Relying on Scientific and Technological Innovation to Enhance Development Resilience and Vitality, STAR Market Companies Complete Disclosure of 2022 Semi-Annual Report

31 Aug 2022

As of August 31, 2022, all 459 companies on the Science and Technology Innovation Board (STAR Market) have disclosed the information on their main business performance for the first half of 2022 through semi-annual reports, listing announcements and other means. Both operating revenue and net profit achieved rapid growth, showing strong development resilience and vitality. As the "front-runner" of scientific and technological innovation, STAR Market companies implemented the innovation-driven development strategy in the first half of the year, continuously increased investment in R&D, orderly promoted investment projects financed by raised funds, and accelerated development with the help of the innovation system. By fighting against the pandemic, seeking innovation, stabilizing chain and increasing potential, STAR Market companies showed a good momentum of steady development in relying on scientific and technological innovation.

I. Achieving a rapid growth in overall performance and taking an active part in fighting against the pandemic, stabilizing the production and guaranteeing the chain

In the first half of 2022, the STAR Market companies strove to overcome external challenges such as the COVID-19 pandemic, persisted in innovation and accelerated development to achieve a rapid growth in overall performance. STAR Market companies achieved a total operating revenue of 519.501 billion yuan, up by 33% year on year; the net profit attributable to the owners of parent company at 58.558 billion yuan, up by 20% year on year; and the net profit attributable to the owners of parent company after deducting non-recurring gains and losses at 50.233 billion yuan, up by 29% year on year. Over 70% of the companies posted growth in operating revenue, with 85 companies reporting operating revenue growth of more than 50%, 31 companies reporting operating revenue doubling, and 20% reporting operating revenue of more than 1 billion yuan; over 50% of the companies registered increases in net profit attributable to the owners of parent company, with 107 companies reporting net profit growth of more than 50%, and over 10% of the companies saw their net profit grow by more than 100%, with the highest growth at 18 times.

During the pandemic, with the strong support of local governments and regulatory authorities, the STAR Market companies actively engaged in fighting against the pandemic and guaranteeing supply, so as to ensure the orderly operation of key industry chains. On the one hand, they combined closed-loop operations with home-based offices to steadily restore production and operation order. For example, through the closed-loop production, National Silicon Industry Group Co.,Ltd. promoted the steady growth of 300mm silicon wafer shipments to ensure the independent supply of domestic semiconductor silicon wafers; Suzhou Nanomicro Technology Co., Ltd. achieved the continuous supply of key consumables such as fillers and microspheres for in vitro diagnostics, thus ensuring the stable production of downstream pharmaceutical companies; Zwsoft Co.,Ltd.(Guangzhou) gave away free product license numbers to support its 9,000 customers working from home. On the other hand, the STAR Market companies made greater investments to expand their production. In the first half of the year, they invested a total of 83.284 billion yuan in project construction and asset acquisition, accompanied by a gradual improvement in their production capacity and the ability to stabilize supply. In addition, the STAR Market companies played an active role in stabilizing employment and protecting people's livelihood. They provided over 680,000 jobs in total, 58,000 more than at the beginning of the year, and paid 81.178 billion yuan in employee salaries, up by 31% year on year.

II. Accelerating development based on innovation, showing leading industries' power of new economy

Based on the innovation-driven development strategy, the STAR Market companies continued to increase R&D investment to accelerate independent innovation. In the first half of 2022, they invested a total of 46.054 billion yuan in R&D, up by 20% year on year; R&D investment accounted for 17% of operating revenue on average, and 63 companies had an R&D intensity of 30% or more; more than 4,800 new invention patents were added in total, with an average of 120 invention patents per company. In terms of key core technologies, a series of new advances and breakthroughs were made. Montage Technology Co., Ltd., a global leader in memory interface chips, continued to lead the DDR5 generation. As one of the two companies that can provide complete solutions in the world, it was the first to pilot production of the second filial generation of DDR5 RCD chips in May 2022. The S112 ultra-long offshore wind turbine blade developed by Shanghai Electric Wind Power Group Co., Ltd. successfully rolled off the production line. At 112 meters long, it is the longest offshore wind turbine blade in China, marking a new step for the company in the era of large wind turbines offshore.

