As of April 30, 2021, all 268 companies on the STAR Market of the Shanghai Stock Exchange (SSE) had disclosed their main information on business performance for 2020 through annual reports or listing announcements. In general, in the face of the severe test brought by the coronavirus pandemic and the complex and changeable situations at home and abroad, the companies on the STAR Market (the “STAR companies” for short) rose up to challenges and difficulties, maintained the momentum of high growth in overall performance, and recorded significant year-on-year increases in operating income and net profit. Meanwhile, focusing on technological innovation in accordance with the requirements for high-quality development, the STAR companies continued to step up investment in research and development, with innovative achievements emerging one after another. The development impetus stimulated by science and technology demonstrated the huge potential and vitality of China’s high-tech and innovative enterprises.
1. The performance grew stably overall, and the quality of profits improved steadily.
In 2020, the overall operation of the STAR companies was stable and their performance continued to improve. In the whole year, the operating income totaled RMB408.438 billion, a year-on-year increase of 15.51%; the net profit attributable to the owners of the parent company amounted to RMB50.086 billion, a year-on-year increase of 59.13%; the net profit attributable to the owners of the parent company after deducting non-recurring gains and losses stood at RMB38.539 billion, up by 42.70% year-on-year. In terms of operating income, nearly 80% of the companies saw their operating income go up, with 12 companies doubling their operating income, and 30% of the companies reaching an operating income of more than RMB1 billion. With regard to net profit, nearly 70% of the companies achieved growth in the net profit attributable to the owners of the parent company, and 31 companies registered increases by more than 100%, with the highest at 6,527.90%.
As a dynamic force for the high-quality development of the real economy, the STAR companies maintained a relatively high profit quality and a healthy cash flow on the whole. In 2020, the net cash flow from operating activities totaled RMB62.514 billion, a year-on-year increase of 38.76%. In the current complex economic situation at home and abroad, maintaining a good cash flow and risk-resistance ability also showcases the strength of the STAR companies.
2. Industry clusters are gradually forming, with outstanding companies in various subsectors.
In 2020, the six major industries on the STAR Market recorded growth to varying degrees. Among them, the biomedical industry ranked first with a 44% increase in operating income and a 256% growth in net profit attributable to the owners of the parent company; the new generation of information technology industry represented by integrated circuits and digital “new infrastructure” continued to grow at high rates, with the operating income and the net profit attributable to the owners of the parent company up by 27% and 68% respectively; the capacity expansion coupled with strong demand prompted the new energy industry to push the operating income and the net profit attributable to the owners of the parent company increase by 25% and 80% respectively; and the industries of new materials, energy conservation and environmental protection, and high-end equipment also extended the steady growth generally, with the net profit attributable to the owners of the parent company up by 27%, 13%, and 8% respectively.
The STAR Market gradually manifests its clustering effect and brand effect. In a number of “key and core technology” fields oriented toward the frontiers of science and technology, the STAR Market has gathered a group of innovative companies engaged in various parts on the industrial chain and multiple application scenarios. All this played a more important role in boosting the high-level circulation of science and technology, capital and industry. A total of 29 integrated circuit companies including Montage Technology Co., Ltd. and National Silicon Industry Group Co., Ltd. covered the entire industry chain including the upstream chip design, midstream foundry and downstream packaging and testing, while extending to the supporting links such as semiconductor materials and equipment; 32 software companies, including Beijing Kingsoft Office Software, Inc. and Qi An Xin Technology Group Inc., saw their products widely used in the emerging digital industries such as cloud computing, big data, artificial intelligence, and the Internet of Things; 22 biopharmaceutical companies such as Shanghai Junshi Biosciences Co., Ltd. and Shenzhen Chipscreen Biosciences Co., Ltd. focused on the treatment of cancer, AIDS, hepatitis B, and hepatitis C. In addition, the industrial robot industry chain, the photovoltaic industry chain, and the power battery industry chain have also begun to achieve scale.
