Solid Fundamentals and Consumption Recovery - SSE Main Board Companies Complete Disclosure of 2023 Semi-annual Report

As of August 31, 2023, all 1,685 companies listed on the Shanghai Stock Exchange (SSE) main board have completed the disclosure of their 2023 semi-annual reports. Overall, despite facing multiple unfavorable factors, companies listed on the SSE main board have maintained stable operating performance. Their role in stabilizing employment and protecting people's livelihood is evident, showcasing emerging sci-tech innovation and accelerating recovery of the consumer sector. This reflects the effectiveness of the various policies introduced this year and highlights the tremendous resilience and potential of China's economy.

I. Stable overall performance with a noticeable reduction in losses

In the first half of 2023, SSE main board companies achieved a total operating revenue of RMB 24.93 trillion yuan, a 2% year-on-year increase, with a net profit of RMB 2.32 trillion yuan and a net profit after deducting non-recurring gains and losses of RMB 2.23 trillion yuan, representing a slight decrease of 2% and 1%, respectively. Compared to the same period in 2019, these three indicators increased by 31%, 16%, and 21%, with average compound annual growth rates of 7%, 4%, and 5%, respectively. Among them, the operating revenue of entity companies in the first half of the year reached RMB 20.32 trillion yuan, a 2% year-on-year increase, while the net profit and net profit after deducting non-recurring gains and losses decreased by 7% to RMB 1.08 trillion yuan and RMB 0.99 trillion yuan, respectively. Looking at the quarterly performance, the curve was falling and then rising, with a quarter-on-quarter growth of 9%, 5%, and 6%, respectively compared to the first and second quarters. Furthermore, companies displayed notable improvements in their ability to generate operating cash flow, with entity companies achieving a net inflow of operating cash of RMB 1.28 trillion yuan, up by 22% year on year.

In terms of profit and loss, 1,427 companies remained profitable in the first half of 2023, accounting for nearly 90%. Among them, 746 companies achieved year-on-year growth in net profit, and 116 companies turned losses into profits. This represents an increase of 80 companies and a decrease of 69 companies with declined net profits compared to the same period last year. On the other hand, 258 companies reported losses in the first half of the year, reducing by 6 compared to the same period last year and 22 compared to the first quarter of 2023. The total loss amount significantly narrowed by about 50% compared to the same period last year. The number of loss-making companies and their losses both improved noticeably, indicating a significant reduction in losses.

II. Prominent role in stabilizing employment, strong momentum in promoting consumption

While stabilizing the economy and ensuring growth, SSE main board companies continue to play a crucial role in stabilizing employment and protecting people's livelihoods, thus consolidating the foundation of stable employment. As of the end of June 2023, SSE main board companies have employed approximately 17 million people, with an estimated indirect employment of 200 million people based on GDP proportion. In the first half of the year, they paid a total of RMB 2.16 trillion yuan in employee compensation, making a 7% year-on-year increase. In particular, high-tech industries represented by pharmaceutical biotechnology, power equipment, and national defense and military industry witnessed a 15% year-on-year increase in employee salaries, indicating the emergence of employment effects driven by sci-tech innovation. Additionally, stable supplies from grain production enterprises such as Heilongjiang Agriculture Company Limited, Jiangsu Provincial Agricultural Reclamation and Development Co.,Ltd., and Zhongnongfa Seed Industry Group Co., Ltd. have effectively ensured food security.

With the implementation of various policies to stimulate domestic demand, the potential for market consumption continued to be unleashed. Offline consumption scenarios experienced accelerated recovery, with visible rebounds in interactive and group-based consumption. The net profits of industries such as hotels, restaurants, tourist attractions, and cinemas have all achieved significant turnarounds and are approaching levels seen in the same period of 2019. Net profits of offline department stores and supermarkets have surged by 46% year on year. In terms of travel, there was a noticeable recovery in passenger volumes for aviation and railway transportation, with airport losses significantly narrowing by 80% and witnessing remarkable improvements in the second quarter compared to the first quarter, with revenue and net profits growing by 20% and 38%, respectively. Correspondingly, net profits in railway and road transportation reported a 73% year-on-year increase, demonstrating a sustained improvement. Regarding end consumer goods, sectors such as food and beverages, beauty and personal care, and home appliances have continued to improve, with net profits increasing by 15%, 59%, and 14% year on year, respectively. The automotive industry grew by 3% in the first half of the year, with a second quarter year-on-year growth rate of 41% and a quarter-on-quarter growth of 40%.

