Technology, Green, Growth - Analysis of the business performance of STAR Market companies in 2021

30 Apr 2022

As of April 30, 2022, all 420 companies on the STAR Market have disclosed their major business performance results for the year 2021 in the form of annual reports and listing announcements. 2021 is the opening year of the 14th Five-Year Plan, and the companies on the STAR Market have continued to grow at a fast pace, based on technological innovation and cultivating their main business in science and technology. The foundation of "key technology" continues to be demonstrated, and the "green engine" enhances development momentum. The role of the STAR Market in serving the national innovation-driven strategy and the high-quality development of the real economy has gradually emerged. In the first quarter of 2022, in the face of the severe test brought by the COVID pandemic and the complex and ever-changing domestic and international environment, STAR Market companies have faced up to the challenges, resisted the epidemic to maintain supply, improved quality and increased efficiency, and demonstrated good resilience and vitality.

Overall performance maintained relatively fast growth, with special types of companies such as unprofitable companies developing favorably

In 2021, STAR Market companies achieved a total revenue of RMB 834.454 billion, an increase of 36.86% year-on-year; achieved a net profit of RMB 94.841 billion, an increase of 75.89% year-on-year; achieved a net profit of RMB 73.221 billion after deductions, an increase of 73.79% year-on-year. Nearly 90% of the companies' operating income increased, and 41 companies' revenue doubled; nearly 70% of the companies' net profit attributable to the parent increased, and 61 companies increased by more than 100%, up to 18 times. The median annual revenue of STAR Market companies rose from 528 million yuan to 721 million yuan, and the median net profit for parent company rose from 87 million yuan to 109 million yuan. At the same time, some companies experienced a decline in performance, mainly due to recurring global epidemics, rising raw material prices, increased equity incentive expenses and greater investment in research and development.

As a driving force in the high-quality development of the real economy, STAR Market companies as a whole maintained a strong profit quality. In 2021, STAR Market companies' net cash flow from operating activities totaled 81.726 billion yuan, an increase of 11.52% year-on-year, demonstrating good realization ability and payback efficiency. Meanwhile, over 40% of the companies' gross margins exceeded 50%, with 48 companies' gross margins increasing by more than 5 percentage points compared to the previous year; nearly 40% of the companies' net margins exceeded 20%, with 51 companies' net margins increasing by more than 5 percentage points compared to the previous year, highlighting their market competitiveness.

In addition, under the more inclusive listing conditions of the STAR Market, 38 enterprises unprofitable at the time of listing, 5 enterprises with special equity structure, 4 red chip enterprises and 1 enterprise issuing depositary receipts have been successfully listed and have gained good momentum after listing. Among them, the 38 unprofitable enterprises at the time of listing had a combined revenue of 98.53 billion yuan in 2021, representing a year-on-year growth of 65.69%; the net profit attributable to the parent company totaled minus 4.288 billion yuan, narrowing the loss by 77.96% year-on-year, and 14 companies turned a loss into a profit. Among the innovative drug companies listed according to the fifth set of STAR Market standards, 11 companies continued to sell their products in larger volume, 9 companies' revenue exceeded 100 million yuan, and CanSino Biologics, Bio-Thera Solutions and Allist Pharmaceuticals achieved profits for the first time after years of continuous losses.

The foundation of "key technology" continues to be demonstrated, and high-quality innovation helps achieve self-reliance in technology

STAR Market listed companies are highly concentrated in high-tech industries and strategic emerging industries, and their role in serving national strategies and promoting high-quality economic development has become increasingly prominent. At present, the total number of companies in the field of integrated circuits in STAR Market has reached 55, accounting for half of the A-share listed companies of the same type, forming a development pattern with complete upstream and downstream chains and complete industrial functions; the total number of listed companies in the field of bio-pharmaceuticals is 93, making it a major global listing place outside the United States and Hong Kong; photovoltaic, power battery, industrial robotics and other industrial chains have also taken shape. In a number of "key technology" fields at the forefront of science and technology, a number of key technology developers, such as SMIC, Jinko Solar and Junshi Biosciences, have leveraged the capital market to achieve deep integration of innovation, industry, talent, policy and capital chains.

In 2021, STAR Market's R&D intensity has remained high. The total amount of R&D investment in the year reached 85.24 billion yuan, a year-on-year increase of 29%, and the ratio of R&D investment to operating income averaged 13%. Among them, the R&D investment of 38 companies including BeiGene and ASR Microelectronics accounted for more than 30%. By the end of 2021, STAR Market has gathered a scientific research team of more than 140,000 people, with an average of more than 330 people per company, accounting for nearly 30% of the companies’ total employees. In the establishment of a long-term incentive mechanism, 226 companies have launched 283 equity incentive plans after listing, accounting for 54% of the total number of STAR Market companies, benefiting more than 50,000 scientific and technological talents, and fully stimulating the innovation vitality of talents.

