Report Summary
(Data picture)
(Note: The profit growth and performance growth in this article refer to the year-on-year growth of quarterly accumulated net profit attributable to the parent company.)
● The A-share mid report is expected to be low, and the probable rate has formed a "bottom profit". The quarter on quarter profit growth rate of Q2 of A-share is the worst since 2006, which leads to the lower expectation of mid report of A-share, but the bottom has been confirmed with a high probability: the bottom of profit rarely appears later than the bottom of PPI, and the probability of Q3 hitting a new record low quarter on quarter profit under the background of low base in the second quarter is small. The non-financial profit growth rate of A-share was revised down to 3% for the whole year.
● ROE: continue to fall back, the repair of the balance sheet is still a slow variable, and the pressure on small cap stocks is greater. Price sensitive midstream materials and upstream resources can be pulled down, and consumption and service industry can be improved. Profit rate: continue the downward trend, but the gross profit space is redistributed between the upstream, middle and downstream, the upstream marginal convergence, and the midstream and downstream usher in respite; Turnover rate: it continues to fall, and sluggish demand is difficult to bear the expansion of asset projects; Leverage ratio: The repair of enterprise balance sheets is a slow variable. Both the interest bearing debt ratio and the interest free debt ratio have declined. The cash payment for debt repayment has increased. Enterprises have prioritized the disposal of remaining debt rather than expanding leverage. The GEM has also suspended the trend of continuous leverage increase for several years. The stock price of small cap stocks performed well, but the turnover rate deteriorated significantly, and the interest bearing debt ratio contracted significantly, highlighting the necessity of policy overweight.
● Cash flow: cash flow of destocking operation improved, and the willingness to spend money on expansion increased. The improvement of operating cash flow is related to the increase of de stocking; The increase of investment cash flow expenditure is related to the expansion of capacity cycle; The decrease of financing cash flow inflow coincides with the downturn of social finance. From the perspective of cash flow, the inventory cycle of A-share is now in the second half of the decline, and the capacity cycle is in the second half of the expansion. However, under the influence of industrial policy orientation in the past few years, the capacity/inventory cycle of upstream, midstream and downstream has been staggered.
● Highlights of the mid report: free cash flow, sea going, and head orientation. (1) The free cash flow of enterprises in 23H1 is at a good historical level, and the real estate chain, optional consumption and TMT are dominant in structure. These industries are characterized by more rational expansion in the recovery of operations, and the subsequent economic recovery will bring about greater performance flexibility. (2) Some manufacturing industries continued their exploration of going to sea in 23H1: going to sea for transformation and seizing the second growth curve (ship/power battery/passenger car/charging pile); Foreign demand orientation and overseas competitiveness (auto parts/commercial vehicles/engineering machinery) have been continuously enhanced. (3) The new pattern of industry concentration in the second half of the post epidemic recovery and production cycle: the industries whose concentration can still rise after the easing of the epidemic are the supply side substantive clearing (entertainment products/beer/gold jewelry/home/media); Take the lead in shrinking against the trend and reshaping the competition pattern (new energy vehicle chain/motor/electronic chemicals) in the capacity expansion cycle.
● Industry comparison: upstream convergence, midstream stabilization, downstream dilemma reversal. The industries whose profit growth rate has accelerated for two consecutive quarters are concentrated in the export chain/property chain/pro cyclical manufacturing industry/consumption with reverse difficulties. Upstream resources: the capital expenditure cycle is upward, and the subsequent supply and demand structure is still under pressure; Middle stream materials&manufacturing: pro cyclical manufacturing industry sees "dilemma reversal" (commercial vehicles/engineering machinery/ships/motors/rail transit equipment); Consumption and service industry: the clues of dilemma reversal are accumulating, and the performance improvement trend of the real estate chain is striking (white electricity/home furnishing/consumer building materials); TMT: The order of B-end/G-end digital economy industry has improved, AI upstream computing power has increased research and development, and the electronic industry chain's RF/storage/panel recovery has taken the lead.
● Core hypothetical risks: macroeconomic downward pressure exceeds expectations, and the profit environment fluctuates beyond expectations.
Report body
Overview of 1A shares: the probability of mid report forms the "bottom of profit" of this round
1.1 A share as a whole: the profit growth rate of the mid report continues to dip
The cumulative non-financial interim report of A-share and the revenue of a single quarter continued to decline year on year. The cumulative quarterly revenue of A-share non-financial interim report grew 2.6% year on year (the first quarter reported 3.2%); Non financial quarterly revenue of A-share increased by 2.1% year on year (3.2% reported in the first quarter).
The cumulative non-financial interim report of A-share and the net profit attributable to the parent company in a single quarter fell year-on-year. The quarterly cumulative profit of A-share non-financial interim report increased by - 9.5% year on year (first quarter report - 5.9%); Non financial quarterly profit of A-share increased by - 12.5% year on year (- 5.4% in the first quarter).
On the whole, the mid report performance of A-share was lower than the profit forecast. On the one hand, the resumption of work and production last year brought about a small cycle recovery of 22Q2 economy, with a high base; On the other hand, this year's Q2 economic growth is under pressure - the overall quarterly net profit growth rate of A-share mid report is the first month on month negative growth since 2006; The single quarter on quarter growth rate of non-financial A-shares is also significantly lower than the seasonal growth rate, which is also the weakest growth rate since 2006.
The overall quarterly net profit of A-share reported a month on month growth rate of - 2.7%, the first negative month on month growth since 2006. Non financial quarterly net profit of A-share increased 8.6% month on month, lower than the seasonality.
1.2 Broad base index: the sci-tech innovation board and sci-tech innovation 50 have reached the bottom and stabilized
The revenue and profit growth rate of the broad base index is still generally in the downward trend, and only the sci-tech innovation 50 is the first to stabilize at the bottom. The revenue and profit growth rate of the broad based index 23Q2 is still in the downward trend, of which the dividend index and the GEM index have a significant decline in revenue, and the GEM index and the CSI 500 have a significant decline in profits.
