Forging Ahead with Solid Foundation: An Overview of the SSE STAR Market Companies' Operating Performance in 2023

As of April 30, 2024, all 571 companies on the STAR Market have disclosed information on their main business performance in 2023. Facing challenges at home and abroad, listed companies on the Shanghai Stock Exchange (SSE) STAR Market, as the driving force of scientific and technological innovation and industrial development, rise to challenges with firm confidence. Focusing on key areas, they have accelerated scientific and technological research, with record-high investment in R&D, breakthroughs in innovative achievements, and good momentum in international competition, contributing new quality productive forces.

I. Maintaining Stability against All Odds and Enhancing Innovation for Forging Ahead

Total operating revenues are rising steadily. Data show that in 2023, STAR Market companies achieved a total operating revenue of RMB 1,397.78 billion, a year-on-year increase of 4.7%. Of these companies, 60% achieved growth in operating revenue, with 47 companies experiencing growth of over 50%, and the annual net profits reached RMB 75.96 billion. Compared with 2019, the compound growth rates of operating revenue and net profit of STAR Market companies in the past 4 years reached 23.3% and 24.4% respectively. Among these companies, 92 had a compound growth rate of operating revenue and net profit of more than 30%, 187 achieved growth in operating revenue for 4 consecutive years, and 75 reported positive growth in net profit for 4 consecutive years.

The operating quality is improving. In 2023, the STAR Market companies maintained a high gross profit margin, with the average gross profit margin reaching 41.7% for the year, more than 30% of the companies had a gross profit margin of more than 50%, and 59 companies increased their gross profit margins by more than 5 percentage points compared with that of the previous year. In terms of cash flow, the net cash flow from operating activities of the STAR Market companies totaled RMB 139.55 billion in 2023, an increase of 13.6% year on year, showing good liquidity and payback efficiency.

R&D investment is hitting a new high. Scientific and technological innovation is the main battlefield of the international strategic game. As major scientific and technological innovators, the STAR Market companies have been adhering to innovation-driven development, maintaining a high level of R&D intensity, and accelerating the convergence of innovative elements. In 2023, the STAR Market companies invested a total of RMB 156.12 billion in R&D, a year-on-year increase of 14.3%. The median proportion of R&D investment to operating revenue was 12.2%, with 83 companies having an R&D investment intensity of over 20% for 3 consecutive years. As of the end of 2023, the STAR Market companies have brought together a research talent pool of more than 230,000 professionals, with R&D personnel accounting for more than 30% of the total employees.

Innovations are continuously emerging. Thanks to the sustained and stable high investment in R&D, the STAR Market companies have made a series of new progress and breakthroughs in science and technology innovation in 2023. By the end of 2023, a cumulative total of 124 STAR Market companies have won major awards such as the National Science and Technology Award for projects they led or participated in, and core technologies of 60% of the companies have been deemed internationally or domestically advanced; a cumulative total of more than 100,000 utility patents have been granted, with more than 10,000 patents for Semiconductor Manufacturing International Corporation and CICT Mobile Communication Technology Co., Ltd. Loongson Technology Corporation Limited launched a new generation of general-purpose processor Loongson 3A6000, marking that the home-made CPU is at the international forefront in the degree of autonomy and performance. The main bearing of the world's largest-diameter tunnel boring machine independently developed by China Railway Construction Heavy Industry Corporation Limited has successfully rolled out of the production line, marking that the domestic ultra-large-diameter main bearing research and development and industrialization capacity is among the world's leading level.

II. Accelerating the Development of Strategic Clusters Integrating Emerging Industries and Planning for Future Industries

The STAR Market implements the innovation-driven development strategy, fully leveraging its strategic role as a platform for serving high-level scientific and technological self-sufficiency. It continues to build a "core position" for cultivating new quality productive forces. The industrial structure is highly compatible with the development of new quality productive forces, with companies in industries such as new-generation information technology, biomedicine, and high-end equipment manufacturing accounting for over 80% in total. Strategic clusters of emerging industries are gradually developing and expanding, and future industries are being planned, striving to open up new fields and new tracks for high-quality development through scientific and technological innovation.

