Event: in 2021, the total profits of Industrial Enterprises above Designated Size accumulated 34.3% year-on-year, an increase of 39.8% over the same period in 2019, and a two-year compound growth rate of 18.2% (the previous value was 18.9%); In December, the profits of Industrial Enterprises above designated size increased by 4.2% year-on-year (the previous value was 9.0%). Core view: upstream squeezing downstream and state-owned enterprises squeezing private enterprises have been alleviated for two consecutive months, and the decline of upstream prices is the main reason; Looking forward to 2022, corporate profits can focus on two main lines: the transmission from upstream to middle and downstream, and the stable growth chain of infrastructure and real estate under the transformation of external demand to domestic demand.
1. Overall: the decline of profit margin dragged down the profits of industrial enterprises in December, and the volume and price are still supported
From January to December, the two-year compound growth rate of profits of Industrial Enterprises above Designated Size fell by 0.7 percentage points to 18.2%. In terms of weight, price and profit margin: the two-year compound growth rate of industrial added value and PPI from January to December was 6.2% and 3.0% respectively, and the former value was 6.1% and 2.8%, indicating that the factors of volume and price still support the enterprise’s profits; From January to December, the revenue profit margin decreased by 0.17 percentage points to 6.81%. A simple calculation may drag down the growth rate of corporate profits by 4.0 percentage points. Among them, the monthly profit in December fell by 4.8 percentage points to 4.2% year-on-year, and the two-year compound growth rate fell by 0.5 percentage points to 11.7%; The month on month decrease was 8.9%, which was the lowest in the same period since the data were available, and it was also significantly weaker than the seasonality (the average increased by 6.9% in 2016-2019). From the perspective of attribution, the main reason is the decline in profits of relevant industries caused by the decline of upstream commodity prices.
Looking back, in 2022, the growth center of corporate profits may move down significantly, and there are three supports in the short term. Considering the economic downturn, base recovery and other factors, the obvious downward shift of the enterprise profit growth center should be the benchmark situation in 2022. However, in the short term, there are three major supports for corporate profits: short-term exports may still be resilient (focusing on the evolution of the epidemic), PPI is high (the center may be about 3.5% in 2022 and may still be high in the first half of the year), real estate is loose and infrastructure is strong (mainly depending on the actual landing situation).
2. Upstream, middle and downstream: the upstream profit has fallen for two consecutive months, but it may still be high in the short term; The profits of the middle and lower reaches improved for two consecutive months
From January to December, the proportion of upstream (mining + raw materials) profits fell by 0.8 percentage points to 51.6% as scheduled, falling for two consecutive months, indicating that with the decline of bulk prices and the squeeze of upstream on middle and downstream profits has improved. Specifically, from January to December, the proportion of profits in the mining industry fell by 0.5 percentage points to 11.9%, the first decline since March 2021; The proportion of raw material manufacturing profits fell by 0.3 percentage points to 39.6%; The proportion of midstream equipment manufacturing profit rose again by 1.4 percentage points to 30.2%; The proportion of downstream consumption and manufacturing profits rebounded by 0.5 percentage points to 14.7%; The proportion of utility profits continued to fall by 1.1 percentage points to 3.5%, a new low since 2012.
Looking back and continuing the previous judgment, in view of factors such as production restriction and correction, continuous implementation of supply guarantee policy and economic downturn, commodity prices have begun to fall, and the squeeze of upstream on middle and downstream profits may be further alleviated; However, considering the lock-in price of the long-term association, the increase of output, the development of infrastructure and other factors, the proportion of short-term upstream profits may still be in the top range (about 50%).
3. By industry: the decline in price has dragged down the profits of upstream enterprises, and the industry differentiation has converged
From January to December, the two-year compound growth rates of mining, manufacturing and utility profits were 40.4%, 19.1% and – 19.9% respectively, and the previous values were 38.5%, 19.5% and – 10.7% respectively. The decline of utility profits further expanded.
From the perspective of industry segmentation: if it is disassembled according to the three aspects of volume, price and profit margin, the upward PPI is the main logic to observe the profit in 2021. However, from the marginal point of view, the price and profit margin of the upstream industry fell simultaneously in December, weakening the support for the profit. 1) On the whole, the industries with a two-year compound growth rate of more than 20% of profits in 2021 are mainly concentrated in coal mining and beneficiation, black mining, nonferrous mining, fuel processing, chemical products, chemical fiber, black smelting and nonferrous smelting that benefit from PPI, as well as high-tech industries represented by pharmaceutical manufacturing and communication electronics that benefit from the epidemic, It basically corresponds to the industries with the highest share price increase in 2021, indicating that the profitability of industrial enterprises can still be used as a measure of the trend of share price. 2) From the marginal point of view, most of the revenue and profit growth of upstream mining and raw materials in December fell. From the perspective of attribution, the decline of price and profit margin was the main drag (there was no significant decline in quantity). 3) The sales volume excluding price factors can better reflect the real changes in supply and demand. In December, the growth rate of sales volume in 16 of the 39 subdivided industries fell, slightly better than that in November. Among them, the industries with a large rebound in sales include: non-metallic mining and chemical manufacturing in the upstream, other manufacturing and special equipment manufacturing in the midstream, wood processing and printing in the downstream; Industries with a large decline in sales include chemical fiber manufacturing, gas production, waste resource utilization, transportation equipment, textile clothing, tobacco products, etc. 4) Other industries worthy of attention include: in December, the revenue of the power and heat industry improved slightly, and the upward price of coal and electricity was the main support, but the sales volume and profit of power plants still fell significantly. On the one hand, it shows that the current economic downward pressure is indeed large, and the demand for electricity has fallen; On the other hand, it also shows that the current coal price may still be high, squeezing the profits of power plants.