Kechuang 50's performance took the lead in stabilizing at the bottom, its revenue growth rate improved 0.8 pct month on month, and its profit growth rate stabilized at the bottom.
The growth enterprise market revenue decline narrowed, but the profit growth rate turned negative again; The growth rate of revenue and profit of the Science and Technology Innovation Board both stabilized and recovered. The Science and Technology Innovation 50 Index recorded a 33% revenue growth rate and a 27% profit growth rate. The GEM reported a year-on-year growth rate of 9.7% in cumulative revenue (10.4% in the first quarter), and a year-on-year growth rate of - 3.2% in cumulative net profit (4.6% in the first quarter); The quarterly cumulative revenue of the Science and Technology Innovation Board reported a year-on-year growth of 3.9% (the first quarter reported 0.2%), and the cumulative net profit grew by - 39.9% (the first quarter reported - 48.9%).
1.3 Profit forecast: confirm the "bottom profit" at the mid report probability
In the third quarter, PPI stabilized and recovered, and the Political Bureau meeting on July 24th confirmed the "policy bottom" of this round. The policy intensity and density increased in late August. We predicted that A-share earnings would follow the trend of nominal GDP, and we saw the "bottom" of this round of decline cycle in the mid report. Under neutral assumptions, the annual earnings growth of A-share excluding finance in 23 years would be about 3%.
Will the growth rate of A-share third quarter report be worse than that of the mid report? The probability is small.
First of all, from the perspective of the five rounds of profit cycles in history, the non-financial "bottom of profit" of A-share seldom appears later than the bottom of PPI (only once in 15 years). The bottom of PPI this year has been made clear, and the bottom of profit is synchronized with high probability and lagged behind with low probability.
Secondly, we use the month on month growth rate to calculate backwards. If the growth rate of non-financial cumulative profit of A-share in the third quarter report is lower than that in the middle report (- 9.5%), the single quarter quarter on quarter growth rate of 23Q3 is - 45%, as shown in the figure below, which is the worst in history since 2004, and the probability is not high. In the context of Q2's single quarter quarter on quarter (QoQ) ratio being the worst level since 2006, there is little probability that Q3 will continue to deteriorate significantly on a low base.
The profit growth rate of non-financial A-share in the next two quarters is expected to increase step by step. Combined with the profit forecast of financial services, the profit growth rate of the banking sector is expected to be 6% - 7%, the profit growth rate of the non banking sector is expected to increase to 15%, the annual profit growth rate of the financial services sector is expected to be 7%, and the overall profit growth rate of A-share is expected to be 5%.
2ROE: continue to decline, and the repair of balance sheet is still poor
2.1 ROE continues to fall, and price sensitive sectors are the main drop-down items
ROE continues to decline. As the growth rate of PPI in Q2 is still declining, the price sensitive midstream materials and upstream resources are the main drop-down items, while the optional consumption and service industries are structurally improved. The ROE (TTM) of A-share non-financial 23H1 fell to 7.69%, 0.26pct lower than that of 23Q1, still at the bottom. The decline in ROE was mainly due to the drag of midstream materials and upstream resources, but the ROE of optional consumption, service industry and midstream manufacturing rose structurally.
From the perspective of DuPont's disassembly, profit rate and turnover rate are the main drag items of ROE. Both A-share non-financial 23H1 net interest rate (down 0.19 pct) and asset turnover rate (down 0.3 pct) declined, which is the main drop down item of A-share non-financial ROE, mainly due to the double squeeze of rising supply pressure and low expectations of total demand.
The ROE of the GEM and the Science and Technology Innovation Board is also declining, which is also affected by the double decline of profit margin and turnover rate. At present, the absolute ROE of GEM and GEM is lower than that of the main board.
The ROE (TTM) of GEM and Sci Tech Innovation Board 23H1 were 7.12% and 5.35%, respectively, down 0.22 and 0.61 pct from 23Q1. From the perspective of DuPont's disassembly, the decline of profit rate and turnover rate is the main reason for the decline of ROE. Especially for the GEM, the substantial expansion of capital expenditure has begun to have an impact, and the turnover rate has fallen for two consecutive quarters.
In terms of industry, ROE improvement is also mainly concentrated in manufacturing (optional consumption, TMT, midstream manufacturing). The areas with the highest ROE improvement range are food and drink, social services, household appliances, beauty care, and automobiles, while the industries with the highest decline range are chemical industry, coal, nonferrous metals, agriculture, forestry, animal husbandry, fishery, and steel. On the whole, consumption and some midstream manufacturing improved first, while midstream materials and resource goods were under overall pressure.
2.2 Profit rate: continue the downward trend, but the gross profit space is redistributed between upstream, midstream and downstream
The non-financial profit margin of A-share continued to decline, mainly due to the drag of midstream materials and resources. A share non-financial 23H1 gross profit margin (TTM) was 17.30%, down 0.18 pct, and profit margin on sales (TTM) was 4.35%, down 0.19 pct. Structurally, supply expansion and weak demand brought down prices, and the gross profit margin of midstream materials and resources was under pressure, which was a major drag on non-financial A-shares. The gross profit rate of service industry, TMT, midstream manufacturing, optional consumption and other industries in the middle and lower reaches rose structurally.
The judgment of our 7.19 Report "The New Round of Profit Distribution Cycle Leaps Toward the Middle and Downstream" is confirmed: with the price of upstream resource goods falling, the gross profit margin space is redistributed between the industrial chains - the upstream profit margin falls back, the midstream materials continue to decline at a low level due to the squeeze from both ends, the midstream manufacturing resilience rebounds, optional consumption and TMT begin to improve.
