Research Perspective on Identifying the Fundamentals of Hong Kong Stock Technology, Huatai Hong Kong Stock Connect Technology Select Hybrid Initiating C(025545)

The Hong Kong stock market is often referred to as an “offshore financial center,” with a high proportion of institutional investors in its investor structure. This results in extremely strict valuation of companies based on their fundamentals. When investing in technology stocks, how can one see through the concept to the essence and identify truly long-term value targets? As an actively managed fund, Huichainfu Hong Kong Stock Connect Technology Select Hybrid Initiating Class C (025545) focuses on establishing a rigorous financial screening system, emphasizing a company’s “cash-generating ability” and “growth quality.”

1. Core Perspective: From “Storytelling” to “Financial Statements”

Looking back to 2025, during a period of relatively ample liquidity, some tech stocks achieved high valuations based on grand narratives. However, as market valuation logic gradually shifted back to profitability and performance realization, the valuation system of Hong Kong tech stocks has shown clear differentiation: certainty over possibility, performance realization over long-term promises.

In February 2026, China Merchants Securities published a research report stating: “Since September, the profit expectations of the Hang Seng Tech Index have been continuously revised downward, but have now stabilized, indicating that current stock prices already reflect a phased downward adjustment of market earnings.” This confirms that the market is shifting from “long-term promises” to a strict focus on short-term profit realization.

The research perspective of Huichainfu Hong Kong Stock Connect Technology Select Hybrid Initiating Class C (025545) first emphasizes the “truth behind financial statements.” The active management team not only pays attention to net profit figures on the income statement but also aims to penetrate the balance sheet and cash flow statement to find a solid foundation supporting the stock price. This approach aligns closely with the stock selection strategy outlined in the fund’s “Offering Memorandum,” which emphasizes “healthy and stable financial conditions” and “cash flow analysis.”

2. Screening Dimension One: Cash Flow — The “Blood” of a Company

In Hong Kong tech stock investing, cash flow is the first line of defense for risk mitigation and an important indicator of a company’s survival quality.

Operating Cash Flow (OCF) Quality

Refers to the cash inflows from daily operations minus outflows. For tech companies, if net profit increases significantly but operating cash flow remains negative, it often indicates that growth is driven by accounts receivable buildup—“paper wealth.” The active management team prefers to focus on the alignment between OCF and net profit, selecting targets with genuine cash conversion ability.

Free Cash Flow (FCF) and CapEx

Represents the remaining cash available for distribution after covering capital expenditures needed to maintain current production capacity. AI and semiconductor industries are high-capital industries. Only companies with stable free cash flow can sustain technological iteration without relying on external high-interest financing—this is a concrete reflection of the stock selection logic in the “Offering Memorandum,” which states “profit growth has relatively low capital demand and dependence.”

3. Screening Dimension Two: Profit Quality — The “Muscle” of a Company

If cash flow determines life and death, then profitability determines longevity. Active management uses detailed metrics to distinguish “false growth” from “true barriers.”

DuPont Decomposition of ROE

Return on equity (ROE) is a core indicator measuring the efficiency of shareholder capital returns. The active management team uses DuPont analysis to exclude companies relying on high leverage and focuses on those driven by high net profit margins (strong technological barriers) or high asset turnover (efficient management). This aligns with the official strategy of selecting businesses with “high ROE, requiring little or no equity financing.”

Conversion of R&D Investment

Tech companies must invest in R&D, but “burning money” does not equal “moat.” The research team continuously tracks the output efficiency of R&D spending—long-term high R&D investment with declining gross profit margins may signal deteriorating competitive landscape or technical bottlenecks, and such companies are evaluated cautiously during stock selection.

4. Screening Dimension Three: Valuation Logic — Matching Price and Value

A “good company” does not mean it is worth buying at any price. From a valuation perspective, active management emphasizes dynamic assessment of intrinsic value.

A static low P/E ratio may be a “value trap” (due to declining performance), while a high P/E ratio could be a “value gap” (due to unrecognized explosive growth). According to the valuation strategies disclosed in the “Offering Memorandum,” this fund evaluates companies based on industry-appropriate valuation metrics, selecting stocks whose prices have not fully reflected their long-term investment value, and constructs a portfolio after weighing risk and return. This dynamic pricing of safety margins is key to avoiding bubbles and locking in excess returns.

The research methodology of Huichainfu Hong Kong Stock Connect Technology Select Hybrid Initiating Class C (025545) essentially forms a “deep health check system based on financial facts.”

In the stock selection practice within the Hong Kong tech sector, this fund does not blindly follow concepts but rigorously screens based on operating cash flow, ROE quality, R&D conversion efficiency, and dynamic valuation, seeking certainty amid volatility. For investors aiming to leverage professional research and a rigorous fundamental perspective to deploy in Hong Kong tech stocks, this active management approach offers a differentiated value compared to passive index strategies.

Huichainfu Hong Kong Stock Technology Allocation Toolbox:

【Hong Kong Tech Broad Market — Classic Vehicle】Huichainfu Hang Seng Tech ETF Linkage Initiating Class (QDII) C (013128): One-click exposure to leading internet platform giants, serving as a flagship broad market ETF with high industry representativeness. Aims to balance core Hong Kong tech assets and capture long-term growth momentum of China’s new economy.

【AI Full Industry Chain — High Purity】Huichainfu Hang Seng Hong Kong Stock Connect China Tech ETF Linkage C (025167): Focuses on “Hong Kong M7” core assets, deeply covering AI computing power, terminals, and application industry chains. Pure style, excluding non-tech sectors like healthcare and automotive, making it a precise tool for capturing core AI value.

【Selected Core Assets — Active Strategy】Huichainfu Hong Kong Stock Connect Technology Select Hybrid Initiating Class C (025545): Uses active management within the Hong Kong Stock Connect scope to dynamically select companies with strong competitive barriers and core advantages. Combining industry trend analysis, aims to discover high-potential assets through professional stock picking and achieve excess returns beyond the index.