By October 31, 2019, the 1,495 companies listed on the main board of the Shanghai Stock Exchange (SSE) and the 40 companies listed on the SSE STAR Market had disclosed their third quarter reports as scheduled. In the first three quarters of 2019, the SSE-listed companies recorded a total operating income of RMB26.60 trillion and a net profit of RMB2.55 trillion, up by 9.12% and 8.06% year-on-year, with nearly 70% of the companies posting increases in revenue and nearly 90% of the companies registering profits. Overall, the performances of the companies listed on the main board of the SSE remained resilient and stable with progress; the companies listed on the SSE STAR Market maintained continuous growth in performance and investments in research and development, with the profitability and quality improved steadily.
First of all, the companies listed on the main board recorded increases in both operating income and net profit, and maintained high quality development.
Since the beginning of this year, the global economic growth has slowed down, and China's economic development has been continuously in the face of risks and challenges. In this context, the companies listed on the main board of the SSE have been active in adapting to the new environment and seeking progress while maintaining stability, sustaining growth in both operating income and net profit. In the first three quarters, the total operating income reached RMB26.53 trillion, with a net profit of RMB2.54 trillion and a net profit after deducting non-recurring gains and losses reaching RMB2.42 trillion, up by 9%, 8% and 7% respectively on a year-on-year basis. Specifically, about 90% of the companies were profitable overall, 80% of the companies recorded profits in main business, nearly 30% of the companies posted net profits of more than RMB500 million. Moreover, in terms of growth rate, about 820 companies saw their net profits increase year on year, with the net profits of about 110 companies more than doubled.
With regard to the business quality, companies in the real economy sector operated steadily, with the leverage ratios remaining stable and the capital flows staying relatively healthy. In the first three quarters, the overall asset-liability ratio of the companies in the real economy sector was 62.21%, nearly the same as that in the same period last year. In terms of the cash flow, 70% of the companies in the real economy sector reported positive operating cash flows.
Secondly, the companies listed on the SSE STAR Market maintained continued growths in performance and investments in research and development.
In the first three quarters, the 40 companies listed on the SSE STAR Market saw both incomes and profits grow, with a total operating income of RMB69.116 billion, a year-on-year increase of 14%; their net profit amounted to RMB8.581 billion, up by 40% year-on-year. Specifically, 90% of the companies registered gains in operating income, as the revenues of Beijing Piesat Information Technology Co., Ltd. and Raytron Technology Co., Ltd., for example, more than doubled, posting growth rates of 224% and 133% respectively. Nearly 80% of the companies saw their net profits grow, as 8 companies including Traffic Control Technology Co., Ltd. posted more than doubled growth rates. 2 companies turned losses into profits, and another 10 companies saw a decline in net profit year-on-year due to reduced customer orders and increased R&D investments. In terms of profit quality, the companies on the SSE STAR Market recorded a total of RMB7.74 billion in the net profit after deducting the non-recurring gains and losses, a year-on-year increase of 23%. The operating cash flow totaled RMB4.041 billion, which shows that the cash flow was stable. Nearly 60% of the companies saw the operating cash flows in the current period increased year-on-year, indicating continuously strengthened core profitability of the companies. In terms of R&D investment, the 40 companies on the SSE STAR Market invested an average of 13% of the revenues in this area; 8 of the companies posted more than 20% of the revenues in the R&D expenses, with the largest proportions, 35%, 33% and 33%, registered by the three companies of ArcSoft Corporation Limited, Hillstone Networks Co., Ltd. and Shenzhen Chipscreen Biosciences Co., Ltd. Respectively. Since the listing on the SSE STAR Market, the first batch of 25 companies have continued to increase R&D investments, with the R&D expenses increased by 14% year-on-year in the third quarter.
With respect to the industries, the companies in the key industries such as integrated circuits, biomedicine, rail transit and new energy all saw their performance achieve different degrees of growth, making them the backbone among the companies on the SSE STAR Market in terms of the performance growth. Specifically, the companies in the new energy industry recorded a net profit of RMB804 million, a year-on-year increase of 44%, and Guangdong Jia Yuan Technology Shares Co., Ltd., for example, saw its net profit increase by 152% year-on-year to RMB268 million. The companies in the integrated circuit industry registered a net profit of RMB1.323 billion, a year-on-year increase of 35%, and Espressif Systems (Shanghai) Co., Ltd., for example, registered a net profit of RMB96 million, up by 49% year-on-year; the companies in the bio-pharmaceutical industry saw their net profit amount to RMB901 million, a year-on-year increase of 17%. Qingdao Haier Biomedical Co., Ltd. and Shanghai Microport Endovascular Medtech Co., Ltd., for example, recorded high growth rates of 79% and 48% respectively in net profit. The companies in the rail transit industry posted a net profit of RMB3.071 billion, increasing by 15% year-on-year. For instance, the operating income of Traffic Control Technology Co., Ltd. expanded by 41% year-on-year, with the net profit up by 325%.
Thirdly, the operating incomes and the net profits of the large-cap blue chips continued to grow, and the performance of small and medium-cap companies was stabilizing.