3. The leading companies enjoy steady growth and become the backbone of the market.
The STAR Market supports and encourages the listing of “key and core technology” companies, and has become increasingly attractive to leading technology companies. The industry bellwether companies such as Semiconductor Manufacturing International Corporation, China Railway Signal & Communication Corporation Limited and China Resources Microelectronics Limited went public successively on the STAR Market. In 2020, the top 10 companies in terms of revenue claimed 48% of the total operating income and 39% of the total net profit attributable to the owners of parent company on the STAR Market, with the operating income and the net profit up by 13% and 86% year-on-year, respectively. These companies are deeply engaged in their main business and have solid operation, achieving significant performance improvement over the year and standing out in risk prevention and growth stability.
In terms of the index constituents, in 2020 the companies in the STAR 50 Index registered a total of RMB205.459 billion in operating income, up by 19% year-on-year and accounting for 50% of the overall operating income of the STAR Market, and RMB20.993 billion in net profit attributable to the owners of the parent company, up by 51% year-on-year and accounting for 42% of the total net profit of the board. The 12 companies included in the Shanghai-Hong Kong Stock Connect and the 11 companies included in the FTSE Russell A-Share Index performed soundly, with 7 of them posting increases in both operating income and net profit attributable to the owners of the parent company. The STAR Market continues to improve in influence and international participation.
4. The companies of special types enjoy sound growth, and the inclusiveness of the system propels innovation and development.
The diversified and inclusive listing conditions of the STAR Market met the differentiated financing needs of different types of companies at different stages of development. So far, 20 companies of special types have been successfully listed, including 18 companies making no profit hitherto, 2 companies with special equity structures, and 3 red-chip companies. These companies generally recorded growths in revenue after listing, with losses narrowed, showing a good development momentum on the whole.
In 2020, the 18 companies unprofitable at the time of listing registered a total operating income of RMB46.233 billion, a year-on-year increase of 25.60%; the net profit attributable to the owners of the parent company stood at RMB-824 million, a sharp decrease of RMB3.617 billion in losses from the previous year. Among them, three companies, Semiconductor Manufacturing International Corporation, Henan Shijia Photons Technology Co., Ltd., and Ninebot Limited, turned losses into profits, with the “U” attached to their stock names eliminated. With the support of capital, the unprofitable companies adhered to their original aspirations for research and development, continued to step up R&D investment, with the R&D investment totaling RMB12.279 billion in 2020, an increase of 19.64% year-on-year, and constantly accelerated the breakthroughs in scientific and technological research and commercialization of research achievements. For example, the Ad5-nCoV vaccine against COVID-19 jointly developed by Cansino Biologics Inc. and the Academy of Military Sciences PLA China was authorized for emergency use in Mexico and other countries, with significant orders signed; and the core products of a number of companies such as Shanghai Junshi Biosciences Co., Ltd. were included in the national medical insurance catalog through national medical insurance negotiations.
5. R&D investment continues to grow, yielding fruitful innovative results.
In 2020, the STAR companies continued to step up R&D investment, and accelerated the breakthroughs in key and core technologies and the commercialization of research results, with the total investment in R&D for the year at RMB38.418 billion, an increase of 22.61% year-on-year. After excluding the companies adopting the fifth set of indicators for listing, the ratio of R&D investment to operating income stood at 12.03% on average, an increase of 1.1 percentage points from the previous year. Specifically, 15 companies including Semiconductor Manufacturing International Corporation, Shanghai Junshi Biosciences Co., Ltd., and China Railway Signal & Communication Corporation Limited invested more than RMB500 million in R&D each; 8 companies including Cambricon Technologies Corporation Limited and Beijing Kingsoft Office Software, Inc. invested more than 30% of their operating income in R&D for two consecutive years. In addition, the STAR Market has gathered a scientific research team of more than 75,000 people, with an average of more than 280 researchers per company, and the average R&D personnel for each company accounted for nearly 30% of the total number of employees. The stable team of scientific and technological personnel laid a solid foundation for the STAR companies’ continuous advancement of R&D.