III. SOEs and central SOEs play the role of the ballast, with evident marginal improvement of private enterprises

State-owned enterprises (SOEs) have withstood the pressure and fully played the role of the ballast in stabilizing economy. In the first half of 2023, the operating revenue of SOEs on the SSE increased by 2% year on year, with net profits basically remaining stable, up by 30% and 16% compared to the same period in 2019. They achieved a net asset return rate of 5% in the first half of the year, surpassing the overall market average. Central SOEs under the State-owned Assets Supervision and Administration Commission of the State Council achieved a total operating revenue of RMB 11 trillion yuan and a net profit of RMB 630 billion yuan, contributing over 40% of the revenue and nearly 30% of the net profit, with growth rates of 36% and 52% compared to the same period in 2019; the quarter-on-quarter growth rates in the second quarter were 8%, 14%, and 12%, respectively. Among them, the net profit of Beijing-Shanghai High Speed Railway Co., Ltd. increased more than fivefold, and Sichuan Road & Bridge Group Co., Ltd. saw a 23% year-on-year growth in net profit. Central SOEs such as Metallurgical Corporation of China Ltd. and CRRC Corporation Limited achieved steady and robust growth in their net profits.

Private enterprises faced short-term profit pressures but the trend of marginal improvement was evident. In the first half of 2023, the operating revenue of private enterprises on the SSE main board increased by 1% year on year, with a 9% year-on-year decline in net profits. However, the second quarter showed an 8% quarter-on-quarter increase in operating revenue and a 6% quarter-on-quarter increase in net profits after deducting non-recurring gains and losses, with multiple operational indicators achieving recovery and faster growth rates compared to SOEs. Encouragingly, private enterprises continued to enhance their operational efficiency. In the first half of the year, operating cash flow increased by 17% year on year, with significant improvements in cash flow in the second quarter, and a 0.56 percentage point decrease in the end-of-period asset-liability ratio compared to the beginning of the year. Representative private enterprises such as Longi Green Energy Technology Co., Ltd., Fuyao Glass Industry Group Co., Ltd., and Haier Smart Home Co., Ltd. achieved net profit growth of double digits in the first half of the year.

IV. Profit divergence between upstream and downstream converges, strong growth in high-tech industries

Under the influence of continuous consumer recovery and falling commodity prices, there has been an adjustment in the profit structure between upstream and downstream sectors. In the upstream mining industry, the performance of industries such as coal, nonferrous metals, and oil has shifted from growth to decline, with net profits decreasing by 29%, 24%, and 7% respectively compared to the previous year. However, the thermal power industry has seen a significant recovery in performance driven by falling raw material prices, leading to an overall growth of nearly 30% in net profits for the utility industries, which are primarily focused on electricity generation. In terms of the midstream and downstream industries, as upstream prices gradually take effect, the net profits of the paper, chemical fiber, rubber, and plastics industries have declined on a year-on-year basis in the first half of the year. However, there have been improvements in the second quarter compared to the first quarter, with growth rates of nearly 6 times, 3 times, and 51%, respectively. In addition, it is worth noting that the real estate industry has seen positive growth in the first half of the year, with revenue and net profits increasing by 4% and 2% respectively, year on year. The growth rate in the second quarter was particularly significant, leading to a narrowing of the decline in net profits for the construction materials industry compared to the previous quarter.

As a core industry stabilizing the industrial and supply chains, the equipment manufacturing industry has maintained rapid growth. The net profits of machinery equipment, power equipment and national defense and military industry realized year-on-year increase by 8%, 13%, and 24%, respectively. Among them, high-tech manufacturing industry has demonstrated strong development momentum, gradually becoming a new engine of economic growth. The net profits of rail transportation equipment, aerospace equipment, and communication equipment industries have increased by 10%, 29%, and 15%, respectively. The modern service industry has also seen encouraging growth, as the continuous deepening of digitalization development, the demand for information services also rose. The net profits of information transmission, software, and information technology service industries have increased by 10% year on year. The three major telecommunication operators have experienced rapid growth in their new business areas, such as industrial digitization and cloud services, with a total revenue in the first half of the year exceeding RMB 981.2 billion yuan and net profits exceeding RMB 101.7 billion yuan, representing a year-on-year growth of 7% and 9%, respectively. In addition, there has been a continuous increase in demand for high-level technology services, with net profits in scientific research and technical service industry increasing by 9% compared to the previous year.

