chief connection｜zheng kai of gf securities: five major clues to mine gold from the interim report, and it is recommended to pay attention to the export direction of asia, africa and latin america
2024-09-18
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"although the overall performance data of a-shares in the interim report is lower than expected, indicating that the operating environment of a-share companies still faces great challenges, the trend of companies turning to stability remains unchanged, and there are many structural highlights." zheng kai, chief strategy analyst at the development research center of gf securities, said in summarizing the interim report recently.
as of august 31, the disclosure of interim reports of a-share listed companies has officially ended. data shows that a total of 5,340 listed companies on the shanghai, shenzhen and beijing stock exchanges disclosed their 2024 semi-annual reports. for investors, interim performance reports have become important trading clues in the market. recently, zheng kai was a guest on the paper's "chief connection", providing a panoramic analysis of the 2024 interim reports of listed companies and exploring investment clues in the interim reports.
zheng kai has 10 years of experience in strategic research. he was ranked second in new fortune from 2019 to 2020 and fourth in new fortune from 2022 to 2023.
zheng kai said that the interim report is an important window for linking the past and the future. it can not only evaluate the full-year growth target set at the beginning of the year, but also verify the economic development in the first half of the year. in addition, the policy is also in the stage of effect observation and discretionary decision-making. "from the perspective of the enterprise, the interim report can provide an outlook for full-year profits and a clear view of the operation of the enterprise. if the profit forecast is revised upward, the valuation switch can be traded in the second half of the year. if the operation is lower than expected, the full-year performance needs to be revised downward, and these stocks may be at risk of structural overvaluation."
zheng kai analyzed that this year's interim report was only a temporary decline and did not affect the recovery trend of corporate profits in the second half of this year.
in the case of flat total volume, zheng kai said that we should explore the direction of stabilization first. there are five clues worth paying attention to in this interim report. first, the industry where demand is no longer declining and the revenue is increasing and accelerating in the interim report; second, the industry where performance has passed the darkest moment and profit has improved for two consecutive quarters; third, the disclosure of the interim report is accompanied by the downward revision of the full-year performance of most industries, and the forecast is revised upward against the trend at this time, and there is a rare high prosperity with a positive growth of more than 20% in the second half of the year; fourth, the operating cycle is the first to stabilize, such as the industry that a shares are the first to take the initiative to replenish inventory, and the industry whose revenue and gross profit margin remain stable as the inventory is replenished; fifth, the industry where a shares' capital expenditure has bottomed out and revenue and turnover rate have improved.
regarding the market conditions during the remaining trading hours of this year, zheng kai believes that the overall situation is relatively complicated and the market will remain volatile at the aggregate level.
in terms of allocation, zheng kai suggested that investors pay attention to structural opportunities. in the second half of the year, with the us election and global manufacturing pmi still uncertain, a very clear and noteworthy main line is the manufacturing industry exported to asia, africa and latin america. in addition, after a series of policies to expand domestic demand were intensively introduced, zheng kai also suggested looking for industries where policies are gradually releasing positive signals, such as industries that are key supported by fiscal funds and irrigated at designated locations.
the interim report is only a temporary decline
judging from the data, in the first half of the year, the revenue growth rate of non-financial a-shares in the first quarter was 0.5%, and turned negative to -0.6% in the interim report; the cumulative profit in the first quarter was -5.5%, and the interim report fell to -5.6% year-on-year; the growth rate of non-financial profits of a-shares after deducting non-operating items was also declining, with the first quarter report being -1.6% and the interim report being -3.1%.
although the data shows that the recovery of the main business of enterprises is still slow under the weak total demand, zheng kai emphasized that the unexpected decline in profits in this year's interim report is partly due to the high base of exchange. if the impact of rmb exchange gains and losses is eliminated, the growth rate of this year's interim report has stabilized compared with the first quarter report. "furthermore, the impact of exchange on the apparent earnings of a-shares has weakened in the second half of this year."
in addition, zheng kai further pointed out that the ppi, which has provided strong support for the performance of non-financial companies in the a-share market, has also stabilized. therefore, this year's interim report is only a temporary decline and has not affected the recovery trend of corporate profits in the second half of this year.
the most noteworthy core indicator in the interim report is roe (return on equity). from the dupont analysis, the three major factors affecting roe are profit margin, asset turnover rate, and debt-to-equity ratio. zheng kai believes that two of the variables have stabilized.
"under the influence of multiple factors, including the gradual recovery of demand, the decline in upstream costs, and the weakening of exchange rate impact, the profit margins of companies have gradually improved in the second half of the year. the turnover rate is still declining due to the downward trend in revenue, but we have seen that many companies are actively shrinking supply, that is, by adjusting capital expenditures, reducing the company's asset projects, fixed assets and other projects, thereby achieving stable turnover." in addition, zheng kai said that in the profit caliber of industrial enterprises, the capacity utilization rate has begun to stabilize in the second quarter. with the guidance of policies, it is also conducive to the stability of the company's turnover rate.