In 2021, STAR Market's innovative achievements continued to emerge, and a series of technological breakthroughs and scientific research progress were made in the main battlefield of scientific and technological self-reliance and self-improvement. STAR Market companies have added more than 7,800 invention patents in total throughout the year, and each company has an average of 108 invention patents. The projects led or participated by 66 companies have won major awards such as the National Science and Technology Award. Among them, Anji Microelectronics Technology's chemical mechanical polishing liquid products, SICC’s advanced semi-insulating silicon carbide substrate materials, a full range of high-reliability IGBT products from Zhuzhou CRRC Times Electric, and KEDE Numerical Control’s five-axis linkage CNC machine tools have broken the monopoly of foreign countries and achieved independent domestic supply, providing strong support for the independent and controllable industrial chain of related industries. In the process of fighting against the COVID pandemic, STAR Market companies have carried out emergency campaigns in a timely manner, and innovative drug companies represented by Junshi Biosciences and CanSino Biologics have accelerated the deployment of COVID-specific drugs, vaccines, and rapid detection reagents, highlighting the R&D strength and mission of "key technology" companies.

"Green Engine" accelerates transformation and upgrading, and ESG concepts guide the sustainable development of companies

In 2021, against the backdrop of China's strategy to promote "carbon peaking and carbon neutrality", STAR Market companies drove the "green engine" with technological innovation and continued to accelerate the transformation process of new energy in the photovoltaic and power battery industry chains. Eleven companies in the photovoltaic industry chain, including Jinko Solar and Trina Solar, accelerated the layout of photovoltaic vertical integration, and continued to improve the quality and efficiency of their production and operation, with annual operating revenue and net profit attributable to the parent company increasing by 43% and 126% year-on-year; 14 companies in the power battery industry chain, including Ronbay New Energy Technology and Changyuan Lico, leveraged their technological research and development advantages and increased their production capacity layout, with annual operating revenue and net profit attributable to the parent company increasing by 59% and 35% year-on-year.

In addition, a number of new-generation information technology, high-end equipment and new materials enterprises in STAR Market are actively promoting the development and promotion of auxiliary technologies such as carbon footprint calculation and environmental monitoring, linking up the energy-saving and emission reduction industrial chain and forming a synergy for the development of "green industries". Supcon Technology provided energy-saving and emission reduction optimization solutions for nearly 100 petrochemical enterprises, reducing energy consumption and helping process industries operate at a low-carbon level; Haier Biomedical explored the establishment of a "green factory" and won the China Patent Excellence Award for its zero-carbon technology.

This year, all STAR Market companies disclosed ESG (environmental, social and corporate governance) related information in a special section of their 2021 annual reports, and more than 90 companies prepared and published separate social responsibility reports or ESG reports, covering company research and innovation, products and services, governance structure, environmental protection, social contribution, etc., becoming an important vehicle for STAR Market companies to showcase their mission, social responsibility, investment value and other key information. Among them, nearly 70% of the companies voluntarily disclosed information on energy consumption and emissions, and nearly 60% of the companies disclosed measures and effects of carbon emission reduction. SMIC invested nearly RMB1.098 billion in environmental protection for the operation, renovation and expansion of environmental protection facilities; Daqo New Energy's annual output of 86,586 tonnes of polysilicon products for photovoltaic module manufacturing can achieve approximately 43.2 billion kWh of clean electricity generation, equivalent to a reduction of 25.22 million tonnes of carbon dioxide-equivalent greenhouse gas emissions. In terms of social responsibility, STAR Market companies actively participated in social welfare projects such as rural revitalization and health care, with a total donation of over RMB467 million.

Specialized and new "small giants" cluster to continuously improve the competitiveness of the industrial chain and supply chain

STAR Market, as a gathering place for science and technology innovative enterprises, has so far a total of 123 listed companies selected into the national list of "small giants", accounting for 29% of the total number of listed companies in STAR Market, 32% of the total number of listed "small giants" and 72% of the total number of listed "small giants" under the registration system. They are mainly in high-end equipment manufacturing, biomedicine, new generation information technology and other industries, and include a number of "hidden champions" in various sub-sectors such as Pylon Technologies, a global leader in household energy storage, XTC New Energy Materials, a leader in lithium cobalt oxide cathode materials, and Yunlu Advanced Materials Technology, a leader in advanced magnetic metal materials manufacturing. In addition, 41 STAR Market companies were named "single-item champion" enterprises in the manufacturing industry, and 21 companies received the title of "single-item champion" for their main products.