The integrated circuit industrial cluster accelerates synergistic development, facilitating industrial autonomy and control. Integrated circuit companies on the STAR Market total more than 110, with a combined market value exceeding RMB 1 trillion. These companies include Semiconductor Manufacturing International Corporation, Huahong Group, Nexchip Semiconductor Corporation (China's top three companies in wafer fabrication), National Silicon Industry Group Co., Ltd. in large-sized wafers, Advanced Micro-Fabrication Equipment Inc. China in etching equipment, Verisilicon Microelectronics (Shanghai) Co., Ltd. in semiconductor IP, and Montage Technology Co., Ltd. in memory interface chips, among others, forming a development paradigm with prominent companies leading the way and industrial clusters as support. Among them, 12 semiconductor equipment companies represented by Advanced Micro-Fabrication Equipment Inc. China and ACM Research (Shanghai) continue to promote domestic substitution, with a total of over 6,000 sets of domestically developed equipment produced in 2023. SICC Co., Ltd. invested more effort in "overtaking" in the field of third-generation semiconductors and became the world's second-largest conductive silicon carbide substrate maker in 2023. The company has accelerated its overseas development to become a first-line device enterprise in the international market. G-gas, relying on its profound accumulation and innovation advantages in electron bulk gas, succeeds in independently developing sub-supercritical carbon dioxide transportation technology, filling the gaps in China.

The biomedical industrial cluster continues to innovate and make breakthroughs, steering toward people's life and health. There are more than 110 biopharmaceutical companies on the STAR Market, bringing together a wide range of segments such as biopharmaceuticals, chemical drugs, medical devices, pharmaceutical R&D outsourcing services, etc., and penetrating in key therapeutic scenarios such as cancer, HIV/AIDS, Hepatitis B and C, and so on. Driven by R&D and global expansion, a number of innovative pharmaceutical companies have accelerated their commercialization process, taking the fast track of development. Over 50 drugs developed by 27 companies have been approved for market access, and over 200 drugs are currently undergoing clinical trials, contributing to an increase of 37.8% year on year in combined operating revenue in 2023. Among them, the second-generation BTK inhibitor Baiyueze (zanubrutinib) independently developed by Beigene, Ltd. has its global sales exceeded one billion US dollars, becoming the first domestically-produced "billion-dollar molecule" (or perfect drug). The live attenuated herpes zoster vaccine independently developed by Bcht Biotechnology successfully went on the market, which broke the monopoly of imported vaccines on the prevention of herpes zoster in China, and provided a new choice for the prevention of herpes zoster for the public.

High-end equipment manufacturing industrial clusters continue to develop and grow, contributing to the development of a foundation for a "manufacturing powerhouse". The STAR Market encompasses more than 120 high-end equipment manufacturing companies, which are present in a wide range of important industrial chains and production segments, such as aerospace, industrial robots, industrial machine tools, and laser processing. The performance in 2023 continued to grow steadily, with net profit for industrial machine tools, laser processing, and other industrial chains increasing by 8.8% and 7.7% year on year, respectively, strongly promoting China's manufacturing toward the middle and high end of the value chain. Times Electric has been engaged in researching IGBT technology, and its rail transportation and power grid market share occupied first steadily. In 2023, the company's IGBT product line achieved an annual revenue growth of nearly 70%. The domestic market share of Supcon Technology's core product, distributed control system (DCS), has reached 37.8%, ranking top for thirteen consecutive years and resulting in a 30% growth in revenue. Kede Numerical Control has launched a six-axis, five-linkage leaf disk machining center, which helps to improve the performance of domestic aero-engine and promote the development of the aviation industry at a faster pace and with higher quality.

Several STAR Market companies have been actively planning for future industries such as artificial intelligence, gene technology, and quantum information. In the field of artificial intelligence, more than 10 companies, including Kingsoft Office Software and Hygon Information Technology, have actively responded to the call of the state for new infrastructure construction, comprehensively contributing to the large-scale application of AI in the fields of smart cities, biomedicine, industrial manufacturing, and scientific computing. In the field of gene technology, Novogene has established a leading gene sequencing platform in terms of throughput and scale, and comprehensively mastered genomics, proteomics, metabolomics, and multi-omics integrated research technology systems. In the field of quantum information, Quantumctek actively develops the business layout of quantum computing, and the operational indexes of the diluted cooler, the core component of the superconducting quantum computer it developed, have reached the international mainstream standards of similar products. In addition, more than 30 intelligent manufacturing, energy-saving, and environmental protection companies actively use digital technology, intelligent manufacturing, green technology, etc., to empower the transformation and upgrading of traditional industries towards a high-end, intelligent, and green path.

