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On July 27, the National Bureau of Statistics released data showing that in June, the profits of industrial enterprises above designated size (hereinafter referred to as "designated") increased by 3.6% year-on-year, 2.9 percentage points faster than the previous month. In terms of cumulative growth, the profits of industrial enterprises above designated size increased by 3.5% year-on-year in the first half of the year.

It is worth mentioning that in June, the unit cost of enterprises continued to decrease year-on-year, and the cumulative unit cost of enterprises decreased for the first time compared with the previous period.

However, analysts also believe that since July, overall raw material prices have continued to fall, and the industrial producer price index (PPI) may still be negative on a month-on-month basis. The recovery of profits in domestic demand-related industries may still require further countercyclical policies.

Profit growth has accelerated, and the growth rate is the same as that in January-May

Data show that in the first half of the year, the operating income of industrial enterprises above designated size increased by 2.9% year-on-year, the same as in January-May. The profits of industrial enterprises above designated size increased by 3.5% year-on-year, 0.1 percentage point faster than in January-May. Among them, the profits of industrial enterprises above designated size increased by 3.6% in June, 2.9 percentage points faster than in May. In terms of industries, among the 41 major industrial sectors, 32 industries had year-on-year profits in the first half of the year, accounting for 78.0%, the same as in January-May.

Yu Weining, a statistician from the Industrial Department of the National Bureau of Statistics, said that in the first half of the year, with the implementation of various macro policies, industrial production grew steadily and rapidly, and corporate profits continued to recover steadily.

Huatai Securities research report analyzed that, looking at the month alone, the year-on-year growth rate of industrial enterprise profits in June rebounded to 3.6% from 0.6% in May, which is consistent with the trend of narrowing the year-on-year decline in PPI, mainly boosted by the low base of some upstream industries.

The research report of Caixin Research Institute also believes that from the perspective of the three factors of quantity, price and cost that determine corporate profits, the narrowing decline in PPI and the reduction in costs per 100 yuan of revenue are the main reasons for the recovery in the growth rate of industrial profits that month.

Equipment manufacturing industry contributes more than 60% of profits, and the benefits of upstream industries continue to recover

Caixin Research Institute believes that, looking at the industry, the improvement in profits in the upstream mining and raw material manufacturing industries was the main reason for the improvement in industrial profits in June, while profits in the middle and lower reaches slowed down significantly.

Since the beginning of this year, the profits of industrial enterprises in the equipment manufacturing industry have provided strong support for the growth of industrial profits. Yu Weining introduced that in the first half of the year, the profits of the equipment manufacturing industry increased by 6.6% year-on-year, driving the growth of industrial profits above the designated size by 2.2 percentage points, and the contribution rate to the growth of industrial profits above the designated size exceeded 60%. The profits of the equipment manufacturing industry accounted for 35.0% of the industrial profits above the designated size, an increase of 1.0 percentage point year-on-year, and the proportion has continued to rise since the beginning of this year.

The profit structure of equipment manufacturing enterprises has also been improving. The rapid growth in production and sales of high-tech products such as smart phones, integrated circuits, and new energy vehicles has driven the profits of the electronics and automobile industries to grow by 24.0% and 10.7% respectively; the shipbuilding industry has improved its competitiveness and orders have grown rapidly, driving the profits of the railway, ship, aerospace and transportation equipment industries to grow by 36.0%.

The new feature of the change in industrial enterprise profits in June is that the profit decline in the mining industry and raw material manufacturing industry has narrowed significantly. In June, the cumulative year-on-year decline in profits of mining enterprises narrowed significantly by 5.4 percentage points to a decline of 10.8%. The profit decline in the raw material manufacturing industry has also narrowed significantly.

Huatai Securities pointed out that although most raw materials fell in June, dragging down the profit margins of upstream industries, the improvement in operating income led to a sharp rebound in the profit growth rate of upstream industries.

Yu Weining said that in terms of industries, with the "peak summer" and increased coal demand in downstream industries, the profit decline in the coal industry narrowed by 7.0 percentage points compared with January to May. Driven by factors such as the narrowing decline in the area of ​​new real estate construction and the effectiveness of large-scale equipment renewal policies, steel demand has rebounded, and the profits of the steel industry have achieved rapid growth in the second quarter, reversing the net loss of the entire steel industry in the first quarter.

The company's cumulative unit cost decreased for the first time compared with the previous period

In June, the cost of industrial enterprises above designated size for every 100 yuan of operating income was 84.80 yuan, a year-on-year decrease of 0.17 yuan, and a year-on-year decrease for two consecutive months. In terms of cumulative cost, the cost of industrial enterprises above designated size for every 100 yuan of operating income in the first half of the year was 85.27 yuan, a decrease of 0.10 yuan from January to May. This year, the cumulative unit cost of enterprises has decreased for the first time compared with the previous period.

Recently, the Ministry of Human Resources and Social Security released data on reducing labor costs for enterprises in the first half of the year. The Ministry of Human Resources and Social Security stated that the policy of reducing unemployment insurance premiums in stages continued in the first half of the year, reducing costs for enterprises by 85.9 billion yuan in total. In addition, the Ministry of Industry and Information Technology also revealed that it would take multiple measures to reduce enterprise costs and launch a special campaign to clear overdue accounts payable to enterprises in order to release the vitality of business entities.

Caixin Research Institute pointed out that from the data of this period, the growth rate of finished product inventory of industrial enterprises in June increased by 1.1 percentage points from the previous month to 4.7%, and continued to fluctuate and rebound, which was mainly related to the low base effect of the same period last year, the strong supply and weak demand in China, which led to the passive backlog of some mid- and downstream finished products, and the replenishment of inventory by some upstream enterprises. Looking forward, the continued moderate narrowing of the PPI decline and the low base effect are expected to support the increase in inventory growth, but the inventory-to-sales ratio is still at a high level, the momentum of residents, enterprises and governments to expand spending is weak, and the increase in corporate inventory is still facing twists and turns, and the recovery should not be overestimated.

Huatai Securities said that since July, overall raw material prices have continued to fall, and the industrial producer price index (PPI) may still be negative on a month-on-month basis. The recovery of profits in domestic demand-related industries may still require further countercyclical policies.

Yu Weining said that the performance of industrial enterprises above designated size recovered steadily in the first half of the year. At the same time, we should also see that insufficient effective domestic demand has constrained the continuous improvement of corporate performance, and the severe and complex international environment has increased the operating pressure of enterprises. The foundation for the recovery of industrial enterprise performance still needs to be consolidated. In the next stage, we must actively expand domestic demand, smooth the circulation of the national economy, develop new quality productivity according to local conditions, and create new momentum and new advantages for development.

Source: China Securities

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: Xie Yilan

Proofreading: Ran Yanqing

Data treasure