By August 31, the semi-annual reports of the 1490 companies on the main board of the Shanghai Stock Exchange (SSE) and the 28 companies on the SSE STAR Market were all disclosed. The listed companies on the main board actively adapted to economic adjustment, and showed stable and improving quality of business as well as strong resilience in operating income, net profit, operating cash flow and other aspects; the high-quality blue-chip companies acted as the mainstay with a solid foundation in operation; the overall leverage ratio remained stable, and some of the risk factors that the market was highly concerned about were gradually mitigated. On the SSE STAR Market, the listed companies boosted their performance with high R&D investment, showing strong development momentum.
1. The companies on the main board saw solid growth amidst steady performance, and the quality of the business was continuously improving.
In the first half of this year, with solid operations, the companies on the main board of the SSE recorded stable performance with solid growth, and continued to act as the main force and the ballast stone in the national economic development with a total operating income of RMB17.51 trillion, a year-on-year increase of 10%, accounting for nearly 40% of the total GDP in the first half of the year; the total net profit was RMB1.73 trillion, up by 9% year-on-year. Both the operating income and the net profit of the listed companies have increased. Specifically, more than 680 companies, or nearly half of the total listed companies, registered increases in operating income and net profit at the same time. More than 1,330 companies were profitable, accounting for about 90% of the total. On a year-on-year basis, the net profits of more than 820 companies increased, nearly 110 companies saw their net profits more than doubled, and more than 160 companies posted a net profit of more than RMB1 billion.
In terms of the quality of operations, the total net profit after deducting non-recurring gains and losses amounted to about RMB1.64 trillion, a year-on-year increase of 8%. The vast majority of the companies focused on the main business as about 1,240 companies recorded positive net profits after deducting non-recurring gains and losses in the first half of the year, accounting for over 80% of the total number of companies on the main board. About 75% of the companies maintained sound profitability in the main business. There are about 1,110 companies that continued to register positive net profits after deducting non-recurring gains and losses in their semi-annual reports for the past three years. The operating cash flow of the companies in the real economy increased by 14% year-on-year. Most of the companies registered strong organic growth and saw steady cash flows. In the current period, there are more than 970 companies with positive operating cash flows.
In the first half of the year, more than 310 companies newly listed since 2017 withstood the test of the market, achieving a total operating income of RMB0.97 trillion, an increase of 10% year-on-year; the net profit amounted to RMB78 billion, up by 14% year-on-year. Both readings were higher than the market averages.
2. The high R&D investment of the companies on the SSE STAR Market drove the sustained and rapid growth in the performance of STAR companies.
As the “new comers” to the SSE stock market, the 28 companies listed on the SSE STAR Market maintained rapid growth in performance, with a total operating income of RMB32.963 billion, an increase of 18% year-on-year, and a net profit of RMB4.56 billion, up by 25% year-on-year. With the sizeable China Railway Signal & Communication Corporation Limited excluded, the other 27 companies saw their operating income and net profit grow by 37% and 38% respectively. Specifically, the operating incomes of Beijing Piesat Information Technology Co., Ltd. and Yantai Raytron Technology Co., Ltd. more than doubled, up by 282% and 119% respectively; Guangdong Fine Yuan Science Technology Co. Ltd., Harmontronics Inc. and Yantai Raytron Technology Co., Ltd. recorded more than 2-fold increases in net profit at 257%, 124% and 103% respectively; Advanced Micro-Fabrication Equipment Inc. posted a net profit of RMB30.37 million, turning losses into gains; Xi'an Bright Laser Technologies Co., Ltd. and Beijing Piesat Information Technology Co., Ltd. reported negative net profits in the first half of the year, mainly affected by seasonal factors, expansion of scale and increased investments, which were normal fluctuations in production. By industry, biomedicine, high-end equipment, new-generation information technology, new materials and other industries with intensive technological innovation achieved varied growths, showing good momentum as a whole.