III. Proactively Integrating into Global Industrial and Supply Chains and Exhibiting Good Momentum in High-Level International Competition

In 2023, against the backdrop of a global trade downturn and frequent economic and trade frictions, the STAR Market companies achieved overseas revenues of RMB 402.62 billion in total, a year-on-year increase of 9.7%, accounting for 28.8% of all revenues combined, demonstrating strong resilience. Over 70% of the companies actively plan for overseas business. PV module leaders Jinko Solar, Trina Solar, and CSI Solar ranked first, second, and fifth in global PV module shipments in 2023, respectively. Additionally, the ternary cathode materials leader Rongbay New Energy Technology has been ranked the world's first for three consecutive years in terms of shipments, contributing to the rapid increase of the export of the "New Three" products.

The STAR Market companies are taking the initiative to integrate into the global industrial chain and supply chain. They are continuously making scientific and technological innovations, actively influencing, and moving towards the middle and high end of the international value chain. By doing so, they've built a high reputation for China. In the field of integrated circuits, Montage Technology has taken the lead in formulating international standards for DDR5 RCD and MDB memory interface chips, which have a high barrier to entry, thus accelerating the rise of China's chips. In the realm of advanced rail transportation, China Railway Signal &Communication Corporation Limited, Times Electric, China Railway High-speed Electrification Equipment Co., Ltd., and Beijing Tieke Shougang Railway-Tech Co., Ltd. assisted in the construction of Indonesia's Jakarta–Bandung High-speed Railway, making significant contributions to China's high-speed railway's internationalization. This project has become a remarkable example of the high-quality "Belt and Road" cooperation and has led to China's high-speed railway's transition from being solely focused on equipment export to a more comprehensive standard export. In the life and healthcare sector, Junshi Biosciences' anti-PD-1 monoclonal antibody, teraplizumab, was the first innovative biologic drug independently developed and manufactured in China approved by the FDA for marketing. This drug is the first of its kind in the US to treat nasopharyngeal cancer. Additionally, Biokin Pharmaceutical's BL-B01D1 is the first dual-antidrug ADC to be marketed in the world. The drug has a USD 800-million down payment and a potential USD 8.4-billion transaction amount, setting a new record for the total transaction price of ADC single drug in the world.

IV. Actively Utilizing Capital Market Tools for Excellence and Empowering High-Quality Industrial Mergers and Acquisitions

Talent is the primary resource for promoting enterprise innovation and developing new quality productive forces. Entrepreneurship and talent incentives are the primary driving factors for innovation. The STAR Market has brought together a number of high-tech talents and taken the lead in launching Class II restricted stock as an equity incentive tool. As of the end of 2023, a total of 369 STAR Market companies had launched 539 equity incentive plans, with a market coverage of 65% and benefiting more than 100,000 core technical and business personnel. Over 90% of the companies have chosen Class II restricted stock as an incentive tool to help attract, retain, and motivate talent, thereby continuing to stimulate the endogenous momentum of innovation. Currently, more than 60% of companies listed on the STAR Market have founding teams consisting of sci-tech talents such as scientists and engineers or industry experts. Additionally, nearly 30% of companies have actual controllers who also serve as core technical personnel, with almost 30% of these actual controllers holding doctoral degrees. The talent pool for the STAR Market continues to grow, igniting greater enthusiasm for innovation and entrepreneurship.

In terms of sustaining financing development, in 2023, a total of 50 refinancing orders were implemented by the STAR Market companies, with a financing amount of more than RMB 56 billion. Eight companies efficiently resolved their funding needs through the "small quota fast track" financing mechanism. National Silicon Industry Group Co., Ltd. has recently launched the country's inaugural corporate bond for science and technology innovation. This initiative secured RMB 1.34 billion, earmarked for substituting previous investments made in assets within the realm of science and technology innovation and equity holdings within the semiconductor industry over the past 12 months. The financing avenues for companies listed on the STAR Market are expanding, facilitating increased utilization of financial resources to drive advancements in scientific and technological innovation and bolstering advanced manufacturing initiatives. This will further facilitate innovation-driven development initiatives.