V. Continuous momentum in sci-tech innovation, ESG concept accelerated green transformation

Despite multiple pressures, companies listed on the SSE main board continue to increase their investment in R&D to solidify their long-term development foundation. In the first half of 2023, real-economy companies on theSSE main board had a total R&D expenditure of approximately RMB 312.4 billion yuan, representing a 6% year-on-year increase. High-tech industries, driven by intensive R&D efforts, have achieved rapid growth in operating performance. They continuously made breakthroughs in core and key technologies, with R&D expenditures in the national defense and military industry, communication industry, and power equipment industry reaching 34%, 25%, and 17% respectively. Net profits in these sectors increased by 24%, 9%, and 13%, demonstrating a positive cycle of R&D growth and performance optimization. Representative companies that engage in highly intensive R&D include CRRC Corporation Limited, whose CR450 High-speed Train has achieved significant milestones in its R&D, setting a new world record with a relative closing speed of 891 kilometers per hour. China Telecom Corporation Limited's Chinatelecom Cloud has made breakthroughs in key and core technologies such as super-large-scale resource pool scheduling, with its computing power distribution network platform "Xi Rang" becoming the first cross-domain and cross-service provider computing power scheduling platform. Power Construction Corporation of China, Ltd has been promoting large-scale offshore floating photovoltaic projects and key technologies for wind-solar coupling, strengthening its leadership in emerging energy and power sectors.

SSE main board companies continue to implement the ESG concept, further accelerating the pace of green and low-carbon transformation. In traditional industries such as mining, steel, and chemical industries, active efforts are being made to transition towards green and sustainable practices. Companies such as Shaanxi Coal Industry Company Limited and China Coal Energy Company Limited are promoting green transformation and upgrading of the coal-based industry chain, developing low-carbon energy alternatives such as solar and wind energy. Baoshan Iron & Steel Co., Ltd. has achieved a key process energy efficiency rate of 81%, saving 180,000 tons of standard coal and achieving 72% of its annual goal of 250,000 tons. Zijin Mining Group Company Limited has invested RMB 600 million yuan in environmental protection and ecological funds, restoring an area of vegetation covering 2.53 million square meters. The green energy industry is steadily developing. In the photovoltaic sector, the operating revenue and net profit of upstream and midstream photovoltaic equipment companies increased by 24% and 21%, respectively. The downstream photovoltaic power generation has also witnessed significant growth, with a total of 15.5 billion kilowatt-hours of photovoltaic power generated by China Three Gorges Renewables (Group) Co., Ltd., China National Nuclear Power Co., Ltd, and Shanghai Electric Power Co., Ltd in the first half of the year, representing a 20% year-on-year increase. In terms of new energy vehicles, the proportion of new energy-related orders has continued to increase for component suppliers. In the first half of the year, over 90% of the new orders for Ikd Co., Ltd. came from the new energy sector. Several automakers have achieved record-high sales of new energy vehicles. Guangzhou Automobile Group Co., Ltd., one of the industry leaders, saw a 118% and 109% increase in production and sales of new energy vehicles, respectively.

VI. Increased investment in key areas, exports of "three new items" showed strong performance

Stable investment policies continue to exert force, leading to steady growth in fixed asset investment. In the first half of 2023, driven by a package of policies, SSE main board entity companies invested a total of RMB 1.32 trillion yuan in long-term asset purchases and constructions, representing a 16% year-on-year increase. Investments in high-tech manufacturing industries that represent advanced production development have grown rapidly, with investments in computer, power equipment, automobile, and defense industries increasing by 40%, 30%, 16%, and 16% respectively. Infrastructure construction has also maintained stable momentum, with investment expenditures in public utilities and transportation, among other infrastructure-related industries, increasing by 38% and 33% respectively. The nine leading infrastructure companies, including China State Construction Engineering Corporation Limited, China Railway Construction Corporation Limited, and China Railway Group Limited, have signed new contracts totaling approximately RMB 8 trillion yuan in the first half of the year, representing a nearly 9% year-on-year increase. Taking into account the construction cycle of infrastructure investments, it is expected that infrastructure investments will drive the development of related industries over a longer period of time.

