China Merchants Securities released a research report indicating that Hong Kong stock revenue growth in H1 2025 remained at historically low levels, while overall profitability improved with significant divergence between new and old economy sectors. Information technology, healthcare, and discretionary consumption showed outstanding performance, with downstream industrial chains maintaining optimal supply-demand dynamics. Technology, consumption, and healthcare sectors are in active inventory building cycles. Combined with interim earnings performance and recent domestic and foreign liquidity catalysts, the firm continues to recommend internet, non-ferrous metals, and non-banking financial sectors.

**Overall Overview: Revenue Growth Deceleration at Historically Low Levels; Net Profit Growth Improvement**

In H1 2025, total Hong Kong-listed companies recorded a 0.9% revenue decline. Excluding financial, oil, and real estate sectors, Hong Kong-listed companies achieved 0.5% revenue growth, while Hang Seng Index constituent companies posted 2.6% revenue growth. All figures decelerated compared to the previous year and ranked at historically low levels from a seven-year cycle perspective, consistent with the macroeconomic downturn trend.

For net profits, total Hong Kong-listed companies achieved 5.4% growth, while excluding financial, oil, and real estate sectors, net profit growth reached 11.7%, both outperforming the previous year and reaching historical median levels.

**Overall Profitability Improvement; "Anti-Involution" Shows Initial Success**

Hong Kong-listed companies' gross margin levels improved both year-over-year and quarter-over-quarter, with operating profit margins rising annually but declining sequentially. Except for the Hang Seng Index being dragged down by heavyweight stocks, Hong Kong-listed companies overall showed net margin improvements both year-over-year and quarter-over-quarter. Corporate competitive landscape and profitability both improved. ROE (TTM) reached 7.0%, improving year-over-year and remaining flat sequentially, recovering to historical average levels.

**Significant Industry Structure Divergence; New Economy Growth Standout**

Revenue-wise, information technology, discretionary consumption, and financial sectors recorded the fastest year-over-year growth at 12.3%, 8.5%, and 5.2% respectively. Real estate, energy, and utilities showed the largest declines at -20.9%, -9%, and -4.8% respectively.

For net profits, healthcare, information technology, and materials sectors achieved the fastest year-over-year growth at 202.9%, 60.9%, and 52.2% respectively. The healthcare sector benefited from continuous large-scale BD deals for innovative drugs, maintaining high prosperity. Information technology, represented by companies like Xiaomi, achieved high-speed profit growth. Materials sector benefited from rising non-ferrous metal price prosperity.

New economy sectors recorded 8.4% revenue growth and 31.7% net profit growth, while old economy sectors saw 2.5% revenue decline and stagnant net profits.

**Inventory Cycle: Downstream Technology, Consumption, and Healthcare Show Optimal Supply-Demand Dynamics**

Hong Kong stocks overall are experiencing a destocking cycle. Upstream industries continue destocking, while mid-to-downstream industries have entered restocking cycles. New economy sectors have entered sustained restocking phases, while old economy sectors continue supply contraction at double-digit rates.

By sector, information technology, discretionary consumption, and healthcare are in "active inventory building" with favorable supply-demand dynamics. Energy, utilities, and real estate remain in "active destocking" at cycle bottoms. Communication services and materials sectors are beginning "passive destocking" with gradually improving supply-demand dynamics.

**Capital Expenditure Significantly Contracted; Weak Expansion Willingness**

During economic downturns, most industries significantly reduced capital expenditure. Real estate, healthcare, and energy sectors showed the lowest expansion willingness. Only e-commerce and automotive sectors achieved capital expenditure expansion, but their capex-to-revenue ratios did not rise significantly, representing merely maintenance spending.

Large companies showed significantly improved year-over-year operating cash flows with stronger capital expenditure willingness, while small and medium enterprises reduced capital expenditure and focused on debt repayment due to poor operating cash flows.

**Industry Fundamentals Summary**

High-prosperity sectors include information technology, non-essential consumer goods distribution and retail (weighted toward e-commerce), and healthcare. Lower-prosperity sectors include energy (weighted toward oil), real estate, industrial capital goods (mainly cyclical and traditional manufacturing), and discretionary consumption services (mainly dining and tourism).

Overall, downstream industrial chains, high-growth sectors, and new economy industries with weaker ties to China's macroeconomic conditions delivered better interim results. Traditional economy sectors with strong connections to China's macroeconomic conditions face earnings pressure.

The firm recommends that fundamental-focused investors pay attention to investment opportunities in technology growth stocks.

**Risk Warning**: Federal Reserve monetary policy exceeding expectations, overseas policy tightening beyond expectations.