The rapid growth of the companies on the SSE STAR Market is largely a result of continued heavy investments in research and development. The R&D expenses of the 28 companies on the SSE STAR Market accounted for an average of 13% of their revenues, which was much higher than that of the listed companies in the traditional industries and demonstrated the significant “characteristics of scientific and technological innovation”. There were 5 companies with R&D expenses accounting for more than 20% of their revenues, and the three companies with the highest proportions of R&D expenses in their revenues, i.e., ArcSoft (Hangzhou) Multimedia Information Technology Co., Ltd., Beijing Piesat Information Technology Co., Ltd. and Shenzhen Chipscreen Biosciences Co., Ltd., posted the percentages of 34%, 32% and 27%, respectively.
3. The significant advantages of the quality blue-chip companies reflect the "resilience" of high-quality development.
As the mainstay and “top students” in the economy and the SSE market, the blue-chip stocks achieved rapid growth above the market average with huge operating income and profit. The companies included in the SSE 50 Index achieved a total operating income of RMB9.84 trillion and a net profit of RMB1.24 trillion, up by 10% and 11% year-on-year respectively, accounting for 56% of the total operating income and 72% of the total profit on the SSE market. The companies included in the SSE 180 Index registered an operating income of RMB12.65 trillion and a net profit of RMB1.50 trillion, both up by 11% year-on-year, accounting for 72% of the operating income and 87% of the total profit on the SSE market.
In terms of market value, the operating income and net profit of 472 companies with a market value of more than RMB10 billion grew rapidly, with both growth rates at 11% year-on-year, higher than the overall levels. Such achievements made in the complex and ever-changing circumstances demonstrate the core value of the quality blue-chip companies on the SSE market. With the anti-risk "resilience" improved, these enterprises acted as the ballast stone of the SSE market by strengthening their main businesses and enhancing their operations. In addition, of the 1,018 companies with a market capitalization of less than RMB10 billion, 867 companies were profitable, accounting for 85% of the total number. These enterprises overcame the difficulties such as the small company size, the weak ability against risks and the changes in the capacity of the market segment, showing the new blue-chip companies’ characteristics of innovating with keen determination and striving for success.
Facing the complicated and ever-changing internal and external market circumstances, a number of SSE-listed companies conquered the difficulties and achieved outstanding performance. Among them, there were not only the economic pillars such as PetroChina Company Limited, China Shenhua Energy Company Limited and the “Five Major Commercial Banks”, but also the leading companies in different industries such as China State Construction Engineering Corporation Limited, Haier Smart Home Co., Ltd., Sany Heavy Industry Co., Ltd. and CRRC Corporation Limited. Focusing on the main businesses and enhancing their advantages, the companies achieved high quality development. For example, after linking up the entire polyester fiber industrial chain, Hengli Petrochemical Co., Ltd. created the scale effect and the advantage in cost, registering a net profit of RMB4.021 billion, a year-on-year increase of 114%. With the main business steadily growing further, Shanghai International Port (Group) Co., Ltd. continued to rank the first in the world in terms of the container throughput at the parent port, and the main business continued to develop steadily, posting a net profit of RMB4.373 billion, up by 29% year-on-year. The insurance leader Ping An Insurance (Group) Company of China, Ltd. maintained a high-speed development in the main business of life insurance and the health insurance business, with a net profit of RMB97.676 billion, a year-on-year increase of 68%.