A share non-financial 23H1 gross profit margin (TTM) was 17.30%, down 0.18 pct, and profit margin on sales (TTM) was 4.35%, down 0.19 pct. Structurally, supply expansion and weak demand brought down prices, and the gross profit margin of midstream materials and resources was under pressure, which was a major drag on non-financial A-shares. The gross profit rate of service industry, TMT, midstream manufacturing, optional consumption and other industries in the middle and lower reaches rose structurally.
The gross profit margin of social clothing, beauty care, household appliances, public utilities and textile clothing was among the highest, while the gross profit margin of chemical industry, coal, nonferrous metals, steel, agriculture, forestry, animal husbandry and fishery was among the highest. Downstream consumption and some midstream manufacturing are the most significant direction for the month on month improvement of gross profit margin, while the upstream gross profit margin is under pressure, which confirms our judgment of 7.19 "A new round of profit distribution cycle inclines to midstream and downstream".
2.3 Turnover rate: continue to fall, and sluggish demand is difficult to bear the expansion of asset projects
The non-financial asset turnover rate of A-share continued to fall. The asset turnover rate of A-share non-financial 23H1 was 62.7%, 0.3 pct lower than that of 23Q1 (63.1%).
It can be seen from the changes in the income and assets of the breakdown that the decline in turnover is due to the second half of the capacity expansion, and the sluggish demand can hardly bear the speed of the expansion of asset projects. However, this situation is expected to ease with the steady recovery of income: (1) The growth rate of assets has fallen back, but it is still higher than the growth rate of income. 23H1 asset growth rate was 6.5%, 0.1 pct lower than Q1; (2) Demand is sluggish, and the growth rate of non-financial income of A-share is still declining, which makes it difficult to bear the expansion of assets.
In terms of the industry, the pressure on turnover rate is relatively large. First, price sensitive cycle products (deteriorating supply and demand structure, declining capacity utilization). Second, the business model cannot be quickly cashed in to revenue TMT (computers, electronics). The obvious improvement of turnover rate lies in automobile, food and beverage, military industry, and the turnover rate of electrical equipment and mechanical equipment has also been stable.
2.4 Leverage ratio: the repair of enterprise balance sheet is a slow variable
Excluding seasonal disturbances, the non-financial asset liability ratio of A-share continued to fall. The asset liability ratio of A-share non-financial 23H1 is 58.7%, which is significantly lower than the 60.8% of 22H1. The downward range is significantly increased. The current water level has been at a low level since 2011. The balance sheet has been repaired slowly, and the willingness of enterprises to increase leverage is still not strong.
Both interest bearing debt ratio and interest free debt ratio are declining. On the one hand, after the epidemic, enterprises continue to actively converge on the "triangular debt" relationship, and on the other hand, they are not willing to take the initiative to bear interest debt. (1) "Triangular debt" is a means of easing during the epidemic period, and the trend has converged after the epidemic - "Triangular debt" is the interest free debt ratio generated in the business activities of enterprises, and the interest free debt ratio of 23H1 is 33.5%, down from 34.9% of 22H1; (2) The momentum of enterprises' initiative to "increase leverage" has not improved significantly - interest bearing debt is the symbol of enterprises' increase/decrease leverage. The interest bearing debt ratio of 23H1 is 25.3%, slightly down from 25.8% of 22H1, indicating that the momentum of "increase leverage" continues to decline.
(Note: interest free liabilities=interest free current liabilities+interest free non current liabilities, of which interest free current liabilities=accounts payable and notes payable+advances received+payroll payable+taxes payable+total other payables+accrued expenses+deferred income. Current liabilities+contract liabilities+other current liabilities - short-term financing debt (other current liabilities)+derivative financial liabilities, Interest free non current liabilities=total non current liabilities - long-term borrowings - bonds payable - lease liabilities; Interest bearing liabilities=total liabilities - interest free liabilities)
Let's look at the issue of corporate balance sheet that is hot in the market this year from another perspective. Balance sheet repair still needs to see greater demand or confidence recovery.
First, the overall cash flow for debt service payment of A-shares has increased, and the year-on-year growth rate of debt is moving down, which jointly echoes the fact that enterprises are actively repaying debt.
Second, as a representative of emerging industries, the GEM has almost continuously increased leverage over the past 12 years; Now leverage ratio is no longer trending up. In the mid year report of 23 years, the GEM's interest bearing debt ratio and interest free debt ratio both declined, and the technology manufacturing industry also ended the continuous cycle of leveraged expansion.
However, in the broad base index, the interest bearing debt ratio of Science and Technology Innovation 50 has increased the most than that of last year, which also reflects that leading enterprises of science and technology innovation still have a strong leverage power.
2.5 Small cap stocks: greater pressure on turnover and leverage
In the first half of this year, the stock prices of small cap stocks and micro cap stocks performed relatively well, ranking top in the broad base index. However, from the perspective of the interim report, we found that because SMEs are more affected by demand, credit and other factors than leading enterprises, their operation is under greater pressure than that of A-shares as a whole.
First of all, the serious mismatch between supply and demand has led to a greater decline in the asset turnover of small cap stocks, which indicates that the post epidemic recovery of enterprises' broad-spectrum SMEs is not smooth (export sensitive, consumption sensitive). The decline in asset turnover is due to the fact that the income growth rate of small cap stocks reported in the 23rd China Securities Market is close to zero (0.1% and 0.4% respectively for CSI 1000 and Guozheng 2000), but the upward growth rate of assets still indicates that the demand recovery of SMEs under economic pressure is worse than that of leading companies.
