Goldman Sachs' The 720 focuses on multiple themes including China and global autos, AI servers, Kioxia, Tencent, and China baijiu

Overview

This is a Goldman Sachs Asia equity research roundup report covering China and global autos, AI capex and servers, Kioxia, Tencent, China baijiu, Japan aerospace & defense, Iluka Resources, Japan shipbuilding, A2 Milk, Treasury Wine, Henderson Land, Bank of China, Haitian Flavouring, China's 618 consumption, and the US inflation outlook. The report's core message is that structural growth still exists in electrification, AI infrastructure, the space economy, baijiu inventory recovery, and parts of the Asian industrial chain, but valuations, costs, oil prices, channel inventory, and policy barriers are creating differentiation.

Core views

The core views include: first, China's auto industry has not yet entered a stage of large-scale consolidation driven by cash cost pressure, but earnings expectation downgrades are accelerating, and leading NEV makers are relatively better positioned to ride through the cycle. Second, global BEV penetration is rising again, boosting the share of Chinese BEV manufacturers, but stable oil prices could weaken the switching incentive, while local procurement policies in Europe may create non-tariff barriers. Third, the AI investment cycle remains strong, with higher cloud provider capex supporting the AI server, ODM, silicon photonics, and liquid cooling supply chains; however, valuations of AI-related assets have already priced in much of the upside. Fourth, Kioxia, Tencent, and FII are seen as key opportunities in the tech chain, while Inspur was downgraded to Sell due to shrinking share, lower gross margin, and elevated valuation. Fifth, China baijiu is showing early signs of recovery after accelerated destocking, with healthier channel inventory and improved sector risk-reward.

Analysis framework

The report uses a multi-theme, multi-company roundup approach, combining industry cycle frameworks, supply-demand assessments, capex forecasts, channel checks, management meetings, and rating and target price adjustments. The auto section focuses on cash cost, net debt, sales forecasts, export growth, and BEV penetration; the tech section focuses on NAND supply-demand, AI inference cost, CSP capex, AI server rack shipments, and ASIC mix; the consumer and baijiu section focuses on inventory, wholesale prices, GMV, discounts, and subsidy ROI; the real estate and banking sections are based on Corporate Day management discussions.

Methodology notes

• Industry cycleChina OEM Cycle Framework

  Cash cost, net debt, earnings downgrades, and sales mix

  Goldman Sachs uses whether automakers remain above cash cost, whether they are in a net debt position, and the pace of industry earnings expectation downgrades to judge consolidation pressure, concluding that near-term industry consolidation remains unlikely, but earnings downgrades are accelerating.

• Thematic investingAsia Space Economy Basket GSSZSPCE

  Asia space economy basket

  This basket is used to capture the relative risk-reward between the expansion of the LEO satellite market, non-discretionary demand from sovereign constellation projects, undervalued Asian hardware supply chains, and earnings momentum.

• Equity factorGS Factor Profile

  Growth, Financial Returns, Multiple, and Integrated

  Goldman Sachs' factor profile compares a stock's position versus the market and industry peers using growth, financial returns, valuation multiples, and integrated percentile rankings, with the Integrated percentile calculated from Growth, Financial Returns, and inverse Multiple.

• M&A scoringM&A Rank

  Tier 1 to Tier 3 M&A probability scoring

  Goldman Sachs assesses the likelihood of a company becoming an acquisition target based on qualitative and quantitative factors: Rank 1 indicates a high probability of 30%-50%, Rank 2 indicates a medium probability of 15%-30%, and Rank 3 indicates a low probability of 0%-15%.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD, Leapmotor, XPeng

  Top Buy names in China autos

  Strengths

  Accelerating domestic sales growth and expanding overseas sales networks make them relatively better able to withstand industry earnings downgrades and price competition.

  Weaknesses

  Industry-wide demand is being revised down, domestic retail sales are expected to decline YoY, and competition remains intense.

  Comparison

  They are considered better positioned than most China OEM peers to navigate the current cycle.

  Risks

  Stable oil prices weaken the incentive to switch to BEVs, export policies or trade barriers, and intensifying price wars.

• Global BEV manufacturers and China BEV supply chain

  Beneficiaries of re-electrification and rising BEV sales mix

  Strengths

  Global BEV sales mix rose from 13% to 19%, and Chinese BEV manufacturers gained market share.

  Weaknesses

  Europe may create non-tariff barriers through a 70% local procurement requirement.

  Comparison

  Compared with the traditional ICE vehicle chain, the BEV chain is more strongly supported by oil prices and the energy diversification theme.

  Risks

  Stable crude oil prices, policy barriers, subsidy changes, and end-demand volatility.

• Kioxia Holdings (285A.T)

  Beneficiary of tight NAND supply-demand, rated Buy

  Strengths

  Goldman Sachs maintains a 12-month target price of ¥93,000 and expects NAND supply-demand tightness to last at least through CY27, with profits over the next 2-3 years potentially exceeding expectations.

  Weaknesses

  The memory industry remains cyclical and sensitive to supply expansion and price elasticity.

