Serve the high-quality development of central state-owned enterprises and build a valuation system with Chinese characteristics
Changjiang Xiangyang, Director of Bosera Fund
"Unswervingly consolidate and develop the public economy, and unswervingly encourage, support and guide the development of the non-public economy" is the basic strategy of adhering to and developing socialism with Chinese characteristics in the new era. The Party and the state attach great importance to the value creation and realization of central state-owned enterprises, and continue to promote the reform of central state-owned enterprises. Since the issuance of the guiding document of the CPC Central Committee and the State Council on deepening the reform of state-owned enterprises in 2015, the reform of central state-owned enterprises in China has been continuously promoted and deepened. At the same time, in order to better serve the high-quality development of central state-owned enterprises in the capital market, further promote the valuation of listed central state-owned enterprises, and drive the internal value of central state-owned enterprises to fully price, on November 21, 2022, Yi Huiman, chairman of the CSRC, proposed to establish a "valuation system with Chinese characteristics" at the annual meeting of the 2022 Financial Street Forum. During this period, policies related to the reform of central state-owned enterprises and value revaluation emerged frequently, which were guided from the governance structure of central state-owned enterprises, industrial innovation, assessment indicators and other levels to promote the value creation and realization of state-owned enterprises, and promote the capital market to further recognize and discover the pricing of central state-owned enterprises.
1、 Rediscovery of the investment value of central state-owned enterprises from a new perspective
We believe that in the new era, we must re understand the investment value of central state-owned enterprises from a new perspective. The improvement of the investment value of central state-owned enterprises comes from the following aspects.
（1） The importance of resource elements in the new pattern has increased
Under the influence of multiple factors, the value of resource elements may be revalued, and central state-owned enterprises are expected to benefit. Under the background of increasing importance of industrial security, increasing geopolitical risks, and increasingly prominent environmental problems, the prices of production factors may be systematically raised to promote the revaluation of resource factors. First of all, the great changes that have not happened in the world in a century are accelerating the evolution, and the problem of industrial security has become more prominent. Especially after the COVID-19 epidemic, many links of the global industrial chain supply chain were blocked, and the lack of mutual trust and cooperation between countries led to further rise of trade protectionism. Major countries around the world have begun to pay more attention to industrial security issues, and governments have issued policies to encourage the completion of domestic industrial chains, such as strengthening the protection of key industries and improving the R&D investment in domestic key technologies. The importance of production factors is highlighted and the value is improved. Secondly, geopolitical risks will also affect the prices of production factors. Since the 22 year conflict between Russia and Ukraine, there has been an increase in geopolitical conflicts around the world. Western countries have successively launched sanctions against Russia, which has pushed up international energy prices. In the future, if geopolitical conflicts continue to increase, subsequent political events such as trade wars and sanctions may lead to instability in the global supply chain, thus affecting the supply and demand relationship of production factors. In the case of tight supply chains, the prices of production factors may rise. Moreover, environmental issues are increasingly concerned worldwide. Since 19 years ago, countries around the world have accelerated to put forward the low-carbon goal of "zero carbon" or "carbon neutrality", and started to restrict high emission industries to promote the development of green and low-carbon industries. Under the background of "dual carbon", the demand for production factors such as clean energy and environmental protection technology is rising, thus driving up the price of production factors. In China, the resource industry is mainly controlled by state-owned enterprises. With the systematic increase of production factor prices, the profitability of the resource industry will also be improved, and state-owned enterprises are expected to benefit.
Taking the coal industry as an example, under the background of rapid restoration of post epidemic power demand, and under the background of superimposed "double carbon", the capacity is limited. In 2021, steam coal experienced a significant price increase. In 2021, the closing price of steam coal in Qinhuangdao Port increased by 22.7%, reaching a high of 735 yuan/ton by the end of 2021. The rise in coal prices has brought significant improvement in the profitability of listed companies of central state-owned enterprises in the coal industry. In 2022, the parent net profits of China Shenhua, China Coal Energy, Yankuang Energy and Shaanxi Coal Industry respectively increased by 38.51%, 37.33%, 89.27% and 66.15% year on year; Moreover, its net profit rate of sales has significantly increased, among which, China Shenhua has increased from 17.71% in 2021 to 23.70% in 2022, Yankuang Energy has increased from 12.22% to 19.64%, and its ROE level has also increased to varying degrees with the improvement of net profit rate of sales. China Shenhua has increased from 13.34% in 2021 to 17.68% in 2022, and Yankuang Energy has increased from 23.84% to 32.48%.