Thanks to the continuous and stable R&D investment in large amounts, in 2020 the STAR companies made new progress and breakthroughs in technological innovation. In terms of new patents, a total of 16,300 new intellectual property rights were added throughout the year, including 4,500 invention patents. In terms of scientific and technological achievements, in 2020, Semiconductor Manufacturing International Corporation achieved the goal of 15,000 FinFET installation capacity for advanced manufacturing process; the Toripalimab produced by Shanghai Junshi Biosciences Co., Ltd., the first PD-1 product in China, added nasopharyngeal carcinoma and urothelial carcinoma as new indications; China Railway Signal & Communication Corporation Limited completed the engineering application of the complete set of independently developed CTCS-3 train control system equipment on the Beijing-Hong Kong high-speed railway (Hefei-Anqing section); and Trina Solar Co., Ltd. launched the 210mm large-size silicon wafers, batteries and modules, ushering the industry into the new era of 600W photovoltaic.
6. Technology, industry and capital form a virtuous circle, while market resources flow orderly to technological innovation.
Since its establishment, the STAR Market has adhered to its task, continued to advance innovation in key systems, and accelerated the formation and effective circulation of innovation capital. On one hand, capital empowerment boosts the industrialization of science and technology. According to statistics, the de facto controllers of nearly 30% of the STAR companies have a background as college teacher or researcher, 24 STAR companies were started up by returned overseas talents, and 6 companies including China National Electric Apparatus Research Institute Co., Ltd. were transformed from research institutions. The establishment of industry by scientific research talents effectively promoted the transformation and application of scientific research achievements. In addition, more than 30% of the STAR companies established industry-university-research projects with universities and research institutions. For example, Montage Technology Co., Ltd. successfully developed the “Jintide” series of domestic CPUs through the integration of related technologies from Tsinghua University. Serving as the intersection between laboratories and capital market, the STAR Market built the bridge and paved the way for the innovation and entrepreneurship of scientific and technological talents, facilitating the incubation and application of cutting-edge technologies.
On the other hand, the innovation in systems continuously accelerated capital circulation. After the market opened, the innovative trading mechanism arrangements and the non-public inquiry transfer system of the STAR Market guided PE and VC to withdraw orderly, while long-term investors represented by mutual funds continued to increase their positions. In 2020, the inquiry transfer system launched for the STAR Market drew much attention in the market and was put into practice actively by some listed companies. Up to now, 7 batches of shareholders of 6 STAR companies have tried the inquiry transfer of shares, which better met the demand of innovation capital for withdrawal, introduced new funds and professional investors such as mutual funds with the need to open positions, and formed a more market-oriented arrangement for shareholding reduction, so as to realize an orderly “relay” between long-term investors and venture capitalists.
7. The “experimental field” for reform effectively plays its role, while system innovations operate well.
It is one of the goals for the establishment of the STAR Market to act as the “experimental field” of the system reforms and form experiences that can be copied and promoted. Since its opening, the STAR Market has implemented the regulatory philosophy centered on information disclosure, advanced system innovation in refinancing, mergers and acquisitions and reorganizations, equity incentives, information disclosure and other areas, and established a system of rules in continuous regulation in conformity with the characteristics of technology and innovative enterprises. At present, the various new systems and mechanisms are operating stably with good effects. For example, during the disclosure of the 2020 annual reports, 10 STAR companies tried the simplified procedures for “small-amount and rapid” refinancing, with a total of RMB2.9 billion to be raised. The reform of the refinancing system with the pilot program of registration on the STAR Market further stimulated market vitality and pushed the companies to continuously increase investment in the field of scientific and technological innovation. Since 2020, 20 STAR companies have successively announced their refinancing plans, with a total of RMB41.9 billion planned to be raised.
In terms of the equity incentive system, for another example, up to now, 109 companies, or about 41% of the total number of the STAR companies, have launched 124 equity incentive plans. The vast majority of companies chose the second type of restricted shares as the incentive method, with the incentives to be enjoyed by more than 20,000 people including core technical personnel, management personnel and other key employees, accounting for an average of 23% of the total number of employees in the companies. The extensive as well as intensive incentives were conducive to the development and stability of the companies’ teams of core personnel, thus stimulating researchers to concentrate on research. Regarding the distribution of industries, among the companies that disclosed equity incentive plans, the companies in the industries with core technologies that hinder the country’s development such as semiconductors and new-generation information technology accounted for more than 40% of the total.