Regarding industrial merger &acquisition and restructuring, STAR Market companies witnessed over 30 equity acquisition transactions surpassing RMB 100 million each in 2023. Among these, four transactions stood out for their significance, either involving major asset restructuring or the issuance of securities. 3peak Incorporated plans to issue targeted convertible bonds and provide cash payments to acquire shares in iCM, aiming to advance its product portfolio and move towards becoming a "platform chip company". Meanwhile, AsiaInfo Security aims to acquire AsiaInfo Technologies to strengthen its capabilities in integrating "cloud, network, and security" services, thereby fostering the groundwork for the digital economy.

Moreover, several STAR Market companies have proactively welcomed state-owned capital or significant industrial investments. Cathay Biotech Inc., a pioneer in synthetic biology, intends to introduce China Merchants Group through private placement. Together, they aim to expand the application scenarios of the company's products. Quantumctek Co., Ltd., a leader in quantum technology, has revealed plans for private placement with China Telecom, expecting to expedite the industrialization process of quantum communications. Hechuan Technology, a prominent player in industrial control, is partnering with the Bosch Group to establish a joint venture, focusing on developing high-end products for the market. Furthermore, Apt Medical Inc., a domestic leader in electrophysiology, acquired investment from Mindry Bio-Medical Electronics to strengthen their collaboration and accelerate product matrix expansion as well as domestic and international market development.

V. Practicing the "Investor-centered" Philosophy and Responding Positively to the Initiative of "Corporate Value and Return Enhancement"

As of April 30, 2024, 363 companies listed on the STAR Market disclosed their Corporate Value and Return Enhancement Action Plan 2024, accounting for 63.6% of the total number of companies. The constituent companies of STAR 50 and STAR 100 serve as exemplary leaders within their respective fields. Each of these companies unveils their annual action plans. As per the disclosed plans, the majority of companies prioritize enhancing business quality, boosting investor returns, expediting the development of new productive forces, and diligently consolidating the responsibilities of the "critical few", aiming to implement comprehensive, systematic, and targeted initiatives designed to be specific, actionable, and measurable. Companies like CSI Solar and Gaoce Technology concentrate on their core business activities, divulging business plans such as future shipment targets. On the other hand, entities such as Hoymiles Power Electronics Inc. and LES prioritize scientific and technological innovation, elucidating their primary plans for new product development in 2024. Meanwhile, firms like Advanced Micro-Fabrication Equipment Inc. China and China Railway Signal &Communication Corporation Limited are bolstering the accountability of the "critical few", introducing targeted measures such as reinforcing evaluation criteria for relevant staff and optimizing the performance of independent directors.

Concurrently, STAR Market companies have actively bolstered investors' sense of gain by consistently providing dividends, executing share buybacks, and fostering stake increases. Regarding cash dividends, approximately 70% of the companies listed on the STAR Market initiated their 2023 annual cash dividend programs. The total cumulative dividends for the year reached RMB 42.47 billion. Over 300 companies distributed cash dividends exceeding 30% of their annual earnings. Among these, 10 companies disbursed dividends surpassing RMB 500 million each. Notably, Shenzhen Transsion Holdings Co., Ltd., Jinko Solar, and China Railway Signal &Communication Corporation Limited allocated RMB 4.84 billion, RMB 2.24 billion, and RMB 1.80 billion in cash dividends, respectively. Additionally, 23 companies like Liaoning Chengda Biotechnology Co., Ltd. and BAIMTEC Material Co., Ltd. implemented multiple cash dividend payouts throughout the year. Concerning share buybacks in 2023, a total of 146 companies introduced 152 repurchase plans, with proposed repurchase limits amounting to RMB 17.89 billion. Notably, 20 companies including KBC Corporation, Ltd., and Espressif Systems (Shanghai) Co., Ltd. have executed multi-period repurchase programs over the course of the year. Regarding shareholding increase, the "critical few" have been upholding "both integrity and gains". In 2023, a total of 42 companies put forth 45 shareholding increase plans, with personnel involved increasing shareholdings by RMB 1.26 billion at most.