While overall foreign trade exports remain stable, a new pattern with higher technological content is emerging, with strong exports of the "three new items". Based on port data, the three major port companies, namely Shanghai International Port (Group) Co., Ltd., Ningbo Zhoushan Port Company Limited and Qingdao Port International Co., Ltd., completed a total cargo throughput of 1.2 billion tons and container throughput of 59.58 million TEUs in the first half of the year, representing a 6% and 5% year-on-year increase respectively. At the same time, structural changes have occurred in foreign trade with the strong performance of the "three new items" exports. Overseas revenue from the photovoltaic equipment and automobile industries has increased by 40% and 33% respectively. Specifically, in the first half of the year, photovoltaic equipment companies, Flat Glass Group Co., Ltd and Hangzhou First Applied Material Co., Ltd., achieved overseas revenues of RMB 2.2 billion yuan and RMB 1.9 billion yuan respectively, representing a year-on-year increase of 53% and 14%. The overseas sales volume of SAIC Motor Corporation Limited, a finished-vehicle enterprise, reached RMB 530,000 vehicles, representing a 40% year-on-year increase, with new energy vehicle sales in the European market accounting for over 50% and exceeding 20,000 units for four consecutive months. Yutong Bus Co., Ltd. has exported over 3,700 units of new energy buses, achieving batch sales and good operation in more than 30 countries overseas. Huayu Automotive Systems Company Limited, an auto parts company, actively participates in the global automotive industry division of labor and integrates into the global automotive industry supply system, achieving overseas revenue of RMB 15.7 billion yuan in the first half of the year, a year-on-year increase of 13%.

VII. M&A and restructuring contributed to quality and efficiency improvement, finance continued to benefit the real economy

The SSE main board continues to play its role in providing financial services to the real economy, supporting listed companies in using capital market tools to improve quality and efficiency and accelerate business transformation and upgrading. In the first half of 2023, a total of 19 restructuring plans were disclosed, involving a total amount of RMB 18.5 billion yuan. Specifically, some companies have used restructuring to achieve industrial transformation. CSSC Science & Technology Co., Ltd. has injected assets into the wind power and other related new energy sectors through restructuring, actively transforming and developing into the new energy sector. Some companies have achieved internal reshuffling and integration of similar businesses through restructuring, such as the absorption and merger of AVIC Electromechanical Systems Co., Ltd.By China Avionics Systems Co.,Ltd., achieving deep integration of aviation electronic systems and electromechanical systems. Some companies have utilized the capital market to revitalize existing assets and prevent risks. Real estate companies Shanghai Lujiazui Finance & Trade Zone Development Co.,Ltd. and Gree Real Estate Co., Ltd. have actively implemented asset restructuring and asset purchases, with a total amount of fundraising planned at RMB 13.6 billion yuan.

On the other hand, the financing scale of listed companies has remained stable, and finance continues to benefit real-economy enterprises. In the first half of 2023, the total financing scale of SSE main board entity companies reached RMB 6.84 trillion yuan, which is essentially equal to the same period last year, with the financing scale of private enterprises increasing by 2%. In addition, more than 10 real estate companies have disclosed refinancing plans, with planned fundraising totaling over RMB 50 billion yuan. Companies such as Greattown Holdings Ltd. and Poly Developments and Holdings Group Co., Ltd. have received approval for their financing proposals. The SSE bond market has played an active role, with a total issuance of corporate bonds by SSE main board companies reaching RMB 403.6 billion yuan in the first half of the year, representing a year-on-year increase of 31%, with a weighted average interest rate of 3.18%, a year-on-year decrease of 0.05 percentage points. Among them, the add-issuance of sci-tech innovation bonds reached RMB 23.1 billion yuan. In terms of finance benefiting the real economy, the total balance of corporate loans and advances from SSE-listed banks amounted to approximately RMB 88 trillion yuan, an increase of 13% compared to the beginning of the year. The average net interest spread of the banking industry was 1.82%, and the net interest margin was 1.72%, representing a respective year-on-year decrease of 0.15 percentage points and 0.14 percentage points. The financial industry's support for the real economy continues to increase.

VIII. Market valuation structure improved, leading to an increase in trading volume for blue-chip stocks and technology stocks

Since 2023, the market valuation structure of SSE main board companies has further improved. On one hand, the valuations of high-quality blue-chip companies have increased, with an increase of 3 companies with a market capitalization of over RMB 100 billion yuan and an increase of 12 companies with a market capitalization of over RMB 10 billion yuan. These companies are mainly from industries such as media, pharmaceuticals, and computers. Valuations of central SOEs have significantly recovered, with an average cumulative increase of over 10% and a median increase of 8% for more than 270 central SOEs on the SSE, outperforming the benchmark index by 8.7 and 6.5 percentage points, respectively. Five central SOEs, including China Science Publishing & Media Ltd. and People.cn Co.,Ltd., have seen cumulative increases of over 100%, and 13 central SOEs have seen cumulative increases of over 50%. Industries such as media, communications, and computers have seen the highest increases in valuations for central SOEs, with increases of 89%, 26%, and 25% respectively. On the other hand, the phenomenon of "investing in small-cap and weak-performance stocks" has been curbed to some extent, with a 4% drop in the risk warning sector since the beginning of the year. Over 70% of the stocks in this sector have seen a decrease in stock prices, with an average decline of 9%.