Secondly, measured by the interest bearing debt ratio, the balance sheet of small cap stocks shows more obvious recession characteristics. Compared with the same period last year, the interest bearing debt ratio of CSI 1000 and SSE 2000 declined the most in the broad base index, and has declined continuously since this year. The interest bearing debt intention or ability of SMEs is blocked, which is linked to the weak social finance credit.
From this perspective, it is necessary for the Political Bureau meeting on July 24th to announce the establishment of "policy end" and the increase of policy density in late August. Small and medium-sized enterprises are directly linked to economic vitality and the employment market. The stock price performance of the sector may be difficult to sustain in the absence of profit improvement, and the preference is given to individual stocks.
3. Cash flow: cash flow of destocking operation is improved, and willingness to spend money on expansion is increased
3.1 Cash flow: the cash flow of operation is improved under de stocking, and the willingness of enterprises to spend money is also rising under production expansion
The proportion of corporate cash flow in the 23 year interim report of A-share non-financial enterprises in revenue is lower than the seasonal one. The cash inflow of A-share excluding financial 23Q2 accounted for 0.3% of the revenue, which was still lower than that of the same period in history.
In terms of breakdown, the structural improvement of 23H1 operating cash flow (indicating that it is still in the de stocking cycle), but the increase of investment cash flow expenditure indicates that the willingness of enterprises to spend money has improved; Although the financing cash flow is still a net inflow, it is slower than the same period last year. The proportion of 23A share non-financial financing cash flow in revenue decreased by 1.85 pct compared with the same period last year, and the proportion of investment cash flow in revenue decreased by 1.33 pct. The proportion of operating cash flow in revenue has improved structurally, increasing by 2.10pct compared with the same period last year.
(Note: the operating/investment/financing cash flows in this paper are all net cash flows)
The operating cash flow will generally improve in the de stocking cycle of enterprises, that is, increase the sales collection, while the willingness to pay cash for replenishment is insufficient. The most obvious improvement of operating cash flow is TMT and optional consumption (these two sectors are also the most fully depleted of inventory growth), followed by service industry and resources, while the operating cash flow of materials and necessary consumption worsened.
The increase of investment cash flow outflow is related to the expansion of production capacity cycle. The sectors with the largest increase in investment cash flow expenditure are optional consumption and upstream resources, which are consistent with the direction of structural capacity expansion; The improvement of investment cash flow for essential consumption and midstream manufacturing is consistent with the convergence of production capacity cycle.
The overall financing cash flow worsened compared with the same period last year, which is consistent with the downturn of social finance since Q2. TMT, service industry and midstream manufacturing are the sectors where financing cash flow deteriorates more.
3.2 Inventory cycle: the inventory cycle of A-share non-financial real estate is near the bottom
The non-financial inventory cycle of A-share has reached a historical low, but the real estate has a greater impact; The inventory growth rate of A-share non-financial and non real estate is near the bottom, and the destocking cycle is nearing the end, which is consistent with the caliber of industrial enterprises of the Bureau of Statistics. At present, downstream consumption and TMT inventory have taken the lead in reducing to historical lows.
We mentioned in the 7.19 report "A new round of profit distribution cycle inclines to the middle and lower reaches" that there are wrong layers in the business cycle of the upstream, middle and lower reaches - taking the inventory cycle as an example, the inventory level of the upstream listed companies is not low, the inventory in the middle reaches is close to the bottom in the process of degenerating, and the inventory cycle of the downstream industry has reached a historical low.
Industries with inventory at the bottom are expected to take the lead in transforming from "passive destocking" to "active replenishment" if there is an improvement in revenue and a turning point in PPI.
3.3 Capacity cycle: the upstream has expanded, the midstream has been gradually prudent, and the downstream is still at the bottom
The non-financial capacity cycle of A-share is still expanding, but due to the slow recovery of demand, the enterprise's decision to expand production has gradually turned to prudence, and the growth rate of A-share non-financial overall and GEM projects under construction has slightly dropped. The growth rate of payment cash flow for various assets of A-share non-financial 23Q2 construction continued to rise, the growth rate of construction in progress dropped slightly from the high level, and the year-on-year growth rate of CAPEX also reached a historical high level. The "capacity cycle" has entered the second half. Due to the slow recovery of demand due to the expansion of asset projects, it has impacted the overall asset turnover of A-shares for two consecutive quarters.
Similarly, due to the impact of industrial policy orientation (double carbon, power rationing) in the past few years, the capacity cycle of upstream, midstream and downstream is also experiencing stratification: the upstream capacity cycle is upward, the supply and demand gap is converging, the midstream manufacturing industry is gradually marginal convergence after radical expansion, while the capacity cycle of downstream industries is still at the bottom, relatively cautious.
4 Highlights in the report Key words: free cash flow, sailing, head
4.1 Free cash flow: the free cash flow of enterprises has improved significantly, and the structure is property chain, TMT
The change of non-financial free cash flow of 23H1 A-share is a bright spot, which is the best free cash flow in the mid report in the past years. The free cash flow of enterprises in the China Daily report turned positive and increased significantly month on month compared with Q1, and the China Daily report also increased significantly compared with last year, in which the free cash flow of equity grew rapidly. Enterprise free cash flow (FCFF) is the total cash flow available for distribution by enterprise shareholders and creditors. It represents the remaining cash after deducting necessary operating costs and capital expenditures. The free cash flow of non-financial enterprises in 23H1A shares was 1.24 trillion (- 2.42 trillion for 23Q1),+541% year on year, and the free cash flow of equity was 2.85 trillion (- 1.00 trillion for 23Q1),+41% year on year. The outflow of debt free cash flow of enterprises increased. The free cash flow of debt in 23H1 was - 1.61 trillion (- 1.42 trillion in 23Q1). We mentioned earlier that the repair of the balance sheet of enterprises is slow, and the motivation of enterprises to increase the payment of interest debt is not strong. In this context, giving priority to the use of book cash flow to support business expansion may be an explanation, which is reflected in the outflow of free cash flow of bonds.