（2） Strategic emerging industry layout opens up enterprise growth space
Create the second growth curve, improve the growth rate of central state-owned enterprises, and focus on leading the breakthrough of strategic emerging industries. Cultivating and strengthening strategic emerging industries has become the primary task of the national reform in the new era. The State owned Assets Supervision and Administration Commission said that the layout of strategic emerging industries should be improved by 2 percentage points in 23 years. At present, the main focus is to build a modern industrial chain, cultivate "chain owners" central state-owned enterprises and specialized new enterprises, and increase the layout of emerging industries by state-owned investment and operation companies. The former selects 16 chain owners to be responsible for central state-owned enterprises, and cooperates with hundreds of central state-owned enterprises specialized in innovation and scientific reform to create an advanced, complete and safe modern industrial chain. The latter, in the form of state-owned capital, accelerates the layout of emerging strategic industries of state-owned capital. Among them, digital economy (operator/state-owned cloud/server/ICT network security)/high-end equipment (power grid/military industry/machine tool)/new materials/medical health (biological products/innovative drugs) and other four major fields will be the core of modern industry breakthrough of central state-owned enterprises.
Take China Mobile as an example. China Mobile is the largest telecom operator in terms of revenue. By the end of 2022, the company has 975 million mobile users, accounting for about 60% of China's total mobile users; 244 million fixed network broadband users, accounting for about 55% of China's total broadband users; The growth space of the overall user scale is limited, and it is difficult to drive the rapid growth of revenue with the simple increase of ARPU value. Since the beginning of 19 years, China Mobile has actively promoted its own digital transformation and expanded new business on the basis of its own business, including new business in the personal market (mobile cloud disk, etc.), smart home value-added business in the home market, industry cloud revenue, IDC revenue, ICT revenue, Internet of Things revenue, private lines and emerging markets (excluding international basic business revenue). The revenue of digital transformation will increase by 26.3%/30.3% to 1594/207.6 billion yuan in 2021/22, accounting for 25.6% of the revenue year by year, contributing 79.5% of the communication service increment. Among them, cloud business is the most eye-catching part of the digital transformation revenue. Mobile, relying on its own network advantages, has added computing services on this basis, changing from a basic service provider in the mobile communication era to a computing base in the digital era. Mobile cloud revenue doubled by 114% and 108% year on year in 2021 and 2022, respectively, with the revenue scale reaching 50.3 billion yuan in 2022. According to the data disclosed by IDC Consulting, 2Q22 Mobile Cloud ranks sixth in the market share of IaaS+PaaS public cloud services in China, and ranks first among the top ten manufacturers in terms of revenue growth. China Mobile has successfully built the second curve of its own growth in three years.
（3） Central state-owned enterprises continue to improve their operating efficiency and competitiveness
The value creation actions of benchmarking world-class enterprises help improve the quality of central state-owned enterprises, and the value of central state-owned enterprises is expected to be revalued. In recent years, the policies related to the quality improvement of central state-owned enterprises have continued to increase. In 2020, the Three Year Action Plan for the Reform of State owned Enterprises (2020-2022) proposed to strengthen and optimize the capital and state-owned enterprises of large countries; In May 2022, the Work Plan for Improving the Quality of Central Enterprises Holding Listed Companies proposed to improve the quality of central enterprises holding listed companies from four aspects. On March 3, 2023, the SASAC held a meeting to officially launch the value creation action against world-class enterprises. The meeting stressed that state-owned enterprises need to further improve their political position, focus on efficiency and innovation drive, and improve the level of return on assets and the efficiency of scientific and technological input and output. On March 16, 2023, the State owned Assets Supervision and Administration Commission (SASAC) issued the Notice on Printing and Distributing the List of World Class Demonstration Enterprises and Specialized, Special and New Demonstration Enterprises. Benchmarking the value creation actions of world class enterprises will help promote the reform process of state-owned enterprises, bring new development opportunities to the selected groups and their related subsidiaries, and the overall value system is expected to usher in the reshaping.
