Core view: the overall performance is under pressure, and pay attention to the marginal improvement industry
In the first quarter of 2022, the profit of A-share enterprises was under pressure, but the overall cash flow margin improved. At the same time, the enterprise debt ratio decreased significantly, and some industries showed strong performance toughness. With the setting tone of the meeting of the Political Bureau of the CPC Central Committee, the policy underpinning expectation is clear, the introduction and implementation of policies and measures such as stabilizing growth and promoting consumption are accelerated, the superimposed epidemic situation, especially the epidemic situation is gradually alleviated, the economic bottom will gradually appear, and market confidence will continue to recover and get out of the bottom. It is suggested to focus on the following investment main lines.
(1) the upstream industry has strong bargaining power in the industrial chain. Under the background of gradual recovery of demand, it is expected to show greater performance flexibility than the middle and downstream industries. At the same time, it has the characteristics of anti inflation. It pays attention to the investment opportunities in the upstream resource conduct industry with high prosperity and strong expectation of price increase, such as nonferrous metals, iron and steel, petroleum and petrochemical, etc.
(2) in the middle and downstream industries, in the first quarter, power equipment, commercial retail, food and beverage and other industries had marginal improvement in both revenue and net profit, and the profitability (ROE) of pharmaceutical, biological and household appliances and other sectors also improved month on month. Pay attention to the investment opportunities of some middle and downstream industries with performance toughness in the case of dilemma reversal.
(3) as the steady growth policy continues to work, the infrastructure and real estate sectors directly benefit from counter cyclical regulation. The performance growth rate of some traditional infrastructure industries such as professional engineering and infrastructure construction in the first quarter has improved significantly, and some post cyclical industries such as decoration and building materials have also achieved marginal improvement. Pay attention to the new and old infrastructure under the main line of the policy and the underlying investment opportunities with outstanding performance and low valuation in the real estate sector.
A shares as a whole: the growth rate of performance slowed down, the growth enterprise market fell significantly, and the market was relatively dominant. Affected by multiple factors such as the repeated epidemic in China, the disturbance of international geographical conflicts and the tightening of monetary policy by the Federal Reserve, the earnings of A-share enterprises were under pressure in 2022, and the cumulative growth rate of revenue and earnings in the first quarter showed a downward trend. The first quarter net profit growth of quana / quana (non-financial) / quana (non-financial petroleum and petrochemical) was 3.60% / 8.12% / 6.29%, which was significantly lower than the annual net profit growth of 18.07% / 25.43% / 20.39% in 2021. In terms of sectors, the growth rate of gem performance declined significantly, and the profit of science and Innovation Board maintained high growth.
The year-on-year growth rate of revenue of gem 2022q1 decreased to 20.45% from 23.21% in 2021, and the growth rate of net profit attributable to parent decreased significantly from 25.88% to – 14.73%. The profit growth rate of gem changed from positive to negative for the first time since the epidemic improved in 2020. The growth rate of net profit attributable to parent company of Kechuang board decreased slightly to 62.49% from 62.93% in 2021, but remained high compared with other sectors.
In terms of large, medium and small markets, the market is relatively dominant. In the first quarter of 2022, the cumulative net profit attributable to the parent company of SSE 50, CSI 300 and CSI 500 was 6.11%, 3.05% and – 3.54% year-on-year, which decreased compared with the annual growth rate of 22.50%, 14.79% and 5.31% in 2021, but the profit performance of SSE 50 and CSI 300 was still relatively superior. In the current environment of pressure on China’s economy and declining profits, large market capitalization leading enterprises show strong performance toughness.
Profitability: turnover ratio and leverage ratio are the main factors that drag down the decline of roe. Roe continues to decline, mainly due to the decline of turnover ratio and leverage ratio. The ROE (TTM) of all a (non-financial) 2022q1 was 8.51%, down 0.27 percentage points from 2021q4, continuing the downward trend since the third quarter of last year. Except for the science and innovation board, roe of all sectors also generally fell in 2022q1. According to DuPont’s analysis, the A-share (non-financial) turnover rate and leverage ratio are the main reasons for dragging down roe. In 2022q1, the total asset turnover rate decreased by 0.52 percentage points and the asset liability ratio decreased by 0.75 percentage points.