8. STAR Companies actively assumed social responsibilities in poverty alleviation and combating COVID-19.
For the year of 2020, all STAR companies disclosed their performance of social responsibility in their annual reports, and 23 of them released their reports on social responsibility separately. In terms of poverty alleviation, 69 STAR companies responded to the call of the state by supporting poverty-stricken areas and people through various methods such as business development and pairing assistance, with a total donation of more than RMB300 million, contributing the “STAR power” in the process of winning the tough battle against poverty. Among the companies, China Railway Signal & Communication Corporation Limited invested RMB50 million in the central enterprise fund for poverty alleviation through industrial investment, organized and launched more than 40 poverty alleviation projects, and selected and dispatched 13 poverty alleviation officials to help the poverty-stricken Sheqi County get rid of poverty in February 2020. In addition to financial support, some STAR companies also actively participated in the social construction in poverty-stricken areas. For example, Ninebot Limited established the “Ninebot Education Aid” special fund and supported a total of 292 poverty-stricken students in the western regions; and Qingdao Haier Biomedical Co., Ltd. set up smart vaccine clinics in the poverty-stricken counties of Yanjin and Wufeng to promote medical equity in poor areas.
In the fight against the coronavirus pandemic, 268 STAR companies overcame the challenges of the epidemic, resumed work and production steadily, and created more than 30,000 job openings throughout the year, providing strong support for stabilizing employment and improving people's livelihood during the pandemic. In addition, based on their own business characteristics and technical advantages, some companies played an important role in the fight against the epidemic. For example, Sansure Biotech Inc., Jiangsu Bioperfectus Technologies Co., Ltd. and Shanghai ZJ Bio-Tech Co., Ltd. promptly launched their coronavirus detection reagents for the anti-epidemic efforts worldwide; the antibody drug under development by Shanghai Junshi Biosciences Co., Ltd. and its partner Eli Lilly and Company was authorized by the FDA for emergency use in the treatment of COVID-19; Qi An Xin Technology Group Inc. constructed multiple data analysis models during the epidemic to process billions of data feeds and graph the epidemic situation, providing accurate decision-making support for the public security departments, and was awarded “Excellent Private Enterprise in Fighting COVID-19 Epidemic” by the All-China Federation of Industry and Commerce.
9. STAR companies took various measures to improve investor relations.
During the disclosure of the 2020 annual reports, the STAR companies took multiple measures to strengthen effective communication with investors. First, the briefings on performance would be held in an all-round manner. This year, all STAR companies would hold the briefings on performance in annual reports. The chairperson, general manager and other chiefs of a company would directly face investors for in-depth exchanges through online live streaming, text interaction and other means. Second, there were new ways to present annual reports. More than 30 STAR companies used self-made “short videos” to offer multimedia interpretation of business and technologies, industry development, performance, etc. for the company in the year, more vividly and intuitively showing the company's operations and technological innovations, thus enhancing the readability and comprehensibility of the annual report. Third, additional information was disclosed voluntarily. Some companies voluntarily disclosed the performance indicators beyond the Accounting Standards for Business Enterprises from the perspective of the management in their annual reports. For example, Advanced Micro-Fabrication Equipment Inc. China revealed the net profit after deducting non-recurring gains and losses excluding the impact of the share-based payment expenses, and Semiconductor Manufacturing International Corporation disclosed the earnings before interest, taxes, depreciation and amortization for the past three years, providing investors with additional data other than accounting information.
Since the beginning of 2021, with the full recovery of China’s economy, the overall operating performance of the STAR companies has increased significantly year-on-year. In the first quarter, the total operating income amounted to RMB98.155 billion, a year-on-year increase of 70.88%; the net profit attributable to the owners of the parent company stood at RMB11.991 billion, a year-on-year increase of 216.40%. At the same time, the R&D investment of STAR companies remained at a high level, with the total R&D investment in the first quarter at RMB8.434 billion, accounting for 18.90% of the operating income on average. The STAR Market will continue to play its role as an “experimental field” in capital market reforms, deepen the innovation of key systems in all areas, promote the high-standard circulation of science and technology, capital and industry, and continuously promote the technological innovation and high-quality development of the listed companies.