Among them, Wanhua Chemical, the leader of the chemical industry sector, has developed from the former Yantai Synthetic Leather Factory to the domestic leading chemical enterprise. The key factor is to attach importance to research and development and successfully enter the MDI, a competitive road with excellent pattern. The current and former chairman of Wanhua are both R&D graduates. Wanhua attaches great importance to R&D and middle management team incentives, and introduced employee stock ownership incentives when the Ningbo Base was officially established in 2006. The R&D team adopts the business division mechanism. If the project is successfully transformed, the R&D personnel can enjoy some profit dividends.
The basic strategy of Wanhua Chemical in the field of MDI is to continuously strengthen its leading position and improve its global market share and cost competitiveness. In 1996, Ding Jiansheng, who was then the technical director (later became the chairman of Wanhua), led the team to break through MDI manufacturing technology. After more than 20 years of technological progress, Wanhua MDI processing costs fell by 50%. Compared with overseas leaders, it has a cost advantage of 3000 yuan/ton, marking that China's MDI industry has world-class competitiveness.
（4） The reform dividend of central state-owned enterprises continues to release
The release of reform dividend will continuously release the vitality of central state-owned enterprises and enhance the value of assets.
1. Concealed assets
Due to historical reasons, some hidden assets of central state-owned enterprises have not been found and priced, and the rediscovery of hidden assets will enhance the investment value of central state-owned enterprises.
Taking China Railway as an example, the PE valuation of the company hovers at 4 times for years due to the nature of the main construction industry. In terms of hidden assets, the company has copper molybdenum mineral resources represented by Huagang Copper Cobalt Mine and Heilongjiang Yichun Luming Molybdenum Mine. Due to the scarcity of mineral resources, the company's mineral business maintains a high gross profit rate. In 2022, the mineral business revenue will increase by 25.98% with a gross profit rate of 55.64%; The revenue of China Railway Resources Group increased by 27.9% to 24.891 billion yuan, and the net profit attributable to the parent company increased by 68.6% to 5.079 billion yuan.
2. Incentive mechanism
In January 2021, the State Council State owned Enterprise Reform Leading Group Office issued the Operational Guidelines for the "Double Hundred Enterprises" and "Science and Technology Reform Demonstration Enterprises" Excess Profit Sharing Mechanism to guide eligible state-owned enterprises to flexibly develop a variety of medium and long-term incentive mechanisms and standardize the implementation of the excess profit sharing mechanism. Among them, as a market-oriented medium - and long-term incentive, the equity incentive mechanism grants part of the shareholders' equity to employees by attaching conditions to make them have a sense of ownership and stimulate the enthusiasm of employees, so as to form a community of interests with the enterprise, promote the common growth of the enterprise and employees, and effectively retain talents and promote the upward valuation of the company.
3. Merger and reorganization to improve the efficiency of resource allocation
With the increasingly mature construction of China's capital market, in recent years, A-share listed companies have been increasingly willing to improve their profitability and optimize the industrial layout through capital operations such as mergers and acquisitions. According to Wind statistics, the scale of mergers and acquisitions in the A-share market for three consecutive years from 2020 to 2022 is about 900 billion yuan, and the scale of announced mergers and acquisitions completed this year has exceeded 480 billion yuan. As an important part of the A-share market, the number and scale of mergers and acquisitions of central state-owned enterprises have also increased steadily in recent years. The number of mergers and acquisitions of central state-owned enterprises that have been publicized since the beginning of the year is close to 390, with a scale of more than 230 billion yuan, accounting for nearly 50% of the mergers and acquisitions of all listed companies. From the industry level, listed central state-owned enterprises from public utilities, transportation and basic chemicals have completed mergers and acquisitions of 73.5 billion yuan, 17.6 billion yuan and 15.5 billion yuan respectively since this year, ranking first three in all industries. Recently, the State owned Assets Supervision and Administration Commission (SASAC) held a special meeting on central enterprises' efforts to improve the quality of listed companies and mergers and acquisitions, and proposed that central enterprises should carry out mergers and acquisitions on the platform of listed companies to help improve core competitiveness and enhance core functions. The person in charge of relevant departments of the CSRC also introduced the mergers and acquisitions of listed companies controlled by central state-owned enterprises in recent years, and put forward relevant suggestions on how to further improve the quality and efficiency of listed companies controlled by central state-owned enterprises through mergers and acquisitions from the perspective of capital market supervision.
