The low-altitude economy is experiencing a surge in interest, primarily due to a wave of favorable news and governmental support. Recently, stocks within this sector have seen significant increases, reviving conversations about its future prospects. Analyzing these developments, Hu Ze, the manager of the Yongying Low Carbon and Environmental Intelligence Fund, offers insights into the current valuation levels and the inherent investment risks associated with this promising area.
Looking at long-term trends, Hu anticipates the low-altitude economy will exhibit a steady upward trajectory. He points out that we are still at the nascent stage of this sector's growth. "The commitment from the government to foster the low-altitude economy is unmistakable. Currently, the construction of necessary infrastructure is just beginning, with localities such as Shenzhen already releasing preliminary plans. The first tangible results are likely to emerge from government-led demonstration projects, followed by short to medium-range logistics applications, and eventually manned transportation scenarios," he explains.
The rationale behind fostering the low-altitude economy is based on two key points. First, it represents a new form of productive capacity and serves as an optimal lever for driving economic development. This sector is viewed as a critical pivot in the transition between old and new economic drivers. Second, China possesses a solid technical advantage in the arena of low-altitude vehicles alongside a well-developed industrial chain. Expanding this economy is expected to enhance industrial structure optimization and, ultimately, increase national competitiveness.
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Hu notes, "Many innovative and groundbreaking applications have already emerged within the low-altitude economy that could potentially revolutionize daily living and working conditions. On average, the market cap of many companies in this sector remains relatively modest, typically below 10 billion yuan, with even leading firms valued at scanty sums of 30-40 billion yuan." It has been estimated that the value generated by the manufacturing sector of flying vehicles alone could reach around one trillion yuan. When considering the global market, this figure can scale up to tens of trillions of yuan. Additionally, incorporating operational segments, the economic scale of China's low-altitude sector may well attain similar magnitudes. "This potential signifies that we may witness the emergence of publicly listed companies with market caps exceeding 100 billion yuan in the future," Hu elaborates.
Delving into specific sub-sectors, Hu emphasizes that due to an earlier substantial rally, careful selection of stocks is imperative in the near term. "The investment difficulty within the broader technology growth sector will increase as a result." Hence, discerning investors must pivot towards firms that can deliver viable products and tangible business performance while balancing growth potential and investment success probability. He highlights two primary areas for concentration: the complete vehicle and component supply chain and the related infrastructure sector. Both domains are on the verge of rapid advancement.
At this moment, Hu assesses that companies within the low-altitude economy are still in the foundational “0-1” stage. Currently, most of their revenues and profits stem from traditional business activities. He expects that by the second half of this year, a trickle of relevant orders will materialize, paving the way for a modest influx of revenue and profit tied to the low-altitude sector within company reports by next year. Consequently, Hu emphasizes the importance of certainty regarding a company's development trajectory within the low-altitude economy and the potential for future growth.
However, potential investment risks cannot be overlooked. Hu indicates that the government’s approach will prioritize a methodical and steady advancement in the low-altitude economy. As a result, stock pricing within this sector may not synchronize perfectly with the broader low-altitude growth curve, leading to instances of overheating at various points—a risk that investors must be particularly wary of. Additionally, the industry faces challenges related to the selection of appropriate technological pathways. Thus, those interested in investing in the low-altitude economy should conduct thorough research and analysis on differing technological strategies.
In scenarios of rapid market oscillations within an upward trending state, Hu suggests adopting a systematic investment approach, which can effectively smooth out such volatilities. For seasoned investors with considerable trading experience, there might be opportunities to invest at opportune moments; however, frequent trading should not be encouraged. “The key lies in balancing investments with a keen eye on market dynamics,” Hu concludes.