A ex-financials net profit increased 1.59% year-over-year cumulatively, narrowing from Q1. Revenue grew 0.66% cumulatively year-over-year, showing strong resilience. However, rising operating costs compressed gross profit margins, dragging down net profit growth recovery. Sector growth diverged, with main board, ChiNext, and Beijing Stock Exchange all showing slower growth rates, while the STAR Market, which faced pressure in Q1, saw significant growth recovery. In terms of style, mid-cap growth performance was dominant. Mid-cap stocks showed outstanding growth, large-caps maintained resilience, and small-cap growth declined notably. Growth and financial sectors improved, while cyclical and consumer sectors declined.

2) DuPont Analysis: Q2 2025 (TTM) All-A ex-financials ROE declined marginally, primarily due to falling gross margins, slowing accounts receivable turnover acceleration, and weakening inventory turnover improvement. ROE declined across all styles. Large-caps showed smaller declines supported by net margin improvements, while small-caps declined more significantly. Growth sector fixed asset turnover stabilized, indicating early capacity utilization rate improvements.

**Hard Technology and Non-Banking Sectors Lead, Cyclical Consumer Shows Clear Differentiation** 1) Technology Growth: Optical/optoelectronics, components, semiconductors, and communications equipment maintained Q1's high momentum, driven by overseas AI investment and expanding domestic substitution demand. Media/gaming/IT/software TMT applications continued recovering. Technology manufacturing performance recovered, with marine equipment, rail transit, construction machinery, motors, and batteries leading growth, benefiting from export acceleration and domestic equipment upgrade-driven investment growth.

2) Cyclicals: Upstream cyclicals faced growth pressure, but precious metals and minor metals maintained rapid growth due to overseas rate cut expectations and tight supply. Midstream cyclicals like steel and building materials showed strong growth, benefiting from falling raw material costs and low base effects. Within chemicals, non-metallic materials showed significant growth driven by high-end application demand. Downstream aviation airports performed relatively well.

3) Consumer: Staples generally faced pressure, but breeding/feed/animal health showed significant growth, benefiting from capacity reduction and pet economy expansion. Discretionary consumption increased revenue but not profits, with automotive/home appliances/light industry showing notable growth declines, reflecting diminishing subsidy effectiveness.

4) Financials: Securities continued high growth, benefiting from sustained stock market activity. Banking maintained growth resilience, indicating relatively stable net interest margins under accommodative monetary policy. Real estate decline continued narrowing, with property services as the main contributor.

**Capacity Operations: Cyclical and Equipment Manufacturing Capacity Still Clearing, Emerging Industries and New Materials Show Expansion** Q2 2025 (TTM) traditional cyclical resources (chemicals/building materials/construction/steel/petrochemicals) and equipment manufacturing (new energy/automotive/home appliances) with significant overcapacity showed strong capacity reduction intentions, with fixed asset turnover declining marginally and most industries maintaining low capex growth. For capacity expansion, emerging technology hardware and some consumer industries maintained high capacity utilization with marginal improvements. Electronics/media/commercial services showed rising capex intentions. At the secondary industry level, sectors entering capacity expansion phases (strong capacity reduction intentions with marginal capacity utilization improvements) concentrated in emerging technology industries (semiconductors/communications equipment/marine equipment), new consumption (animal health/cosmetics), and some cyclical materials (glass fiber/non-metallic materials).

**Risk Factors**: Historical data may not clearly guide future trends; statistical methodology may contain biases; calculation errors may exist in data measurements.