"if the fiscal policy is strengthened and china's broad deficit ratio increases, then ppi will increase, and the corresponding roe of a-shares will also increase significantly." zheng kai said that for this year, the pattern is changing. the broad deficit ratio has ended the trend of contraction in the past three years and will turn to a moderate increase this year.
5 major configuration clues from the interim report
with the total volume flat, how should investors dig out investment clues from the interim report? in this regard, zheng kai suggested paying attention to the first to stabilize and the scarce high-prosperity direction, and summarized 5 major configuration clues.
clue one is that demand is no longer declining and revenues are increasing and accelerating in interim reports, such as electronics, computers, environmental protection, nonferrous metals, chemicals, and beauty care.
the second clue is the industry that has turned around from a difficult situation, that is, the performance has passed the darkest moment and the profit has improved for two consecutive quarters, such as agriculture, electronics, industrial metals, chemicals, etc.
"after each financial report, securities analysts will adjust their full-year growth forecasts. as mentioned earlier, the mid-year report season can provide a look ahead to the whole year, and revising performance upward or downward at this time is most in line with the company's actual growth situation." therefore, zheng kai said that the third clue is industries that have revised their forecasts upward against the trend and whose growth has exceeded expectations, such as exports and resource products related to external demand, as well as electronics and ai computing power.
zheng kai emphasized that this clue focuses on the two most scarce prosperity directions this year: external demand and technology. "this year, the global manufacturing pmi is going up, so the growth rate of export-related industries is very impressive, such as buses, motorcycles, ships, furniture, home appliances, etc. in addition, it is a track that resonates with global technological innovation. as a general technological innovation, ai's continuous technological iteration has also brought demand to a-share related industry chain companies. the optical module, pcb, ai chip and other industries in the electronics industry have also seen a simultaneous rise in prosperity."
zheng kai believes that the fourth clue is the industries that can actively replenish inventory at present. "in terms of total volume, the inventory cycle of enterprises may not have started obviously, but some industries have begun to replenish inventory. this is an active replenishment of inventory brought about by rising income, which is a relatively positive signal. for example, chemical industry in the structure of home appliances, electronics, and machinery industries."
clue 5 is to find the industries that have optimized their supply and demand structure first based on the left-side screening dimension and the capital expenditure of financial data. zheng kai said that these industries have achieved a low capital expenditure and a steady increase in turnover, and have stronger momentum for price increases or further expansion, mainly in science and technology, export chains, some materials and consumption.
structural opportunities in volatile market
there are less than four months left in 2024. so, in terms of corporate profit growth or valuation expansion, can investors still expect to earn a return on investment? zheng kai said that he also maintains a neutral to optimistic attitude towards future valuations.
"currently, in terms of the total volume of a-shares, the profit trend for the whole year may be that the bottom is rising step by step, but the recovery elasticity is relatively weak. although from the level of the total amount of corporate profits, we may not see much upward traction at present." however, zheng kai emphasized that the turning point of global easing is about to come, which will support the valuation of chinese companies.
zheng kai further explained that the first major support point is that the federal reserve will start a new round of interest rate cuts. at present, cross-border funds have begun to flow from developed countries, especially us stocks, to japanese stocks, as well as emerging markets such as china's a shares and hong kong stocks; the second major support point is more powerful policies. "from a quantitative perspective, a shares have experienced a phased retracement in the second and third quarters. this process also faces policy revisions. we have also seen signs of warming up domestic and foreign policies."
regarding the market situation in the next four months, zheng kai believes that the overall situation is relatively complex and the market will continue to fluctuate at the aggregate level. in terms of allocation, zheng kai recommends that investors pay attention to structural opportunities.
against the backdrop of uncertainty in the us election and global manufacturing pmi, zheng kai emphasized that the main trading strategy in the market is to proactively find industries that are less affected by geopolitical shocks.
"in terms of external demand, a very clear and noteworthy main line is the manufacturing exports to asia, africa and latin america. in the past, china's manufacturing exports were mainly to major customers in europe and the united states, but under the policy guidance of the 'belt and road' initiative and the rise of asian, african and latin american countries, they have begun to shift to asia, africa and latin america." zheng kai emphasized that the imf's economic growth forecasts for asian, african and latin american countries are very stable, and recommended industries such as buses, injection molding machines, white appliances, and power tools.
in addition, in july this year, the national development and reform commission and the ministry of finance issued a document proposing to coordinate the arrangement of about 300 billion yuan of ultra-long-term special treasury bond funds to increase support for large-scale equipment renewal and consumer goods replacement. therefore, in terms of domestic demand, zheng kai said that before the broad policy is further strengthened, it is recommended to find industries where policies are gradually releasing positive signals, "such as industries that are supported and irrigated by fiscal funds, such as unexpected power grid investment; domestic substitution and semiconductor directions such as ai computing power supported by the third phase of the national big fund; innovative drugs; equipment renewal, replacement of old products with new ones, etc."
the paper reporter qi yeyun
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