In 2021, STAR Market's "small giant" enterprises showed clear characteristics of high growth and emphasis on R&D, with a combined revenue of RMB 125.933 billion and net profit of RMB 19.524 billion, up 39% and 42% respectively year-on-year; the combined R&D investment amounted to RMB 11.270 billion, up 29% year-on-year. The average ratio of R&D investment to operating revenue was 12.5%, providing strong support for China's industrial supply chain to fill in short boards, forge long boards and fill in gaps.

Continued dividend and share buyback to enhance shareholder returns, and investor relationship management to a new level

STAR Market's companies continue to reward investors through cash dividends and share buybacks, while deeply cultivating their main business in science and technology and improving their operational performance. In 2021, a total of 322 STAR Market companies launched cash dividend programs, accounting for 85% of all profitable companies, with total cash dividends reaching RMB 29.044 billion. Among them, 236 companies paid cash dividends of more than 30%, and 64 companies, including China Railway Signal & Communication Corporation, paid cash dividends of more than 100 million yuan. At the same time, share buybacks further increased, 41 companies have issued share buyback programs since 2021, involving a total amount of 3.882 billion yuan.

During the disclosure period of the 2021 annual report, STAR Market companies took various measures to strengthen the interactive communication with investors and continuously improve the level of investor relations management. This year, all STAR Market companies will hold annual report presentation sessions, where the chairman and general manager of the company will talk to investors directly for in-depth communication through webcasting and text interaction. In addition, a number of STAR Market companies actively innovated the presentation of their annual reports. Over 170 companies, such as Advanced Micro-fabrication Equipment and China Railway Signal & Communication, used long graphics and short videos to provide multimedia interpretation of the company's business performance and technological innovation, enhancing the readability and comprehensibility of their annual reports.

The investor structure continued to be optimized, and the internationalization level of STAR Market was further improved

At the end of 2021, STAR Market had nearly 50,000 active professional institutional investor accounts, up 63% year-over-year; professional institutional investors held nearly 46% of the positions and accounted for over 40% of the annual trading volume. All STAR Market companies had asset management funds as shareholders, with a total of 63,486 funds having held STAR Market shares. In terms of industry distribution, companies in the "key technology" sector, represented by integrated circuits and new energy, were favoured by funds, with an average position of over 20%. Overall, the number of institutional shareholders and shareholding ratio of STAR Market companies increased significantly, and the investor structure continued to be optimized.

At the same time, the international attractiveness and influence of STAR Market has been further enhanced. So far, 44 STAR Market stocks have been included in the Shanghai Stock Connect and 38 STAR Market stocks have been included in the core indices of MSCI, FTSE Russell and S&P. With the further broadening of foreign investment channels in STAR Market, the scale and coverage of foreign holdings continue to increase. By the end of 2021, foreign institutional holdings reached RMB 104.306 billion, accounting for nearly 5% of the total. In addition, 11 STAR50 ETF products have been listed in multiple places overseas, opening up a new channel for overseas investors to invest in STAR Market.

The first quarter of 2022 achieved a stable start as a whole, and the performance of some companies went off track

In the first quarter of 2022, in the face of the severe test brought by the COVID pandemic and the complex and volatile domestic and international environment, STAR Market companies faced up to the challenges, fought against the epidemic to maintain supply, stabilized production and improved efficiency, with good overall operating conditions. In the first quarter, STAR Market companies achieved a total revenue of RMB 216.286 billion, an increase of 45.60% year-on-year, and a net profit of RMB 26.804 billion, an increase of 62.42% year-on-year. Over 70% of the companies recorded year-on-year growth in revenue and over 50% in net profit. Investment in research and development continued to remain at high level, with a combined investment of RMB17.861 billion in the first quarter, an increase of 75.93% year-on-year.

Some companies were affected by the external environment, such as the pandemic, and their business results went off track. In 2021, a total of 16 STAR Market companies saw a year-on-year decrease of more than 50% in net profit attributable to the parent company, and 17 companies suffered a loss (excluding companies not yet profitable); for the first quarter of 2022, 31 companies had a year-on-year decrease in net attributable profit of more than 50% and 79 companies with a loss (excluding unprofitable companies), compared to 56 companies in the same period in 2021. Under the influence of the pandemic, some companies had shutdowns in some of their plants in the earlier period, but under the promotion of various policies, the majority of them have now resumed production in an orderly manner and the overall stabilization trend is clear.

As the listing conditions of STAR Market are diversified and more inclusive, the listed companies are mostly in the growth stage, with a small scale of operation and relatively weak anti-risk capability. Their business performance is easily affected by the external environment, industry policies and market competition, and therefore fluctuates. The SSE will closely track changes in the operating performance of STAR Market companies, continuously improve the supply of STAR Market system, and continuously support the high-quality development of technology and innovation enterprises. At the same time, the SSE will maintain a "zero tolerance" stance against financial fraud and other information disclosure violations, effectively protect the legitimate rights and interests of investors, and safeguard the healthy development order of the capital market.