4. The performance of major industries was stable, and some industries continued to grow at a high speed.
In the first half of the year, the overall performance of the companies on the main board of the SSE in major industries was stable, but the growth rates were divergent, with the companies in some industries maintaining rapid growths in performance. The performance of the companies in food and beverage, wholesale and retail, culture and sports industries in the consumer sector grew rapidly, with the net profits at RMB41.7 billion, RMB25.1 billion and RMB7.9 billion, up by 22%, 15% and 11% year-on-year respectively. A number of advanced manufacturing, emerging services and traditional support industries also performed well, including the specialized equipment and transportation equipment manufacturing, the information technology, the transportation and warehousing, and the power and heat. Among them, the specialized equipment manufacturing industry realized a net profit of RMB14.5 billion, a year-on-year increase of 48%; the railway, shipbuilding, aerospace and other transportation equipment manufacturing achieved a net profit of RMB10.2 billion, an increase of 43% year-on-year; the information transmission and the software and information technology service industries recorded a net profit of RMB13.5 billion, up by 30% year-on-year; the electricity, heat, gas and water production and supply industries registered a net profit of RMB40.8 billion, a year-on-year growth of 20%. At the same time, the financial and real estate industries were growing at a faster rate, with the net profits increasing by 15% and 22% respectively on a year-on-year basis.
At the same time, under the combined influence of the economic restructuring and external circumstances, some of the high-growth industries in the previous periods were stabilizing overall, with the growth slowing down, and a small number of the industries saw the performance decline. For example, the traditionally advantageous industries such as coal, oil and iron and steel slowed down in growth and even recorded drops in performance, as the benefits of the supply-side structural reform wore off, coupled with the impact of the fluctuations in commodity prices. Affected by the intensified environmental protection constraints and changes in consumption structure, some manufacturing industries went through various degrees of adjustments, including automobile manufacturing, pharmaceutical manufacturing, and chemical manufacturing. Judging from the circumstances reflected in the semi-annual reports, the companies in these industries are also vigorously taking measures to actively make adaptation, accumulate strength, and further improve the quality of business and operation, so as to realize high-quality development as soon as possible.
5. The leverage ratio of the enterprises in the real economy remained stable and the key risks were gradually mitigated.
The leverage of the companies in the real economy that are listed on the main board of the SSE remained stable. In the first half of the year, the overall asset-liability ratio of the companies in the real economy was 62.39%, basically unchanged from the same period last year. The asset-liability ratio of the state-owned companies in the real economy stood at 62.57%, slightly higher than the 61.81% for the enterprises in the private sector. In major sectors, the key industries for de-capacity presented some results in active de-leveraging, as the coal industry and the chemical manufacturing, two traditional industries with large production capacities, reduced their asset-liability ratios by 1.14 and 0.15 percentage points respectively. In other industries, some also achieved certain results in de-leveraging, such as the general equipment manufacturing, the automobile manufacturing and the computer, communications and other electronic equipment manufacturing, which decreased their asset-liability ratios by 0.47%, 0.84% and 0.82% respectively compared with the end of last year.
The goodwill proportions of the companies on the main board of the SSE declined. By the semi-annual report period, the balance of goodwill was RMB525.5 billion, accounting for 1.83% of the total net asset of the SSE-listed companies, down by 0.14 percentage points from the same period of last year. The goodwill impairment withdrawal for the half-year amounted to RMB65 million, accounting for 0.0038% of the net profit. Despite the impairment risk for the goodwill of some companies, some other companies achieved synergy in the acquisition, and continued to generate excess profits, with small risks of related goodwill impairment. According to the 2018 annual report data, the goodwill impairment withdrawal of the SSE-listed companies was about RMB38.3 billion, accounting for 1.36% of the net profit, and the large amounts of impairment were mainly concentrated in more than 20 small-cap companies, showing the situation was basically controllable on the whole.
Regarding the pledge by the major shareholders of the companies on the main board, there were 178 companies with a pledge proportion of more than 80% by the largest shareholder, with a market value balance of about RMB1.62 trillion pledged, and 28 companies have reduced the pledge ratio of the controlling shareholders to less than 80% since the beginning of the year. At present, a total of 25 companies have disclosed that they have been supported by the bailout funds, and some other companies have enhanced their liquidity support through introduction of strategic investors, debt restructuring and other means. On the whole, the risk of high-proportion pledge by the SSE-listed companies has been mitigated.