  Comparison

  Management's roughly 50% long-term agreement coverage helps provide base-price protection while preserving upside flexibility.

  Risks

  Falling NAND prices, weaker-than-expected demand, and faster-than-expected supply recovery.

• Tencent (00700.HK)

  Beneficiary of the WeChat AI assistant and Agentic AI path, rated Buy

  Strengths

  The pilot launch of the AI assistant 'Xiaowei' within WeChat leverages the super-app entry point, and Goldman Sachs assigns a 12-month target price of HK$700.

  Weaknesses

  Deployment of the self-developed WeLM model may bring significant inference costs.

  Comparison

  Long-term monetization potential relies more on the existing online advertising TAM than on direct short-term charging.

  Risks

  Higher-than-expected AI costs, slower-than-expected ad monetization, and regulatory and product experience risks.

• FII and Inspur

  Differentiated names in AI server ODM and cloud capex

  Strengths

  US and China CSP capex in 2026E is expected to grow 76% and 80% YoY, respectively, supporting ODM demand; FII's target price was raised 14% to Rmb107.2.

  Weaknesses

  Inspur was downgraded to Sell due to shrinking market share, declining gross margin, and elevated valuation.

  Comparison

  FII is supported by market share expansion and margin improvement, while Inspur faces pressure on both share and profitability.

  Risks

  CSP capex cuts, volatility in AI server orders, and gross margin competition.

• China baijiu: Gujing, King's Luck, Moutai

  Post-destocking recovery theme

  Strengths

  Gujing and King's Luck were upgraded to Buy, the industry is showing early signs of stabilizing wholesale prices and improving channel inventory, and Moutai remains the top pick.

  Weaknesses

  2026-28E sales and net profit forecasts for mid-to-high-end baijiu were cut significantly, and demand recovery is slow.

  Comparison

  The premium leader Moutai is highlighted for its ability to gain market share, while regional liquors have recovery elasticity off a low base.

  Risks

  Slower-than-expected demand recovery, renewed inventory build, falling wholesale prices, and weaker consumer conditions.

• Mitsubishi Heavy Industries, Kawasaki Heavy Industries, IHI

  Japan aerospace & defense theme

  Strengths

  MHI remains Buy, benefiting from tight global gas turbine supply-demand, with profit forecasts for its energy systems business above consensus.

  Weaknesses

  Target prices for Kawasaki Heavy Industries and IHI were cut, reflecting multiple de-rating in global aero-engine stocks and near-term caution on product mix.

  Comparison

  MHI has stronger fundamental support, while Kawasaki and IHI are more weighed down by valuation and product mix.

  Risks

  Further de-rating of global aero-engine valuations, lower-than-expected defense budgets, and changes in the gas turbine cycle.

• Iluka Resources

  Beneficiary of rare earth offtake agreement, rated Buy

  Strengths

  A four-year take-or-pay offtake agreement locks in minimum revenue of US$155mn, supporting the ramp-up path of the Eneabba refinery.

  Weaknesses

  The contract covers only about 10% of planned output, and the company's valuation still depends on follow-on offtake agreements and project execution.

  Comparison

  The agreement is seen as a commercialization milestone, and certainty would improve further over the next 6-18 months if coverage exceeds 80% of output.

  Risks

  Rare earth price volatility, delays in project startup, and weaker-than-expected follow-on contract signing.

• A2 Milk and Treasury Wine Estates

  Initiation of coverage on Australian consumer names

  Strengths

  A2 Milk was initiated at Buy, with its 30% share price pullback seen as a buying opportunity and FY27-30E EPS CAGR expected at 20%; Treasury Wine's Penfolds FY28E EBITS has upside potential.

  Weaknesses

  A2 Milk is affected by supply chain disruptions and US recall risk; Treasury Wine faces Americas supply chain synergy losses, inventory, and balance sheet pressure.

  Comparison

  A2 Milk offers more attractive risk-reward, while Treasury Wine is viewed as balanced on risk-reward and was initiated at Neutral.

  Risks

  Slow recovery in China infant formula supply, widening recall impact, weaker-than-expected Penfolds destocking, and supply chain restructuring costs.

• Henderson Land and Bank of China

  Names with positive Corporate Day feedback

  Strengths

  Henderson Land has strong property sales and recovering margins, with its valuation at a 62% discount to FY26E NAV; Bank of China expects NIM to stabilize or improve, with a full-year loan growth target of 8%-10%.

  Weaknesses

  Henderson Land is affected by capital controls and the Hong Kong property cycle; Bank of China faces short-term asset quality pressure in real estate and retail.

  Comparison

  Both remain Buy, but their drivers are Hong Kong residential cycle leverage for the former and bank NIM/loan growth for the latter.

  Risks

  Slower-than-expected recovery in the Hong Kong housing market, mainland capital flow restrictions, deterioration in bank asset quality, and downward pressure on interest rates.