Sichuan Road&Bridge is a typical successful case in M&A and restructuring. In terms of horizontal merger, the controlling shareholders of the company were strategically restructured. After the strategic restructuring, Shudao Investment Group invested more than 97% in expressways and 100% in railways. The integration of controlling shareholders is expected to promote the company's market share in the field of transportation infrastructure in the province.
In the field of new energy business, the company continued to increase its weight through mergers and acquisitions, gradually formed an internal closed lithium battery industry production chain, increased the reserves of new projects in the mineral resources sector, and significantly improved its scale and efficiency. In the process, the company's performance also continued to materialize, driving the share price to rise continuously since the beginning of 2020.
（4） Dividend repurchase improves the value of equity investment
The increase of dividend repurchase is to start with the distribution results and promote the optimization of corporate governance. Dividend distribution and repurchase are both ways for the company to repay shareholders. Dividend distribution means that the company directly distributes profits to shareholders in cash, while repurchase means that the company's profits are used to cancel outstanding shares, which in a disguised way increases the value of shares held by existing shareholders. In general, the common feature of dividends and buybacks is that they reduce the cash held by the company and give it back to all shareholders.
The increase of dividend ratio is conducive to giving play to the signaling effect and enhancing the market recognition and value realization of listed companies. In 2022, the Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises pointed out that it is necessary to transmit the company's value, enhance the recognition of all parties, promote the internal value and market value to go hand in hand and grow together, actively safeguard shareholders' rights and interests, and form a virtuous circle of high-quality development. Improving the cash dividend level of central state-owned enterprises will help the market fully understand the profitability stability of central state-owned enterprises, send favorable signals to the capital market for company operation, improve the information communication channels between the internal management of central state-owned enterprises and external investors, and enhance investor confidence. On the other hand, a reasonable dividend policy is also conducive to optimizing corporate governance and reducing governance problems between management and shareholders, large shareholders and small shareholders. The combination of dividends and equity incentives is conducive to improving the distribution system. Specifically, the increase of dividend ratio can play a governance role, improve the investment efficiency of central state-owned enterprises, and optimize the management incentive mechanism. From a positive perspective, the combination of dividends and equity incentives can improve the distribution system, fully mobilize the enthusiasm and creativity of key personnel in key positions, and promote the consistency of the value orientation of management and shareholders.
The dividend ratio of state-owned enterprises is expected to continue to increase in the next stage. In recent years, regulators have continued to improve the construction of the cash dividend system of listed companies, and guided listed companies, especially state-owned enterprises, to increase dividend intensity and enhance investors' sense of gain by strengthening the cash dividend decision-making mechanism and information disclosure requirements. On April 11, 2022, the CSRC, the SASAC and the All China Federation of Industry and Commerce issued the Notice on Further Supporting the Healthy Development of Listed Companies, pointing out that listed companies should be supported to increase the proportion of cash dividends in profit distribution, share development dividends with investors and enhance the sense of gain of investors in combination with the industry characteristics, development stage and profitability of the company. On May 27, 2022, the State owned Assets Supervision and Administration Commission of the People's Republic of China (SASAC) issued the Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises, encouraging eligible listed companies to optimize shareholder returns through cash dividends and other ways to enhance market recognition and value realization of listed companies. Relevant policies and systems have been constantly improved to support the further improvement of the dividend ratio of central state-owned enterprises.