Why has the non-financial free cash flow of A-share improved significantly? In terms of industry, it is mainly the real estate industry chain, and in terms of structure, it is mainly contributed by the increase of operating cash flow. 1. By industry, the industries with the highest year-on-year growth of free cash flow of 23H1 enterprises are concentrated in the real estate chain (real estate, building decoration), optional consumption (household appliances, automobiles) and TMT (electronics, computers). In terms of absolute value, the debt cash flow of most industries is still negative, indicating that they are still consuming cash flow and supporting the expansion of production and operation with debt expansion, such as basic chemicals and non-ferrous metals, whose debt cash flow has significantly outflows compared with the same period last year. 2. By subject, the growth of non-financial free cash flow of A-share mainly comes from the contraction of working capital increase, followed by the improvement of operating cash flow. Δ Free cash flow of the enterprise=Δ Operating cash flow - Δ Increase in working capital - Δ Capital expenditure. From the perspective of industries, the positive contribution to free cash flow is mainly in two aspects: (1) Real estate and construction have the largest increase and contraction of working capital, but other industries also have varying degrees of control; (2) The most improved operating cash flow is: household appliances, automobiles, electric equipment, food and beverage, etc.
4.2 Going to sea: under the resilience of foreign demand this year, advantageous manufacturing industries "go to sea to seek opportunities"
We reviewed the experience of China's classic emerging industries and Japan's technology manufacturing industry in the 1990s in 22.10.13 Emerging Track Expansion, Profit Path and Market Interpretation and 23.7.5 Barbell Strategy in Japan: Japanese Science and Technology in the 1990s, and found that China and Japan have one thing in common: after the industrial life cycle has passed the growth period, it will experience profit turbulence and valuation decline, In this process, "going to sea" is the secret to open the second growth curve.
In the context of structural resilience of foreign demand this year, the 23rd China Daily can see that some manufacturing industries continue to explore overseas. We screened the 23H1 industries whose overseas revenue accounted for more than 1 pct increase over the same period last year, and found that they were mainly concentrated in manufacturing, and some technology and resource industries. The industries with the highest growth rate are: commercial vehicles, engineering machinery, ships, shipping ports, power batteries, wind turbines, household storage, passenger cars, etc.
The proportion of overseas income is the concept of the industry's own income structure, which represents the industry's attempt to adjust its business structure, but it does not necessarily represent the improvement of "going to sea" competitiveness. Therefore, we hope to further find out: which industries with rising overseas revenue share are more certain, more competitive overseas, and more likely to achieve "overseas performance delivery"? We found two types of industries——
Category I: transformation at sea and seizing the second growth curve (ship/wind turbine/power battery/passenger car/charging pile). The characteristics of this industry are: (1) The current business is still mainly in China. Their overseas income accounts for a relatively low proportion (less than 30%); (2) In recent years, we have been increasing our exploration at sea. The proportion of overseas income fluctuated and rose as a whole; (3) This year ushered in the outbreak of overseas business. 23H1 Overseas revenue grew by more than 70%. Such industries are in the business transformation period of overseas expansion, and this year ushered in the catalyst of overseas business explosion, which is expected to accelerate the expansion of the second growth curve. The related industries are mainly ships, wind turbines, power batteries, passenger cars and charging piles.
The second category: foreign demand orientation and increasing overseas competitiveness (auto parts/commercial vehicles/engineering machinery/household storage/intelligent vehicles). The characteristics of such industries are: (1) At present, the main business is overseas. Its overseas income accounts for a relatively high proportion (more than 30%). (2) In recent years, overseas competitiveness has continued to strengthen. Overseas income growth continued to rise or remain high. Such industries themselves are oriented by external demand, and their overseas competitiveness is growing, which is expected to continue to play a major role in the global market. Related industries include auto parts, commercial vehicles, intelligent vehicles, engineering machinery and household storage.
4.3 Headedness: a new pattern of industry concentration under post epidemic rehabilitation
In the past three years, the "tail clearing" under the impact of the epidemic is an important industrial organization trend of A-share, which is also one of the core investment logic of hotel and other industries in the past few years. At present, the changes of supply and demand variables such as [epidemic suppression and mitigation] and [the second half of A-share capacity cycle] have been added. We believe that the "head oriented" investment logic can also be tested and new clues can be found. Two clues to find out which industries have really been cleared——
First, the suppression of the epidemic has eased, which can test that the supply side was hit by the epidemic before and cleared the most thorough industries. The "epidemic suppression and mitigation" is a test. During the epidemic period, the concentration of some industries increased, but 23H1 turned to decline (such as hotel catering). At this time, the concentration of the industry can still continue to rise, and the supply side of the industry may achieve real clearing, and the leading bargaining power is strengthened. Specific industries are concentrated in pro cyclical industries, such as consumer medicine (entertainment products/beer/gold jewelry/home/beverage dairy products/pharmaceutical commerce/medical services/Chinese medicine), media (film and television theaters/advertising marketing/publishing), and other pro cyclical industries (plastics/real estate).
Second, in the second half of the A-share production capacity cycle, we can look for industries that take the lead in shrinking production capacity and reshaping the competitive landscape. A shares have experienced three years of structural expansion represented by midstream manufacturing, accompanied by the deterioration of the competitive landscape. In 23H1, some industries with early expansion have taken the lead in shrinking their production capacity to the historical bottom, and achieved a second rise in CR3. Such industries are expected to take the lead in reshaping the competitive landscape and upgrading leading companies. Specifically, it includes: new energy vehicle chain (battery), motor, electronic chemicals, decoration.