In a number of key and core technology frontier fields, the industrial agglomeration effect and market demonstration effect of the STAR Market became increasingly prominent, and the performance of key industrial chains saw rapid growth. At present, there are 73 IC industry chain companies on the STAR Market, accounting for about 60% of A-share listed companies in the same industry. A development pattern with the complete chain and collaborative innovation has been formed. In the first half of the year, the operating revenue and net profit attributable to the owners of parent company of these companies increased by 34% and 23% year on year respectively. 60% of the companies reported growth in both operating revenue and net profit. In particular, the supporting links of industrial chain such as semiconductor equipment and materials witnessed an accelerated localization process, with a significant increase in orders. There were 101 companies in the biomedicine sector on the STAR Market, with clear advantages in innovative drugs, medical devices and other segments. In vitro diagnostics industry, the operating revenue and net profit attributable to the owners of parent company increased by 66% and 46% year on year respectively in the first half of the year. In the new energy sector, the vitality of innovative growth has been constantly unleashed. 12 companies in the PV industry chain, including Jinko Solar Co., Ltd, committed to production expansion as well as quality and efficiency improvement in the first half of the year. Their operating revenue and net profit increased by 106% and 210% year on year respectively, and 50% of the companies doubled their net profit; 14 power battery industry chain companies such as Ningbo Ronbay New Energy Technology Co., Ltd. ranked top in the market share of ternary cathode materials, negative copper foil materials and other segments, with their operating revenue and net profit increased by 84% and 92% year on year respectively. Moreover, industrial robots, advanced rail transportation and other industrial chains have also taken shape and saw a rapid development.

III. Leading companies operating soundly and expecting growth of SRDI (specialized, refinement, differential, innovation) "little giants"

Continuing to play the leading role, the companies included in the STAR 50 Index as constituents registered a total operating revenue of 265.247 billion yuan in the half of the year, up by 45% year on year, and a net profit attributable to the owners of parent company at 33.142 billion yuan, up by 37% year on year. Their operating revenue and net profit accounted for 51% and 57% of the market as a whole, highlighting their position as the "backbone" of the market and the "ballast" for the market's steady growth.

Fostering and supporting SRDI SMEs is a key measure to promote the transformation and upgrading of industrial structure and enhance economic vitality and resilience. So far, a total of 207 listed companies on the STAR Market have been selected into the list of state-level SRDI "little giants", accounting for 45% of the total number of listed companies on the STAR Market, 21% of the total number of listed SRDI "little giants" companies, and 50% of the total number of listed SRDI "little giants" companies under the registration system, respectively. In the first half of 2022, the SRDI "little giants" companies on the STAR Market achieved a total operating revenue of 138.832 billion yuan, up by 44% year on year, and a net profit attributable to the owners of the parent company at 21.681 billion yuan, up by 26% year on year. The growth of performance resulted from the continued improvement in independent innovation ability. In the first half of the year, there was a total R&D investment of 12.384 billion yuan, up by 50% year on year. The investment in R&D accounted for 17% of operating revenue on average. In addition, 18 STAR Market companies were named as "single-item champion" demonstration enterprises in the manufacturing industry, and 23 companies received the title of "single-item champion" for their main products. Anji Microelectronics Technology (Shanghai) Co., Ltd., Western Superconducting Technologies Co., Ltd. and other companies made breakthroughs in the autonomy of key links. Focusing on the strengthening, supplement and extension of the industrial chain, they effectively promoted the optimization and upgrading of China's industrial and supply chains.