From the perspective of gem, due to the impact of the epidemic since the beginning of the year, the start-up of enterprises is affected, superimposed with cost pressure and weak demand. The net interest rate and turnover rate are the drag items of the decline of roe, down 0.50 percentage points and 0.48 percentage points respectively compared with 2021q4. It is expected that in the future, as the epidemic situation is gradually controlled, the steady growth policy is implemented, and the local consumption promotion measures are effective, the demand is expected to be repaired, so as to drive the recovery of enterprise turnover and profit recovery.
Other indicators: marginal improvement of cash flow and continuous decline of debt ratio
In the first quarter of 2022, the marginal cash flow of non-financial enterprises improved, the operating cash flow fell, but the financing cash flow increased significantly. In the first quarter, the total net cash flow of A-share non-financial enterprises was -0.24 trillion yuan, with a year-on-year change of + 0.13 trillion yuan. Among them, in 2022q1, the operating cash flow decreased by 85.370 billion yuan, the investment cash flow decreased by 174201 billion yuan, and the financing cash flow increased by 391525 billion yuan. In terms of the proportion of cash flow in revenue, the proportion of financing cash flow of A-share non-financial enterprises in revenue increased significantly by 1.63 percentage points in the first quarter.
In terms of leverage ratio, the asset liability ratio of non-financial enterprises has continued to decline since the second half of 2021.
The asset liability ratio of non-financial enterprises in 21q4 decreased by 0.44 percentage points month on month compared with 21q3, and that in 22q1 decreased by 0.74 percentage points month on month compared with 21q4. Excluding seasonal factors, the leverage ratio of A-share non-financial enterprises also showed a downward trend. The asset liability ratio of 22q1 was 59.12%, down 1.27 percentage points from 60.39% of 21q1.
Industry analysis: focusing on the three industries of substantial improvement, maintaining high prosperity and narrowing the decline, 15 shenwanyi industries have a year-on-year growth rate of net profit, which is better than the marginal improvement in the fourth quarter of 2021. Among them, the upstream resource products industry is better, which is mainly affected by the rise of bulk commodity prices. Specifically, in the upstream industries, the performance growth rate of the resource products industry represented by non-ferrous metals and steel increased significantly under the influence of the price rise tide. Although the growth rate of the petroleum, petrochemical and coal industries narrowed in the first quarter, it remained at a high level compared with other industries. In the midstream industry, the performance of the power equipment industry increased by more than 50% and improved by more than 30% in the first quarter. In addition, although the performance of automobile, light industry manufacturing and mechanical equipment maintained negative growth, the performance decline narrowed and the improvement range was more than 30%. Among the downstream industries, the performance decline of commercial retail and agriculture, forestry, animal husbandry and fishery industries narrowed significantly. Among them, the performance improvement of commercial retail industry in the first quarter ranked first among all Shenwan industries. In addition, the food and beverage and household appliances industries also improved.
Among the secondary industries of Shenwan, we focus on three types of industries: significant improvement, maintaining high prosperity and narrowing the decline.
1. Maintain high prosperity, mainly including chemical raw materials, coal mining, steel smelting raw materials in the upstream / rising varieties in the forward cycle, photovoltaic equipment, aviation equipment II, semiconductor, etc. in high-end equipment related industries. 2. Significant improvement, such as communication services, communication equipment and military electronics II in the communication electronic equipment industry, some pharmaceutical and medical related industries such as medical devices, medical beauty and medical services, and professional engineering, infrastructure and housing construction II in the traditional infrastructure industry. 3. The decline narrowed. In the first quarter, the performance growth rate of some industries was negative, but compared with the fourth quarter of 2021, the decline narrowed significantly, reflecting the marginal improvement trend, mainly including the consumption of cultural and tourism products, Internet e-commerce, power equipment, general equipment, etc.
Risk tips: the risk of data representativeness error, policy promotion is less than expected, epidemic prevention and control is less than expected, and the risk of peripheral disturbance is intensified