5 Industry comparison: upstream convergence, midstream stabilization, downstream dilemma reversal
5.1 Plate overview: optional consumption and midstream manufacturing are eye-catching, resources and materials are under pressure
In terms of revenue of major sectors, optional consumption and midstream manufacturing are eye-catching, while other demand is still under pressure. In terms of absolute growth rate, midstream manufacturing, optional consumption and financial real estate rank first. In terms of month on month changes, the elasticity of optional consumption improvement is the largest, manufacturing and necessary consumption in the middle reaches also improve month on month, and the rest still slow down.
In terms of profitability of major sectors, optional consumption, service industry and TMT are dominant, midstream manufacturing is relatively stable, and midstream materials and resources are under pressure. In terms of absolute growth, the service industry, midstream manufacturing and optional consumption rank first. In terms of month on month changes, the service industry and optional consumption have improved with high elasticity on month on month, the decline of TMT has converged, and the consumption of materials, resources and necessities in the middle reaches has still increased negatively and slowed down.
In terms of ROE (TTM) of major sectors, optional consumption, service industry and midstream manufacturing have improved, financial real estate has stabilized, and other profitability is still declining. In terms of absolute growth level, optional consumption, resource goods and midstream manufacturing rank first. In terms of month on month changes, ROE of optional consumption and service industries rose, and financial real estate stabilized. The ROE of other sectors is declining, with a large decline in midstream materials and essential consumption.
According to the mid report, the industries whose profit growth has accelerated for two consecutive quarters are concentrated in the pro cyclical areas of dilemma reversal, including export chain, real estate chain, pro cyclical manufacturing and consumption. Select the industries whose profit growth rate in the middle report is more than 10% compared with the first quarterly report in 23 years and the annual report in 22 years. The industries with positive growth rate in the middle report are mainly distributed in the export chain (shipbuilding/engineering machinery/textile/auto parts/chemical fiber), pro cyclical manufacturing (commercial vehicles/automation equipment/electric machinery/railway and highway) Consumption and service industry (white electricity/home furnishing/clothing/cosmetics/hotel catering/tourism and scenic spots/medical beauty/general retail/duty-free/biological products), TMT (games), in which the blue shading is the industry with fund allocation ratio and valuation below 50% of the quantile in the past decade.
From the third quarter to the present, the marginal adjustment of the profit forecast shows that the current recovery expectation of each sector is still weak, and grasp the scarce boom direction: upstream resources, midstream materials, new energy, TMT boom expectations are all in the downward revision, and the structural upward revision or stability is commercial vehicles, engineering machinery, aviation equipment, publishing, communication services.
The profit forecast of most consumer industries has been revised downward, especially in agriculture, tax exemption and papermaking. Structurally, the varieties are tourism and scenic spots, traditional Chinese medicine, white light, auto parts, and non liquor.
5.2 Upstream resources: the capital expenditure cycle is upward, and the supply and demand gap is marginal convergence
In 23 years, the profit advantage of upstream resource products continued to narrow, the proportion of profits declined, the growth rate of revenue and profits continued to decline, and only the structural prosperity of precious metals improved. In terms of income growth, precious metals, energy metals, and new metal materials are among the top. Most industries' income slowed down significantly, while only precious metals' income growth rose against the trend; From the perspective of profit growth, except for the growth of precious metals, which is positive and improved month on month, other industries have slowed down and increased negatively, especially coke, small metals and energy metals.
In the second quarter, the supply and demand structure of upstream resources is still under pressure. We mentioned in the analysis of the first quarterly report that the expansion cycle of upstream capital expenditure has started, the inventory level is not low, and the supply and demand structure has turned worse, thus making the gross profit rate and ROE see the top inflection point for 20 years and turn to decline. According to the report, this downward trend is still continuing.
1. Upstream supply structure: the capital expenditure cycle is upward, the tight production capacity has eased, and the marginal increase of supply pressure meets sluggish demand, which makes the turnover and ROE continue to suffer. (1) The capacity cycle is outlined by the year-on-year growth rate of cash flow for construction in progress and construction of various assets. The upstream supply continues to expand, and the demand is difficult to bear, which frustrates the turnover and ROE. From the perspective of the mid report, the production cycle of coal, industrial metals, small metals and energy metals is still expanding, which is also a drag on ROE and turnover rate.
(2) Considering that the year on year may be disturbed by the base effect, we can also see the opening of the capital expenditure cycle through capital expenditure/depreciation and amortization. Capital expenditure/depreciation and amortization of coal, industrial metals, small metals and energy metals went through two rounds of clearing after supply side reform and carbon neutrality, but 22Q4 began to rise, and the water level of 23H1 was still high despite marginal decline.
(3) The capital cycle started, the tight supply situation began to ease, and the capacity utilization rate of upstream resources began to turn downward. After the supply side reform, the utilization rate of coal, industrial metals, small metals and other production capacity continued to rise, but began to peak and fall in 22Q4.
2. The upstream inventory level is not low. Under the background of declining revenue and slow demand recovery, the inventory turnover rate declines, affecting the operating efficiency. According to the mid report, the inventory growth level of coal, industrial metals, small metals and energy metals is not low, which has led to the decline of inventory turnover rate and the damage of operating efficiency margin.
5.3 Middle stream materials&manufacturing: pro cyclical manufacturing industry sees "dilemma reversal"
Most midstream industries were still under pressure in the second quarter, which was reflected in pro cyclical industries and high-end manufacturing.
The second quarter of midstream materials was still under pressure, with sluggish demand and declining profits. From the perspective of income growth, only decoration and building materials have achieved a month on month improvement (and three consecutive improvements), and other industries continue to decline, including agricultural chemicals, chemical raw materials, and chemical products; From the perspective of profit growth, non-metallic materials achieved high profit growth and improved month on month, decoration and building materials were relatively stable, and other industries declined significantly, including ordinary steel and chemical raw materials.