Key data

• China auto 2026 industry sales forecast revisiondown 5%Reflects a 9% YoY decline in domestic retail sales, partly offset by 30% export growth.
• Global BEV sales mix19% in May, 13% in FebruaryThe report sees this as a clear signal of global auto re-electrification.
• Estimated benchmark for AI-related market gainsabout $9trn increase in present value of US economic capital incomeThe report says the market's reasonable estimate of AI-related gains has significantly exceeded this benchmark, implying valuations are more sensitive to negative news.
• LEO satellite market forecastUS$108bn in 2035, 7x expansion versus the February 2025 forecastThe Asia space economy basket is supported by sovereign constellation demand and hardware supply chains.
• Kioxia long-term agreement coverageabout 50% over the next two yearsThe agreements set a base price and allow upward adjustments with market conditions.
• Impact of Tencent WeChat AI assistant inference costequivalent to 5-17 percentage points of 4Q26E adjusted operating profitLong-term revenue upside is mainly tied to online advertising TAM.
• Forecast growth in US and China CSP capex76% and 80% YoY in 2026E, respectivelyUsed to support the growth outlook for AI server ODMs.
• AI server rack shipment forecast2026E 55k, 2027E 105k, 2028E 163kGoldman Sachs raised its global server TAM and general server revenue growth forecasts.
• Forecast ASIC share of AI chipsup to 55% in 2028EReflects increasing adoption of custom chips in AI infrastructure.
• China baijiu forecast revision2026-28E mid-to-high-end baijiu sales and net profit cut by up to 25% and 52%At the same time, early signs are emerging of stabilizing wholesale prices and improved channel inventory.
• Iluka rare earth offtake agreement4 years, 1,200 tons of rare earth oxides, minimum revenue of US$155mnEquivalent to about 10% of planned output from the Eneabba refinery, with the floor price implying a basket price of US$129/kg.
• Henderson Land property salesabout HK$11bn in 4M26, ASP up 13-14% versus September 2025Management expects FY26E development property margin to recover to about 20%.
• 618 shopping festival GSV of major platformsup 6% YoYBelow last year's 10%, with differentiation in discounting and platform subsidy ROI.
• US core PCE forecast3.2% in December 2026, 2.2% in December 2027Inflation is expected to slow after the effects of oil prices and AI-related memory prices fade.

Impact & implications

The investment implication is that opportunities in Asian equities are no longer a simple beta trade, but are jointly driven by electrification, AI infrastructure, the inventory cycle, policy support, and company execution. In autos, investors need to distinguish leading NEV makers with overseas networks and domestic sales momentum from those under earnings pressure; in AI, the key is balancing strong demand against already-high valuations; in China baijiu and consumer, the focus is on inventory, wholesale prices, and the recovery of real demand; Japan's industrial chain and the Asia space economy are supported by policy and order cycles; at the macro level, oil prices and AI hardware prices are short-term drivers of US inflation noise.

Risks

• Valuations of AI-related stocks have already priced in much of the upside; if adoption, capex, or productivity delivery falls short of expectations, market volatility could rise.
• Global BEV re-electrification is influenced by oil prices, Middle East tensions, and the energy mix; if crude oil prices stabilize, the pace of BEV switching may slow.
• Earnings downgrades in China's auto industry are accelerating, and price competition and weak demand may compress profits.
• European local procurement requirements may form non-tariff barriers, affecting exports of Chinese BEVs and components.
• Kioxia and the AI server chain remain exposed to volatility in memory prices, CSP capex, and the supply cycle.
• Tencent's AI assistant may bring high inference costs, putting short-term pressure on margins.
• Recovery in China baijiu demand is still at an early stage; if inventory, wholesale prices, and sell-through weaken again, sector recovery will be affected.
• Consumer companies face risks from supply chain disruptions, recalls, channel inventory, and declining discount ROI.
• Real estate and banking names are affected by the Hong Kong housing market, mainland capital flows, asset quality, and the interest-rate environment.
• The US inflation path is jointly influenced by oil prices, AI hardware prices, rents, and wage changes.

What to watch

• The pace of earnings expectation downgrades for China OEMs, cash cost coverage, and whether more automakers become net debt companies.
• Whether global BEV sales mix continues above the 19% level seen in May, and the impact of oil price changes on electrification demand.
• Progress on local procurement requirements related to the European Industrial Accelerator Act.
• Kioxia NAND contract prices, long-term agreement coverage, and the degree of supply-demand tightness before CY27.
• The pilot progress, user adoption, inference cost, and ad monetization path of Tencent's WeChat AI assistant 'Xiaowei'.
• Whether US and China CSP capex materializes, and whether AI server rack shipments and ASIC mix meet forecasts.
• China baijiu wholesale prices, channel inventory, the return to positive growth in the third quarter, and Moutai's market share performance.
• Japan's defense budget, gas turbine supply-demand, Japan shipbuilding order backlog, and progress of the government's Revitalization Fund.
• The production start timing of Iluka's Eneabba refinery and the coverage ratio of follow-on rare earth offtake contracts.
• Post-618 GMV, discount intensity, subsidy ROI, and brand share changes across China's consumer categories.