IV. Promoting the investment projects financed by raised funds in an orderly manner and boosting high-quality development by innovation system

After the listing and financing, STAR Market companies' capital needs for production and operation and scientific and technological innovation were effectively relieved. Listed companies on the STAR Market committed to investing raised funds of 509.073 billion yuan in total. By the end of June 2022, 275.003 billion yuan had been invested, with the overall investment progress exceeding 50%. Of this, the overall investment progress of raised funds by companies listed for more than two years had exceeded 60%. The raised funds were mainly invested in the field of scientific and technological innovation, with economic benefits in several projects and results in R&D innovation, industrialization development, production expansion and upgrading. For example, Trina Solar Co., Ltd. has successfully completed projects, such as an annual output of 3GW of high-efficiency monocrystalline cut-and-half components project, achieving a revenue of 162 million yuan. In the R&D project of the key technology research of full-section intelligent roadheader for super underground engineering and its equipment of China Railway Construction Heavy Industry Corporation Limited, a series of high-performance equipment was successfully developed, such as full-section shaft roadheader with the world's largest diameter (23m class) and shield machine with the largest diameter (16m class) in China.

STAR Market companies took advantage of the innovation system to inject new momentum into their sustainable and innovative development. By the end of August, 103 STAR Market companies had issued 110 refinancing plans, with a total of about 187.971 billion yuan proposed to be raised. Xinjiang Daqo New Energy Co., Ltd. had raised 11 billion yuan for projects such as high-purity silicon-based materials with an annual output of 100,000 tons. By expanding the capacity of existing businesses, this was expected to effectively enhance the company's supply capacity and consolidate its leading position in the industry. Scientific research talents are the first resource for sci-tech innovation companies. The more market-oriented, flexible and inclusive equity incentive system of the STAR Market played a positive role in attracting and retaining talents as well as accelerating development based on innovation for sci-tech innovation companies. As of the end of August 2022, 255 STAR Market companies had implemented 331 equity incentive plans, with a market coverage of 56%, involving over 60,000 employees. Within three years of listing, Espressif Systems (Shanghai) Co., Ltd. and Advanced Micro-Fabrication Equipment Inc. China had respectively implemented 4 and 2 phases of equity incentive, gradually forming a regular incentive mechanism; 10 companies such as Montage Technology Co., Ltd. had incentive objects accounting for more than 90% of the total number of employees, basically realizing whole employee stock ownership. The innovative inquiry-based transfer mechanism of the STAR Market effectively avoided the impact on the secondary market, eased the pressure of share reduction, and realized the orderly "relay" between venture capital and long-term investors. By the end of August, 31 groups of shareholders of 22 STAR Market companies had completed inquiry-based transfer, with a total turnover of 17.589 billion yuan. Venture capital shareholders of industry leaders such as Advanced Micro-Fabrication Equipment Inc. China, Beijing Kingsoft Office Software, Inc. and Beijing Roborock Technology Co., Ltd. were the main transferors of equity, while public funds, insurance companies and other professional investment institutions were the main transferees. While reducing the impact on the secondary market, inquiry-based transfer helped to price and value company shares properly and optimize the shareholder structure.

V. Gradual appearance of performance differentiation and noteworthy operating risks of some companies

In the first half of the year, with the superposition of multiple factors such as the COVID-19 pandemic, the Russia-Ukraine conflict and other external events and the operating risks of sci-tech innovation companies themselves, companies gradually experienced performance fluctuations and differentiation. Among them, 15 saw a year-on-year decline of more than 50% in operating revenue; 86 saw a year-on-year decline of more than 50% in net profit attributable to the owners of parent company, and 83 suffered losses in performance (including 26 that were not profitable at the time of listing).

Specifically, sci-tech innovation companies have new business models and small operating scale, which are prone to performance fluctuations. For example, R&D-oriented companies such as innovative drugs are still in the stage of product development or promotion and have not formed a stable source of profit; because of their small operating scale, the performance of sci-tech innovation companies is sensitive to expenses such as share payments. Meanwhile, some key regions were hit hard by the pandemic in Q2 and their growth slowed down. Since the impacts of the recurring pandemic and the international environment have not been completely eliminated, the external situation faced by sci-tech innovation companies is increasingly complex. The SSE will closely monitor changes in the operating risks of STAR Market companies, improve the instruments of innovation system, effectively support sci-tech innovation companies in solving difficulties, stimulate their growth vitality, and help stabilize the "bedrock" of China's innovation economy.