The overall operation of the companies listed on the main board of the SSE was stable. The SSE 50 Index companies, representing large-sized leading enterprises, registered an operating income of RMB14.7 trillion and a net profit of RMB1.8 trillion, up by 9% and 11% respectively year-on-year, accounting for 55% and 71% of the totals on the SSE respectively. Both the operating income and the net profit of more than 480 companies with a market value of more than RMB10 billion grew by 10% year-on-year, showing the core competitiveness and value of the large-cap blue-chip companies. Among them, there were a number of large-sized high-quality companies that continued to tap into the market and focus on their main businesses, such as Shandong Linglong Tyre Co., Ltd., Anhui Conch Cement Company Limited and China State Construction Engineering Corporation Limited. The small and medium-cap companies were active in adaptation, with the operating incomes growing continuously and business performance stabilizing. The SSE 380 Index companies expanded their operating income by 8% year-on-year to RMB3.8 trillion, with the overall performance growing steadily. 96% of the companies were profitable, reflecting the resilience of the new growth blue chips. Among the more than 1,000 companies with a market value of less than RMB10 billion, about 85% made profits by overcoming difficulties and improving the business quality, with the operation results hard-won.
In the first three quarters, the revenues of the companies on the main board of the SSE in major industries continued to grow, and some companies maintained rapid growth in performance, mainly in the basic consumer goods, advanced manufacturing, service support and other industries. Specifically, the companies in the wine, beverage and refined tea manufacturing and the farm and sideline food processing industry expanded their net profits by 22% and 23% year-on-year; the performance of the companies in the advanced manufacturing and the technical service industry was eye-catching, and the companies in the special equipment manufacturing, rubber and plastic products, chemical fiber manufacturing, transportation equipment manufacturing, and information technology services industries posted net profits of about RMB20.5 billion, RMB5.9 billion, RMB11.5 billion, RMB15 billion and RMB19.2 billion respectively, up by 42%, 41%, 33%, 21% and 20% year-on-year; the companies in the traditional service support industries such as electricity, heat, gas and water production and supply industries saw net profit increase by 17%; in addition, the financial and real estate industries grew at high rates, with net profits up by 16% and 15% year-on-year respectively.
Fourthly, efforts were continuously made in research and development, marketing and investment to consolidate the development potential for the future.
The companies on the main board of the SSE continued to step up the technical investment and market development. In the first three quarters, the R&D investment of the entity enterprises reached a total of RMB240 billion, an increase of about 27% year-on-year, with 71 companies investing more than RMB500 million in the research and development. In addition, the companies in electronic equipment, special equipment, pharmaceutical manufacturing and other industries significantly expanded their investments in research and development, with an increase of about 30% year-on-year. At the same time, the companies in the real economy sector continued to expand the market, and the sales and other expenses related to market channels went up by 8% year-on-year. In terms of investment, the companies’ confidence in investment was stabilizing, and their long-term asset acquisition and construction expenditures rebounded. In the first three quarters, the cash paid for the acquisition and construction of long-term assets by entity companies totaled approximately RMB1.22 trillion, an increase of about 10% year-on-year, and the food and beverage, petroleum processing, non-ferrous processing, construction and installation and other industries showed significant expansions.
Since the beginning of this year, the policy effect of reduction of taxes and administrative fees has also been continuously released, playing an increasingly important role in stabilizing expectations for economic development and stimulating the vitality of innovation and entrepreneurship. In the first three quarters, the tax and fee expenses of the entity companies listed on the SSE totaled RMB1.48 trillion, accounting for 7.26% of the operating income, down by 0.36 percentage point year-on-year. Specifically, the tax and fee expenditures of pharmaceutical manufacturing, scientific research and technical services and other industries decreased remarkably compared with the same period of last year. Benefiting from policy support of reduction of taxes and administrative fees, the companies were able to use more funds for technological innovation, market development and expanded and reproduction, thus pushing the enterprises to improve performance, conduct transformation and upgrade, and enhance their core competitiveness.
In addition, with the current economic development facing multiple internal and external challenges, some companies saw their performance fluctuate and even decline with the operation under pressure. The data shows that in the first three quarters, only 10% of the SSE-listed companies registered losses with limited impact. Regarding the reasons, the performance fluctuations of most companies were mainly caused by factors such as economic restructuring and changes in cyclical industries. For example, the overall performance slowdown in the industries such as automobiles and iron and steel was in line with the downward trend of the industries and the changes in the external economic environment. As it is difficult to avoid such situations during the adjustment of economic development pace, the results were not caused by the mismanagement of most of the companies themselves. There were a few companies with a loss of profitability and serious flaws in corporate governance. However, the risks of most of these companies had been fully exposed earlier. In this regard, the SSE will adhere to the classified regulation in the future, “focusing on the best and the worst to improve the middle”. Specifically, the SSE will vigorously support the companies concentrating on their main businesses in enhancing their operations and improving their quality, and implement the principle of elimination based on market and rule of law on the “zombie” companies, so as to realize the "survival of the fittest", purify the market ecology, and promote the healthy and sound development of the capital market.