Manufacturing performance in the middle reaches is differentiated, and most of the boom is under pressure, but some pro cyclical manufacturing industries show strong resilience to repair. From the perspective of income growth, ships, commercial vehicles, automation equipment, wind power equipment, general equipment and construction machinery have achieved a month on month improvement, while other industries are still in the downward trend, especially the new energy industry; From the perspective of profit growth, ship, commercial vehicle, engineering machinery and automation equipment have improved month on month. Among them, ship and commercial vehicle have high elasticity, while other industries are still down month on month.
Focus on new energy to further dismantle the upstream and downstream of the industrial chain. On the whole, there are two characteristics: (1) Except for lithium battery materials, the ROE of the new energy industry chain is still relatively stable, but the revenue and profits of most links have slowed down; (2) The bottom of wind power has stabilized, and alpha is found in new energy vehicles and photovoltaic.
From the perspective of the new energy vehicle industry chain, the cycle of prosperity of charging piles and structural parts has improved, the income of power batteries and vehicles has been stable, and the speed of other links has slowed down. (1) The growth rate of charging posts, lightweight and thermal management revenue has improved month on month, the vehicle and power batteries have stabilized at a high level, and the speed of other links (such as lithium battery materials) has decreased; (2) The profit growth rate of structural parts has improved month on month, the high level of charging piles has remained stable, and the profit growth rate of most other links has slowed down.
From the perspective of the photovoltaic industry chain, the inverter's income and profit performance is outstanding, the profit of battery modules is still high, and the speed of other links is reduced. (1) The growth rate of inverter revenue is stable at a high level, and the speed of other links is reduced; (2) The inverter profit growth continued to improve on a month on month basis, the battery module remained stable at a high level, and the speed of other links decreased, and the silicon material turned to negative growth.
The bottom of the wind power industry chain has stabilized, mainly due to the good prosperity of wind power components, the improvement of wind power machine revenue on a month on month basis, and the stability of the bottom of profits. The energy storage industry chain was differentiated, household savings revenue and profits slowed down, and the large ring ratio of energy storage was improved.
After 2-3 years of capital expenditure expansion cycle, the imbalance of supply and demand structure in the midstream industry has impacted the turnover and profit rate. This topic has been discussed in detail in the "Emerging Track Expansion, Profit Path and Market Deduction" on October 13 last year - rapid production expansion, turnover rate dragging down ROE and killing valuation. 5.3 The analysis of the first quarterly report, Convergence Up and Down, △ g Emergence, further indicates the risk of structural overcapacity in the middle reaches.
However, we believe that the above logic runs through the first half of 22-23 years, and has been "price in" in the decline of mid stream industry valuation. At present, A-share has entered the "second half" of the capacity cycle, and we believe that we can actively seek structural highlights of midstream manufacturing to take the lead in optimizing the supply and demand structure.
1. Take the lead in shuffling. Some industries took the lead in clearing and maintaining stable turnover/profit rate.
In the big wave of industrial expansion, there are some sub industries that operate prudently and shrink capacity against the trend, taking the lead in achieving industry reshuffle and maintaining the stability of turnover or profit rate. It mainly includes the new energy vehicle chain (power battery/whole vehicle/structural parts/thermal management/lightweight/cathode materials), as well as other manufacturing industries such as motors, rail transit equipment, general equipment, engineering machinery, photovoltaic auxiliary materials, and mass storage.
Among them, motors, rail transit equipment, lightweight, thermal management, photovoltaic auxiliary materials, and large storage have taken the lead in turning to optimism, starting to expand production at the bottom, which represents the enterprise's relatively positive business expectations for the future.
2. Both supply and demand are booming. The expansion of capital expenditure in some industries has met the burden of high demand, realizing the resonance of capacity cycle with profit rate and turnover rate.
In some industries, although in the capital expenditure expansion cycle, strong demand can support capacity expansion, achieving resonance between supply and demand, and boosting profit margins and turnover rates. The overall prosperity of this industry is rising, including ships and aviation equipment.
5.4 TMT: subdivision clues of AI industry chain and structural highlights of cyclical TMT
TMT focuses on the financial clues of two types of assets, one is digital economy AI strongly related to technology and policy, and the other is recovery varieties strongly related to total demand (semiconductor/consumer electronics).
For digital economy AI, there is still no performance in the short term, and only a few downstream industries have improved their performance on a month on month basis (online security/advertising marketing). On the income side, the demand of most industries in the AI industry chain of the digital economy is still significantly negative, and the margin of advertising and marketing is getting warmer; On the profit side, the upstream computing power is still in a significant negative growth range, and some downstream industries are experiencing a month on month improvement in performance (such as network security/graphics/virtual people).
The spot performance of digital economy AI is not important. Structurally, we believe that we can focus on the direction guided by the improvement of the two leading indicators of order and research and development.
First, the increase in orders corresponds to the increase in long-term revenue expectations. At present, the improvement direction is mainly the To-G end of the digital economy industry. Pay attention to the links where the year-on-year growth rate of accounts receivable+contract liabilities has increased compared with that of 23Q1: liquid cooling temperature control, industrial software, financial IT, government IT, information innovation, and network security.
Second, for more early AI varieties (such as computing power and models), although it is difficult to observe the order fulfillment at present, we can find some links. Since ChatGPT ignited the AI wave in 23 years, it has significantly increased R&D investment. The industries where the R&D expense rate has risen significantly over the past 23 years mainly focus on upstream computing power (optical module/server/AI chip/optical chip/storage/switch/PCB/liquid cooling temperature control) and some applications (industrial software/government IT).
For recovery related assets, the overall recovery trend of the electronics industry chain is that the performance has improved slightly month on month, but the recovery is weak. Here we focus on the semiconductor industry chain.
