The FINANCIAL -- As of August 31, 2017, companies listed on the Shenzhen Stock Exchange (“SZSE”) have duly disclosed the 2017 semi-annual reports on schedule.
The average gross revenue of listed companies reaches CNY2.28 billion in the first six months, up by 26.39% compared with the same period in 2016, and average net profits attributable to shareholders of the parent company rises by 25.25% to CNY163 million compared with 2016. The average gross revenue of listed companies excluding those in the financial industry grows by 26.25% and net profits by 28.57%, which are the highest growth rates over the last three years, reflecting a stably developing economy. The multi-layer capital market is prosperous with the main board, SME board and ChiNext board in various stages of development, according to Shenzhen Stock Exchange.
Effective Supply-chain Reform
Thirteen out of the eighteen industries have witnessed a year-on-year increase in earnings. Gross incomes in the manufacturing industry which represents about 70% of the listed companies in Shenzhen market goes up by 29.23% on average and net profits by 40.26%. Performance are significantly improved in traditional manufacturing industries such as ferrous metal smelting, rolling and processing, non-ferrous metal smelting, rolling and processing, chemical materials and products manufacturing, and special equipment manufacturing; and there is a double-digit increase for companies in the sub-industries including electric equipment and machinery manufacturing, pharmaceutical manufacturing and the automobile industry. Those representing the new growth driver such as the environment protection, information and technology, business services and smart manufacturing industries enjoy a growth of over 30% in gross incomes.
The supply-side structural reform of listed companies in Shenzhen market is showing results. In respect of “cutting overcapacity”, the mining industry has reduced investment in fixed assets investment by 11.1% in the first six months of the year compared with 2016. Industries of ferrous metal melting, rolling and processing, and chemical fibers manufacturing enjoy a dramatic improvement in performance while maintaining the same amount of investment in fixed assets compared with the same period in 2016. In respect of “destocking”, as of the end of June 2017, the inventory-to-total assets ratio of listed companies in Shenzhen market decrease by 0.61% to 14.13%. The inventory-to-total assets ratio of real estate industry is down from 58.67% in late June of 2016 to 53.84% in 2017. In respect of identifying growth areas, in the first half of 2017, Shenzhen listed companies have invested approximately CNY99.896 billion in research and development, with a year-on-year increase of 24%. For instance, ZTE has spent CNY6.677 billion in the first half of 2017 for a thorough research and development of the 5G technology. By now, there are 1459 high tech companies in Shenzhen market, 80% of which are listed on the main board and ChiNext board.
Serving the Real Economy, Implementing the National Strategy
Listed companies actively respond to the national strategy to pursue an innovation-driven development. In the first half of 2017, 764 listed companies in the strategic and emerging industry, which account for 37.88% of the companies in Shenzhen market, have seen an increase of 32.09% in gross revenue on average, and an increase of 26.93% in net profits. There are also highlights of the sub-categories, reflecting an economy in transition and a breakthrough in formation. Gross revenue and net profits of the reporting period rise by 37.57% and 210.29% on average of the 100 listed companies engaged in high-end equipment manufacturing, and grow by 31.75% and 31.01% on average for over 250 information and technology companies of the new generation including market leaders such as HIKVISION, BOE, and WANGSU.
Since the release of the management measures on restructuring in 2016, M&As conducted for industry integration and business transformation and upgrade purposes have become the mainstream of major assets restructuring of listed companies in Shenzhen market. Premium rate of underlying assets are relatively rational. For example, as per the restructuring plans disclosed from the main board in the first half and second half of 2016 and the first half of 2017, the premium rates are 803%, 580% and 361% on average. M&A is playing an increasingly important role in industry integration and the supply-side structural reform undergone by listed companies, who thus improve their performance. Statistics show that companies completed restructuring in 2016 have increased their gross revenue by 29.66% year-on-year in the first half of 2017 and net profits by 144.73%, way above the average level of the Shenzhen market. During the reporting period, the Shenzhen market have completed a total of 90 major assets restructurings with an amount of CNY321.971 billion involved (up by 66.17% compared with the same period of 2016).