（5） Perfect information disclosure helps the capital market better understand the investment value of central state-owned enterprises
By strengthening the management of the information disclosure system, the central state-owned enterprises can effectively implement the relevant requirements of the SASAC's Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises to enable investors to get close, understand, see clearly, and have confidence, and improve the information disclosure system in the CSRC's Three Year Action Plan for Promoting the Quality of Listed Companies (2022-2025) to improve the transparency of listed companies. In the future, central state-owned enterprises will focus on value realization, more actively carry out investor relationship management and strengthen information disclosure. For investors, strengthening the interaction between central state-owned enterprises and investors can effectively safeguard the interests of investors, help investors better understand and identify with the value of the company, and avoid information asymmetry; For central state-owned enterprises, communication with investors can help central state-owned enterprises obtain feedback and suggestions from the market, understand investors' views on corporate strategies and decisions, help companies better adjust and optimize business strategies, and improve business operations and investor satisfaction.
2、 Serve the high-quality development of central state-owned enterprises and build a valuation system with Chinese characteristics
The curtain of the new stage of "China Special Appraisal" is slowly rising. Focusing on the construction of modern industrial system and a new round of state-owned enterprise reform, the improvement of the internal value of central state-owned enterprises will become the key to promote their value revaluation. More perfect corporate governance, more effective profit model, and more sustainable development prospects are the proper meaning of "China Special Appraisal", and the long-term path to the healthy development of China's capital market. To build a valuation system with Chinese characteristics and serve the high-quality development of central state-owned enterprises, we must start from both sides of investment and financing, and accelerate the positive upward cycle from enterprises to the capital market.
The improvement of the operating efficiency of central state-owned enterprises, the continuous high growth of revenue and profit and the enhancement of competitiveness are the source of the improvement of valuation. We must accelerate reform to promote high-quality development of enterprises.
On the investment side, it is necessary to systematically improve the research on central state-owned enterprises, and find the investment value of central state-owned enterprises from a new era perspective. At the same time, through a good product system and supporting ecological construction, build a fund brand invested by central state-owned enterprises, guide the public to serve the transformation and upgrading of central state-owned enterprises through value investment and long-term investment, and share the value added of central state-owned enterprises to build a valuation system with Chinese characteristics.
As for the research method of China Special Appraisal, this is an important systematic project, which needs to form our methodology and standard system with a higher height, a broader perspective and a deeper understanding.
First of all, we should clearly understand the profound significance of the "China Special Assessment". Under the background that the country is facing unprecedented changes in a century and the economic system is changing from old to new drivers, the revaluation of the value of central state-owned enterprises is not only conducive to giving play to its core leadership role in key industries, but also can better realize the effective allocation of social resources, and also has a good role in promoting and pulling new economic drivers such as the digital economy and high-end manufacturing. Therefore, it is of great historical and practical significance for the whole macro-economy to play a good game of "China Special Appraisal".
Secondly, it is necessary to think about the enterprise value of central state-owned enterprises from a more diversified perspective by jumping out of the inherent research ideas. Under the original investment framework, the operating stability, dividend ratio and PB valuation system of central state-owned enterprises occupy a large weight. According to our new framework, we regard central state-owned enterprises as the main body of the market economy that fully participates in market competition, and analyze enterprise value from a more diversified perspective. We also attach great importance to the incentive mechanism of central state-owned enterprises and the supply and demand pattern of their industries. Further analyze the corporate governance structure and the level of return on assets, and closely combine the asset value with the "one profit five rate" proposed by SASAC. Under the guidance of such research ideas and specific research methods, it is necessary to strengthen the specific analysis and evaluation of the following aspects of central state-owned enterprises.
(1) Strengthen the tracking research on the supply and demand situation and price trend of production factors under the two overall situations and the industrial chain security framework;
(2) Strengthen the research on the layout of strategic emerging industries of central state-owned enterprises;
(3) Strengthen the tracking research on the competitiveness improvement of central state-owned enterprises;
(4) Strengthen the analysis and research on reform measures such as data assets, green assets, hidden assets, equity incentives, mergers and acquisitions;
(5) Improve the research on high dividend asset pricing.
key word: value
a bonus
listed company
M&A