VI. Enriched indices and products of STAR Market and Accelerated Long-Term Capital Inflow

The index system of the STAR Market has progressively improved, while the investment "toolbox" has been enhanced with more diverse options. Since 2023, there has been a successive release of indices such as the STAR 100 Index and STAR ESG Index. Presently, the number of indices for the STAR Market stands at 15, collectively representing a product scale of nearly RMB 160 billion, spanning both domestic and international markets. Within this spectrum, the STAR 50 ETF products boast a size of nearly RMB 130 billion, while the STAR 100 ETF products amount to nearly RMB 19 billion, indicating a substantial increase of 42.3% compared to their issuance size. In terms of derivatives, STAR 50 ETF options were listed in June 2023, becoming the first new stock option launched under a comprehensive registration system context. The ongoing expansion of investment channels within the STAR Market has offered investors a valuable tool to partake in the growth dividends, facilitating the consolidation of resources towards the innovation sector.

Professional institutional investors stand strong with the STAR Market, with medium- and long-term funds serving as the cornerstone of the investment framework. By the conclusion of 2023, the count of active accounts held by professional institutional investors witnessed a continual rise, surpassing 70,000, marking a year-on-year increase of 30%. Notably, the number of active accounts held by corporate annuities and public funds experienced even swifter growth, with year-on-year rates exceeding 200% and 10% respectively. Institutional investors collectively held nearly 70% of the positions, with professional institutional investors and general institutional investors accounting for approximately 40% and 30% of the market capitalization respectively. Long-term funds such as social security, insurance, and annuities accounted for almost 5% of the positions held.

VII. Promising Launch in the First Quarter of 2024 and Favorable Development Trends in the Medium to Long Term

The operational performance of STAR Market companies commenced smoothly in the first quarter of 2024. With the exception of four multi-location listed red-chip companies - Semiconductor Manufacturing International Corporation, Huahong Group, Beigene, Ltd., and Innocare Pharma Limited - the 567 STAR Market companies collectively achieved operating revenues of RMB 277.55 billion, marking a year-on-year increase of 3.6%. Additionally, their net profits amounted to RMB 17.21 billion, remaining unchanged from the corresponding period of the previous year. In the first quarter, over 60% of companies experienced year-on-year increase in operating revenue, with 85 companies witnessing an increase of over 50%. Similarly, more than 50% of companies achieved year-on-year increase in net profit, with 151 companies reporting an increase of over 50%. Notably, subsectors such as integrated circuits and intelligent detection have shown exceptional performance, with year-on-year growth rates in operating revenue reaching 27.8% and 62.3% respectively. Three companies - Sichuan Biokin Pharmaceutical Co., Ltd., Shenzhen Transsion Holdings Co., Ltd., and Jinko Solar - recorded net profit scales exceeding RMB 1 billion in the first quarter.

Faced with a complex and challenging external landscape, STAR Market companies remain committed to innovation-driven development, intensifying research and development efforts, and prioritizing the fortification of foundations for sustained high-quality development in the future. In the first quarter of 2024, STAR Market companies collectively invested RMB 32.27 billion in research and development, marking a year-on-year increase of 18.2%. Over 70 companies disclosed breakthroughs in product R&D or commercialization, contributing to the emergence of new revenue growth opportunities. Moreover, expenditure on the acquisition and construction of fixed assets, intangible assets, and other long-term assets totaled RMB 53.92 billion, reflecting a year-on-year increase of 6.7%. Additionally, over 30 companies disclosed accelerated implementation of their R&D and manufacturing projects, laying a solid foundation for long-term development.

The SSE will continue to uphold the guiding principles of the Central Economic Work Conference and the Central Financial Work Conference, and enhance its service capabilities and standards to support scientific and technological innovation as well as the real economy. By doing so, the SSE aims to position the STAR Market as a vanguard in fostering and advancing new quality productive forces, thereby making significant contributions to the high-quality development of both the real economy and the capital market.