4. In terms of inventory: the growth rate fell as scheduled in December, different industrial chains continued to differentiate, and the investment chain turned to replenishment
On the whole, from January to December, the growth rate of finished product inventory of Enterprises above designated size decreased by 0.8 percentage points to 17.1%, which is in line with our early judgment (see the early report “upstream squeezing downstream began to ease – also comment on the profits of industrial enterprises in November”). Looking back, maintaining the previous judgment, considering the economic downturn, weakening demand and the gradual decline of PPI, enterprises may continue to take the initiative to go to the warehouse.
According to the industrial chain, the coal resource chain has shifted to depots, the investment chain has shifted to replenishment, and the consumption chain has been differentiated. According to the high-frequency data, the inventories of coal ports and power plants have begun to fall. Considering the weakening of supply guarantee measures and the approaching of the Spring Festival, the follow-up coal may continue to go to the warehouse. From the perspective of investment chain, asphalt, rebar, PVC (mainly used for pipes) and copper in infrastructure and real estate industry chain show signs of replenishment, which should be related to the recent steady growth policy; In terms of the consumption chain, due to the improvement of core shortage, the inventory of complete vehicles continued to rise, and the inventory of natural rubber in the automobile industry chain increased steadily; Textile and clothing industry chain PP (mainly used for fiber products), polyester filament and other small depots.
5. From the perspective of enterprise types: in terms of profitability, the squeeze of state-owned enterprises on private enterprises continues to ease; In terms of leverage ratio, both state-owned enterprises and private enterprises have fallen, and private enterprises are close to before the epidemic
Profit growth rate: from January to December, the two-year compound growth rate of profits of state-owned enterprises and private enterprises was 23.1% and 14.7% respectively, and the previous value was 25.6% and 14.1%. The gap between the two narrowed further, indicating that the squeeze of state-owned enterprises on the profits of private enterprises has improved. Looking back, it continues to suggest that considering that the prices of bulk commodities such as coal have fallen significantly, the squeeze of state-owned enterprises on the profits of private enterprises may be further improved.
Leverage ratio: the asset liability ratio of industrial enterprises decreased by 0.3 percentage points to 56.1%. In terms of ownership, the asset liability ratio of state-owned enterprises decreased by 0.2 percentage points to 57.1%, and the asset liability ratio of private enterprises decreased by 0.5 percentage points to 57.6%, which is close to the level before the epidemic.
6. Enterprise profit outlook in 2022: focus on two main lines, transfer from upstream to middle and downstream + external demand to domestic demand
Since the beginning of the year, the equity market has fluctuated sharply. One of the main reasons is that the market is worried about differences in fundamentals, especially “whether the steady growth can be stabilized and what to rely on”. Specifically, on the corporate profit side, we suggest to pay attention to two main lines in 2022:
1) ppi-cpi scissors difference converges, and corporate profits will be transmitted from the upstream to the middle and lower reaches: maintain the previous judgment, the “decline in the proportion of upstream profits and improvement in the middle and lower reaches” in 2022 should be the benchmark situation, among which: the industries whose profits are relatively determined to improve include agriculture, forestry, animal husbandry and fishery, automobile manufacturing, textile and clothing, nonferrous smelting, electric power and heat, etc; Industries whose profits are relatively certain to decline include coal mining and beneficiation, oil and gas mining, fuel processing, chemical fiber manufacturing, electrical machinery, etc. (see “profits will be transmitted upstream and downstream in 2022 – Calculation Based on ppi-cpi scissors difference”, “strong end of exports in 2021, there is no need to be pessimistic in 2022”, “high probability of capital construction in 2022, what are the driving points?” Etc.).
2) the profit probability of the stable growth chain from external demand to domestic demand and infrastructure construction has been significantly improved: in terms of external demand, the export probability will fall in 2022, and the support of external demand for revenue and profit will be weakened. In terms of domestic demand, the policy will make every effort to stabilize growth in 2022, with loose real estate and expansion of infrastructure as the main focus. It continues to suggest that infrastructure is expected to increase to about 8% or higher than expected. Structurally, new and old infrastructure will work together, the profitability toughness of old infrastructure related industries such as steel, nonferrous metals and glass is expected to increase, and the profitability elasticity of new infrastructure related industries such as photovoltaic equipment and 5g base station is expected to increase.
Risk warning: the epidemic situation, external environment, policy strength and other unexpected changes.
