20220728-招银国际-China_Economy__Industrial_profit_in_gradual_improvement_6页_530kb

China Economy Summary

Core Content

This document provides an analysis of China's industrial performance, focusing on the financial recovery and sector-specific trends in the first half of 2022. It highlights the overall improvement in industrial profit, the impact of various factors on different sectors, and future expectations for the industry.

Main Points

Industrial Profit Recovery

• Overall Improvement: China's industrial profit showed a noticeable recovery in June, with a rise of 1% compared to a 6.7% drop in May and an 8.3% drop in April. This indicates a gradual improvement in the industrial financial performance.
• Full-Year Outlook: The report forecasts a 6% growth in 2022 and a 9% growth in 2023 for industrial profits.

Sector Analysis

Energy Sector

• Strong Performance: The energy sector remained robust, with operation income growth of 57.1% in the first half of 2022, compared to 60.8% in May 2022.
• Profit Growth: Profit growth for coal mining and petroleum & natural gas was 157.1% and 126%, respectively, after significant increases in May.
• Future Outlook: Profit growth is expected to slow down in the medium term due to energy price retreat and market conditions.

Housing & Construction Related Industries

• Weakening Performance: Sectors like furniture and steel products saw a decline in operation income, with drops of 4% and 3.6%, respectively.
• Profit Decline: Profit in the steel product sector dropped by 68.7% in 1H22, while non-metal mineral product profit decreased by 5.8% after rising in 1Q22.

General, Special Equipment & Instrument Industries

• Sluggish Demand: These industries remained weak due to low capital expenditure (capex) demand.
• Operation Income: General equipment operation income declined by 3.7%, while special equipment and instruments & meters showed slight growth of 0.9% and 3.4%, respectively.
• Profit Decline: Profit in these sectors dropped significantly, with general equipment declining by 15.9% and instruments & meters by 2.8%.

Electrical Equipment and Computer & Electronics

• Electrical Equipment: Maintained strong growth, with operation income increasing by 21% and profit by 17.3% in 1H22.
• Computer & Electronics: Experienced a sharp decline in profit, with a decrease of 6.6% after a 2.8% rise in 1Q22, due to weakening global demand.

Power Generation

• Improvement: Power generation saw an increase in operation income due to rising electricity prices and lower coal input costs.
• Profit Decline: Despite the rise in operation income, profit declined by 19.3% in 1H22, but is expected to improve in 2H22 with demand resumption and cost relief.

Key Information

• Data Sources: The report references data from the National Bureau of Statistics (NBS) and CMB International Global Markets Limited (CMBIGM).
• Analyst Certification: The research analyst certifies that the views expressed in the report accurately reflect their personal views and that there is no conflict of interest.
• Investment Ratings: CMBIGM provides ratings for stocks and industries, including BUY, HOLD, SELL, and NOT RATED, with corresponding return expectations.
• Contact Information: The report is authored by Bingnan YE, Ph.D, with contact details provided for further inquiries.

Figures and Tables

• Figure 1: Operation Income Growth of China's Industries
• Figure 2: Total Profit Growth of China's Industries
• Figure 3: Gross Margin Ratio of China's Industries
• Figure 4: Total Profit to Operation Income Ratio of China's Industries

These figures provide detailed insights into the performance of various sectors, including year-over-year growth, 2/3-year compound annual growth rate (CAGR), and profit margins. They are essential for understanding the financial health and trends of different industries in China.

Conclusion

The report indicates that China's industrial sector is gradually recovering, with notable improvements in the energy and electrical equipment sectors. However, sectors related to housing and construction, as well as general and special equipment, are facing challenges due to weak demand and economic conditions. The outlook for the full year remains positive, with projected growth in industrial profits.