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Sector Initiate Coverage | Internet ‒ AI Model   
China’s AI model market is entering a hyper-growth phase, driven by accelerating domestic enterprise adoption and growing consumer/SME demand overseas. We are bullish on leading Chinese AI labs that are supported by improving reasoning, easing compute constraints, and frontier R&D, while cost-effective open-weight models support overseas adoption. Initiate coverage on Z.ai (2513 HK) and MiniMax (100 HK) with a BUY.    

Company Results | China Mengniu Dairy (2319 HK/BUY/HK$18.79/Target: HK$24.40)  
1H26 results beat expectations. Excluding the tax adjustment impact, net profit would have increased around 30%. Mengniu has raised its full-year revenue growth target to the high single digits, but still targets to achieve at least yoy flat operating margin, despite gross margin pressure. The income tax adjustment may bring an additional tax amount of Rmb500m this year. Going forward, an annual increase of Rmb200m is expected. Maintain BUY; raise target price to HK$24.40.    

Company Results | China Shineway Pharmaceutical (2877 HK/HOLD/HK$8.41/Target: HK$8.50) 
1H26 revenue and net profit declined 28.5% and 23.7% yoy respectively, missing our 2026 estimates. Shineway remains conservative on 2026-27 growth amid persistent policy and economic headwinds, with pipeline approvals underpinning recovery from 2028. It raised the second interim dividend to Rmb0.80/share, leading to a 123% payout ratio in 2026, although without a formal policy commitment. We cut our 2026 revenue and net profit growth estimates to -25.2% and -20.5% yoy respectively. Maintain HOLD and cut target price to HK$8.50.    

Company Results | Inner Mongolia Yili Industrial Group (600887 CH/BUY/Rmb26.45/Target: Rmb32.40) 
Yili’s 2Q26 revenue missed forecasts, but operating margin expansion was better than expected. The net profit decline was driven by impairment losses related to Ausnutria. Management has reiterated its full-year revenue target of mid-single-digits. Looking beyond, for the liquid milk business, it aims for accelerated growth in the future (by 2027 at the earliest, per our understanding). Ausnutria is expected to turn profitable in 2H26. Maintain BUY; keep target price unchanged at Rmb32.40.    

Company Results | Sunny Optical (2382 HK/BUY/HK$64.10/Target: HK$106.00) 
Sunny's 1H26 net profit rose 9.9% yoy to Rmb1.8b, 17.6% above consensus estimates, as AIoT-related products registered sharp growth, driving an 88.5% yoy growth in the other products segment, coupled with its higher margins at 34% more than offset weakening handset business. This trend is expected to continue going forward, as the handset business continues to weaken, which is more than offset by the robust growth from AIoT-related products. Maintain BUY with a lower target price of HK$106.00.    

Company Results | Zhejiang Sanhua Intelligent Controls Co (002050 CH/BUY/Rmb36.82/Target: Rmb43.00)
Sanhua's 2Q26 core net profit grew 10.5% yoy and 14.9% qoq to Rmb1,305m, in line with our estimate, while reported net profit fell 7.5% yoy to Rmb1,116m on a forex loss. Revenue growth accelerated to 6.2% yoy on data-centre liquid cooling and appliance premiumisation, and management kept its 15% full-year profit target. We cut our 2026 net profit forecast by 5% due to the forex loss. Maintain BUY and cut target price to Rmb43.00.