Meanwhile, listed companies in Shenzhen market are deeply involved in the Belt and Road construction. An incomplete survey reveals that over 280 listed companies have participated in the Belt and Road construction by various means such as setting up subsidiaries, manufacturing bases and research and development centers, conducting overseas M&As and undertaking construction projects. For instance, SANODA acquired the agrichemical giant AMADA at a consideration of CNY18.471 billion via share offering, which shall facilitate a structural adjustment of domestic farm chemicals. Furthermore, HYPC raised an amount of CNY3.8 billion via share offering to invest in and construct the PMB petrochemical project in Brunei. The two companies have increased their total incomes and net profits by 28.18% and 40.12% for the first half of 2017 year-on-year.
Listed companies are earnestly performing their social responsibilities, rewarding shareholders and giving back to society. In terms of rewarding shareholders, 56 listed companies have released the interim profits distribution plan with a total cash dividend of CNY6.079 billion. ECT from ChiNext board produced a plan to distribute CNY10 per 10 shares to its shareholders. In respect of giving back to society, during the reporting period, Shenzhen listed companies have contributed money and materials amounting to CNY4.991 billion, helping over 73000 registered impoverished people out of poverty. The poverty alleviation work is carried out with a clear purpose and had achieved satisfactory results.
Main Board, SME Board and ChiNext Board at Different Stages of Development
In the first half of 2017, the average gross revenue of listed companies on the main board amount to CNY5.123 billion, up by 24.95% compared with 2016; net profits are CNY332 million, up by 34.01% compared with 2016. Performance of blue-chip companies is outstanding in the market, sales of MIDEA GROUP amount to over CNY100 billion with net profits over CNY10 billion. Net profits of GREE are increased by 47.6% year-on-year. Performance of PAB, VANKE-A, and WULIANGYE has greatly improved. State-owned companies listed on the main board participated in the state-owned enterprise reform by way of M&A, refinancing, debt-to-equity conversion and equity incentive, and have managed to increase their net profits by 55.81% year-on –year.
As the breeding ground for industry leaders, SME board has accumulated a large sum of outstanding companies in the sub-divided industries, which serve as role models and leaders in a developing economy. In the reporting period, average gross revenue of listed companies on the SME board reaches CNY1.935 billion on average, up by 26.68% compared with 2016; net profits are CNY144 million, up by 23.2% compared with 2016. 21 companies have achieved a gross revenue of over CNY10 billion, and 16 companies have gained net profits of over CNY 1 billion, More and more SME board listed companies are doing better and getting stronger by making use of the capital market and are many have turned themselves into quality blue-chip companies. Companies ranking among the top 30 on the SME board in terms of net profits gained are mainly from the finance, computer communication, equipment manufacturing and pharmaceutical industries; the average gross revenue of the 30 listed companies is CNY10.809 billion, up by 24.54% compared with 2016; net profits are CNY1.434 billion, up by 28.83% compared with 2016.
Companies on the ChiNext board are implementing the national strategy to achieve a growth driven by innovation and their performance is constantly improving. In the reporting period, average gross revenue of listed companies on the ChiNext board goes up by 33.27% compared with 2016; net profits increases by 6.02% compared with 2016. With WENS and LETV excluded, average gross revenue of listed companies on the ChiNext board goes up by 39.86% compared with 2016; net profits increases by 25.29% compared with 2016. The top 10 companies with the biggest market value except LETV have achieved profitability. Net profits of SUNWAY COMM, BOW, and LEPU MEDICAL go up by 145.74%, 97.73% and 31.23% respectively. Performance are excellent of companies in strategic and emerging industries such as energy conservation and environment protection, new energy, new-energy automobile and high-end equipment manufacturing with a year-on-year increase in gross revenue of 56.28%, 52.80%, 48.33% and 36.28% respectively, and a year-on-year increase in net profits of 51.28%, 25.99%, 111.99% and 27.57% respectively. High-tech companies account for 92% of the listed companies on the ChiNext board and strategic and emerging companies represent over 60%; overall research and development expenditure takes up about 5% of the sales revenue, which is above the average level in the Shenzhen market.
To sum up, earnings growth of listed companies in the Shenzhen market in the first half of 2017 hit a three-year high; the supply-side structural reform is showing satisfactory results; the main board, SME board and the ChiNext board are developing in varying degree; the multi-layer capital market in Shenzhen has become an important driving force for the development of the national economy.