At the same time, trading volume in the market has further concentrated on leading enterprises and sci-tech innovation companies. High-quality blue-chip stocks have gained favor in the market, with the trading volume of companies with a market capitalization of over RMB 100 billion yuan and over RMB 50 billion yuan accounting for 24% and 38% respectively since the beginning of the year, an increase of 2 and 3 percentage points compared to the same period last year. Sci-tech innovation capabilities have become an important support for investment value in companies. Companies with R&D investment accounting for more than 10% and 5% of their operating revenue have seen their trading volume accounting for 10% and 22% respectively since the beginning of the year, an increase of 4 and 5 percentage points compared to the same period last year. Industries such as computers, communications, defense and military, and electronics have all witnessed an upward trend in trading volume.

IX. Confidence was conveyed through repurchases and shareholding increases, with mid-term dividends gradually becoming a trend

Since 2023, there have been 74 new disclosures of repurchase plans by SSE main board companies, with a combined upper limit of over RMB 40 billion yuan and a total planned implementation amount of about RMB 8.3 billion yuan. Among them, Haier Smart Home Co., Ltd. and SAIC Motor Corporation Limited have allocated RMB 3 billion yuan and RMB 2 billion yuan respectively for repurchases, while Jiangsu Hengrui Pharmaceuticals Co.,Ltd, Meihua Holdings Group Co., Ltd, and Ming Yang Smart Energy Group Limited have all repurchased more than RMB 1 billion yuan. In terms of shareholding increase, there have been 55 new plans by major shareholders, with a combined upper limit of over RMB 10.5 billion yuan. Bank of Hangzhou Co., Ltd., Sichuan Road & Bridge Group Co., Ltd., Haier Smart Home Co., Ltd., and other companies' major shareholders have implemented large-scale shareholding increases to show their confidence in their respective companies. In addition, major shareholders, directors, supervisors, and senior management personnel of more than 20 companies have terminated their planned shareholding reductions in advance or disclosed announcements of not reducing their shareholding, stabilizing market expectations together.

Besides, there has been a new breakthrough in both the number and total amount of mid-term cash dividends. Recently, a total of 61 companies on the SSE main board have launched mid-term dividend plans with a total cash dividend of RMB 184.6 billion yuan. Among them, companies controlled by central SOEs have played a leading role in actively distributing dividends to investors. The three major telecom operators and the three major oil companies have all launched large-scale dividend plans. China Mobile Limited gave out a cash dividend of RMB 47.6 billion yuan, while PetroChina Company Limited, China Petroleum & Chemical Corporation, and CNOOC Limited gave out dividends of RMB 38.4 billion yuan, RMB 25.8 billion yuan, and RMB 17.4 billion yuan respectively. China Telecom Corporation Limited gave out a dividend of RMB 13.1 billion yuan, with the cash dividend ratio exceeding 65%, and China United Network Communications Limited and Baoshan Iron & Steel Co.,Ltd. both gave out dividends exceeding RMB 2 billion yuan. In addition, a batch of private-sector enterprises such as Anjoy Foods Group Co., Ltd. and Aima Technology Group Co., Ltd. have also distributed large cash dividends to shareholders, sharing the results of their development.

X. Evident trend of gradual progress, constantly strengthening the foundation for performance recovery

According to the 2023 semi-annual reports of SSE-listed companies, some companies and industries on the main board were still experiencing low-performance operations in the first half of the year. Among them, 258 companies posted losses, and 146 companies saw their performance decline by over 50%. The steel and chemical industries saw a year-on-year decrease in net profit of 80% and 52% respectively, and the decline in the second quarter further widened compared to the first quarter. The net profits of semiconductor and consumer electronics companies decreased by 67% and 4% respectively. Nearly 600 companies that disclosed overseas income saw a total decline of 10% in overseas revenue in the first half of the year, with significant declines in agriculture and chemical products, glass fiber, and textile clothing. In addition, although the performance of the real estate industry has improved in the first half of the year, the debt repayment pressure remains high, and liquidity risks still need to be monitored.

Looking ahead to the second half of the year, with the recovery of China's economy, the gradual expansion of market demand, and the continuous improvement of supply and demand relations, the performance of listed companies will most likely accelerate their return to a stable growth track. In addition, the various economic policies implemented in the first half of the year will have a greater driving effect in the second half. Based on these favorable factors, coupled with the accelerated pace of sci-tech innovation and transformation and development of listed companies themselves, the performance of listed companies will embrace an even more solid foundation for recovery.