Event: from January to October, the total profits of national industrial enterprises above Designated Size accumulated 42.2% year-on-year, an increase of 43.2% over the same period in 2019, and the two-year compound growth rate was 19.7% (the previous value was 18.8%); in October, the profits of national industrial enterprises above Designated Size increased by 24.6% (the previous value was 16.3%) year-on-year.
Core view: price factors continue to support corporate profits, and the proportion of upstream corporate profits rose to 52.4%, exceeding 50% for the fourth consecutive month. In the future, with the continuous correction of production restriction, the double squeeze (upstream to downstream, state-owned enterprises to private enterprises) is expected to gradually weaken.
1. Price factors continue to support corporate profits, the profit margin rebounds higher than expected, and the subsequent corporate profits are still resilient
From January to October, the two-year compound growth rate of profits of Industrial Enterprises above Designated Size rebounded by 0.9 percentage points to 19.7%. In terms of weight, price and profit margin: the two-year compound growth rate of industrial added value and PPI from January to October was 6.3% and 2.5% respectively, and the previous value was 6.4% and 2.3%. The support of price factors on revenue and profit was further strengthened; From January to October, the revenue profit margin increased by 0.05 percentage points to 7.01%, which benefited from the implementation of tax reduction and fee reduction and price stabilization and supply guarantee policies. In October, the revenue profit margin increased significantly by 0.78 percentage points to 7.44%. In October, the monthly profit increased by 8.3 percentage points year-on-year to 24.6%, which was the recovery for two consecutive months.
Looking back, continuing the previous judgment, the economic downturn may drag down corporate profits, and the export toughness and high PPI are still expected to support profits; They tend to think that the profits of subsequent enterprises may fall slightly, but they are still resilient.
2. The differentiation of upstream and downstream structures continues to intensify, and the proportion of upstream profits may have peaked
From January to October, the profit proportion of the upstream (mining + raw materials) increased by 1.0 percentage points to 52.4%, indicating that the profit squeeze from the upstream to the middle and downstream continued to intensify. Among them, the sharp increase in the profit proportion of the upstream is due to the high price (the decline of coal and other bulk prices began in late October). At the same time, the measures to ensure supply and stabilize prices led to a significant increase in output. Specifically, the profit proportion of mining industry increased by 1.1 percentage points to 12.1%, the second highest since 2014; the profit proportion of raw material manufacturing industry remained unchanged by 40.4%; the profit proportion of midstream equipment manufacturing decreased by 0.5 percentage points to 28.2%; the profit proportion of downstream consumer manufacturing decreased by 0.5% . 3 percentage points to 14.2%, continuing the downward trend since this year, and the absolute value also hit a new low; The proportion of utility profits fell by 0.2 percentage points to 5.2%.
In the future, in view of the continuous implementation of the policy of limiting production and correcting deviation and ensuring supply, the bulk price has dropped significantly (for example, the price of power coal has been “halved”), the upstream squeeze on the profits of the middle and lower reaches may be weakened, indicating that the proportion of subsequent upstream profits may gradually decline, but it may still be in the top range (about 50% in the short term).
3. The industry’s profits continued to divide, the sales volume showed an improvement in supply and demand, and the effect of real estate and production restriction correction policies needs to be further reflected
From January to October, the two-year compound growth rates of mining, manufacturing and utility profits were 35.3%, 19.8% and – 5.3% respectively, compared with the previous values of 28.0%, 18.2% and – 4.1%, and the decline of utility profits further expanded.
From the perspective of industry segmentation: if it is disassembled according to volume, price and profit margin, most prices continue to rise The sales volume shows that the supply and demand situation has improved (see Figure 5 for the calculation process). 1) the industries with high overall profit growth are still concentrated in black, nonferrous metals, fuel processing, chemical industry, chemical fiber, etc. benefiting from the upward PPI. Among the 10 industries with a two-year compound profit growth rate of more than 20% from January to October, only pharmaceutical manufacturing (benefiting from the epidemic) and electronic communication (high-tech industry) two non upstream industries. 2) the sales volume excluding price factors can better reflect the real changes in supply and demand. In October, the growth rate of sales volume fell in 19 of the 39 subdivided industries, which was slightly better than that in September. Among them, the industries with more rebound in sales volume include coal and carbon mining, black mining, nonferrous mining, etc. (all benefiting from supply guarantee), and the middle reaches of the automobile industry (benefiting from the improvement of core shortage), agricultural and sideline food, food manufacturing, alcoholic beverages, etc. that must be selected in the downstream (benefiting from holidays); industries with a large decline in sales include: utilization of waste resources, special equipment, electronic communication, instruments, etc. in the midstream (damaged by the economy), furniture manufacturing in the downstream (damaged by the decline of real estate boom). 3) other industries worthy of attention include: after the rise and fall of coal power price expanded to 20%, the power thermal power, price and revenue have improved, but the profit still fell sharply. On the one hand, it is affected by the rebound of the base; on the other hand, it is also said that the coal price is still high, and it is difficult for power plants to increase revenue and profit ； In October, the sales volume and revenue of furniture manufacturing decreased significantly, indicating that the effect of real estate rectification policy still needs to be further reflected.
4. Inventory growth picked up sharply; By industry, the coal inventory returns to the normal level, the investment chain continues to go to the warehouse, and the consumption chain slowly replenishes the warehouse
Overall, from January to October, the growth rate of finished product inventory of Enterprises above Designated Size rebounded by 2.6 percentage points to 16.3%, a new high since April 2012. In the future, considering the impact of factors such as the gradual decline of PPI and the recovery of base, the inventory of short-term industrial enterprises may fluctuate and fall. However, in October, the actual inventory excluding price factors rebounded by 1.1 percentage points to 7.2%, indicating that the enterprise itself still has the willingness to replenish the inventory.
From the perspective of industrial chain, coal will replenish its reserves rapidly with the support of policies, the investment chain will continue to remove the reserves, and the consumption chain will replenish the reserves slowly. With the support of supply guarantee policy, the inventory of coal ports and power plants has returned to or even exceeded the normal level in the same period of previous years; Asphalt, rebar, PVC (mainly used for pipes) and copper in the infrastructure and real estate industry chain continue to go to the warehouse; the whole automobile in the consumption chain continues to go to the warehouse; PP (mainly used for fiber products) and polyester filament in the textile and clothing industry chain are still subject to the low prosperity of the industry and the slow replenishment speed.
5. The squeeze of state-owned enterprises on private enterprises is intensified, and the follow-up may gradually improve; Corporate leverage was flat and continued to pay attention to the debt risk of private enterprises
Profit growth rate: from January to October, the two-year compound growth rate of profits of state-owned enterprises and private enterprises was 26.9% and 14.9% respectively, and the previous value was 23.5% and 14.0%. The gap between the two widened, indicating that the squeeze of state-owned enterprises on the profits of private enterprises was further strengthened. In the future, as commodity prices have dropped significantly under policy intervention, the squeeze of state-owned enterprises on the profits of private enterprises may also improve.
Leverage ratio: in October, the asset liability ratio of industrial enterprises was flat at 56.3%. In terms of ownership, the asset liability ratio of state-owned enterprises increased slightly by 0.1 percentage point to 57.1%, and the asset liability ratio of private enterprises was flat by 58.3%. Continue to suggest that under the background of stable leverage, the enterprise leverage ratio may decline steadily; However, the leverage of private enterprises is still significantly higher than that before the epidemic, so we need to pay attention to the debt risk of private enterprises.
Risk tip: the epidemic situation, China US relations, policy strength and other unexpected changes.