The overall performance of the semiconductor industry chain is still at the bottom. Relatively speaking, RF and FPGA have improved slightly on a month on month basis. The growth of revenue and profit of most categories is still in a negative growth range, especially the performance of simulation (signal chain/power chain). Structurally, the marginal growth of revenue and profit of RF and FPGA rebounded.
For the recovery assets of the electronics industry, we look for varieties with relatively advanced recovery progress in two directions. (1) Demand took the lead in recovering. Look for varieties whose elasticity of income improvement is significantly stronger than seasonality, mainly for storage. (2) The destocking process is leading. Inventory cycle is a leading indicator of prosperity improvement, looking for the direction of rapid destocking: RF, CIS, SOC, panel, passive components.
5.5 Consumption and service industry: clues of dilemma reversal are accumulating
Optional consumption and service industry are the most eye-catching areas in this report, continuing the improvement trend since the third quarter report last year, and both income and profit growth picked up.
Most of the optional consumption has a month on month improvement in income and profit growth to varying degrees. The revenue growth of passenger cars, accessories and auto parts ranked first, while the profit growth of cosmetics, medical beauty and auto parts ranked first. Cars (passenger cars/auto parts), household appliances (white electric appliances/kitchen electric appliances/small household appliances), household appliances, cosmetics, etc. all showed a double double link improvement in revenue and profit growth.
The service industry also continues the trend of restoration. Airports, tourism and scenic spots, hotels and restaurants have achieved a substantial improvement in the growth of income and profit on a month on month basis, and show a high elasticity on a year on year basis. Logistics, general retail, duty-free and Internet e-commerce are relatively slow to repair.
The recovery of necessary consumption is weak, mainly affected by agriculture, medicine and food. The income and profit growth rate of aquaculture, traditional Chinese medicine, pharmaceutical commerce, medical services, medical devices, chemical pharmaceuticals, seasoning and fermentation products, food processing, etc. all fell month on month, with a large decline in medical devices. The growth rate of liquor and non liquor revenue and profit was stable, and the structure of textile clothing was improved month on month.
Optional consumption is the most eye-catching area in the repair of China Daily, with both income and profit growth picking up. However, the concern about the year-on-year improvement is due to the base effect last year (the epidemic situation and optional consumption in the same period last year were particularly hard hit). However, through three indicators excluding seasonal effects, it can be found that alternative consumption and service industries are clearly "dilemma reversal".
(1) From a chain comparison perspective, the demand for optional consumption has indeed improved. In the case of Reopen compensatory consumption in the first quarter, the quarter on quarter income growth rate of optional consumption hit a new high since 2011 (excluding the year 2020 with abnormal epidemic disturbance). And it is almost the only super seasonal in the major plates.
(2) Gross profit margin improved and driven ROE improvement. The gross profit rate of optional consumption continued to recover, and the gross profit rate of the service industry also bottomed out in the mid report for the first time. Driven by both, ROE of both improved in Q2. Typical industries also have the same characteristics. The gross profit rate of white electricity, household appliances and non liquor typical industries has continued to improve.
(3) The dealers are willing to stock up, and the payment collection is improved. The proportion of cash flow received from selling goods and providing services in the income of many optional consumer industries has continued to rise, and some industries have reached a new decade high (such as white electricity).
Further, why is the recovery of optional consumption smooth? There are two highlights: first, the prosperity of the real estate chain has been improved; second, some industries have begun to replenish the inventory at the bottom
First, the real estate industry chain continued to recover. With the cost easing and demand improvement, the gross profit rate of the real estate chain industries, such as white light, kitchen appliances, small household appliances, household appliances, decoration and building materials, has risen and driven the improvement of ROE. Among them, the ROE of white electricity and small household appliances hit the bottom for the first time in four quarters.
Second, the growth rate of inventory in the optional consumer industry hit the bottom, and the income improved, taking the lead in actively replenishing the inventory. We emphasized above that the A-share inventory cycle is stratified, and downstream consumption has been reduced to a historical low. According to the report, while most industries are still in the stage of active or passive destocking, some industries have improved their income and started to actively replenish the inventory, including white light, small household appliances, black light, lighting equipment, kitchen appliances, entertainment products, and non liquor.
The optional consumer repair leads the A-share industry, which confirms our judgment that "the new round of profit distribution cycle is inclined to the middle and lower reaches". Our comprehensive income has improved, gross profit margin has rebounded, operating cash flow has improved, inventory is low, and the current valuation level is still not high. We screen industries that have improved business cycle and still have room for current valuation, which are mainly concentrated in) - real estate chain (white light/kitchen appliances/lighting equipment/household/consumer building materials) and export chain (commercial vehicles/auto parts).
5.6 Big finance: ushering in performance improvement expectations at the bottom of historical allocation
In terms of the big financial sector, the real estate performance ushered in boom repair, and the growth rate of income and profit both improved month on month, especially the real estate service. However, the prosperity of non banks and banks is still under pressure. The growth rate of securities dealers' profits has declined significantly, and the growth rate of insurance profits has returned to negative growth.
Since the Ministry of Finance announced the halving of stamp duty on August 27, the policy density has significantly increased. The policy has been launched around "activating the capital market" and "adjusting and optimizing the real estate policy", bringing about the expectation of performance improvement of real estate and securities companies. In the mid report, the real estate profit rate and turnover rate both improved month on month, driving ROE to rise, and the leverage ratio continued to decline, and the boom margin was repaired. At the bottom of the historical allocation, the policy density has increased, and real estate and securities firms may become the allocation direction with the least resistance to risk on.
6 Risk Tips
There are repeated and geopolitical risks in global epidemic control; Under the background of global contraction, the global economy has declined more than expected; The pace of overseas policies and interest rate increases is uncertain, and the timing and form of China's monetary and fiscal policies are uncertain; The profit environment fluctuated beyond expectations.
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