20220428-招银国际-Divergence_of_profit_growth_in_China_s_industries_6页_838kb

China Economy: Divergence of Profit Growth in Industries (1Q22-2022)

Core Content

This document provides an analysis of the profit growth divergence across various industries in China during the first quarter of 2022 (1Q22) and the second quarter (2Q22), with projections for the full year of 2022. It highlights the performance of key sectors such as mining, manufacturing, public utilities, and others, focusing on factors influencing their profitability, including inflation, material costs, demand trends, and the impact of the epidemic.

Main Views and Key Information

1. Mining Sector: Strong Profit Growth

• Operation Income Growth: Coal mining, petroleum & natural gas, non-ferrous metal ores, and non-metal minerals showed strong YoY growth in 1Q22, with coal mining leading at 60.8% and petroleum & natural gas at 46.6%.
• Pre-tax Profit Growth: The pre-tax profit growth was even more pronounced, with coal mining at 189%, petroleum & natural gas at 151.1%, and non-ferrous metal ores at 74.8%.
• Trend Outlook: Profit growth is expected to remain high in 2Q22, but may decline significantly in 2H22 due to falling commodity prices.

2. Manufacturing and Public Utilities: Mixed Performance

• Operation Income Growth: Manufacturing and public utility industries showed moderate growth in 1Q22, with manufacturing at 11.0% and public utilities at 17.2%.
• Pre-tax Profit Growth: Public utility industries saw strong growth in pre-tax profits, while manufacturing faced a slowdown.
• Trend Outlook: Industrial profits may decline in April due to the epidemic, but are expected to rebound in May. The full year growth is projected to reach 10% for 2022.

3. Strong Growth in Consumer-Related Industries

• Pre-tax Profit Growth: Industries such as food, tobacco, medicine, and textile showed significant improvement in March, with tobacco at 24.4%, food at 15.3%, and medicine at 12.3%.
• Reasons: These industries benefited from stable demand and the base effect, which is the comparison to lower growth periods in the previous year.

4. Decline in Certain Sectors

• Operation Income and Profit Drop: Papermaking, general equipment, and automobile sectors experienced a drop in both operation income and pre-tax profits in March.
• Factors: Rising material costs and slowing demand were the primary causes of the decline in these sectors.

5. Economic Outlook

• April: Industrial profits are likely to be affected by the epidemic, leading to a slowdown.
• May and Beyond: The outlook improves from May onwards as the epidemic subsides and demand stabilizes.
• 2H22: Profit growth is expected to rebound further due to falling material costs and stabilized demand, with a full-year target of 10% growth in industrial profits.

Key Industry Performance Highlights

Mining Sector

• Operation Income Growth (YoY): Coal (60.8%), Petroleum & Natural Gas (46.6%), Non-ferrous Metal Ores (24.4%), Non-metal Minerals (11.0%)
• Pre-tax Profit Growth (YoY): Coal (189%), Petroleum & Natural Gas (151.1%), Non-ferrous Metal Ores (74.8%), Non-metal Minerals (29.4%)
• Projection: 2Q22: high; 2H22: decline

Steel & Chemical Products

• Operation Income Growth (YoY): Steel (2.1%), Chemical Products (24.1%)
• Pre-tax Profit Growth (YoY): Steel (-49.7%), Chemical Fibres (-54.9%), Rubber & Plastic Products (-29.6%)
• Projection: 2Q22: squeeze pressure; 2H22: improvement expected

Consumer-Related Industries

• Pre-tax Profit Growth (YoY): Food (15.3%), Tobacco (10.8%), Medicine (12.3%), Textile (15.2%), Electrical Machinery & Equipment (16.2%), Computers, Telecom & Electronics (15.7%)
• Reasons: Stable demand and base effect

Declining Sectors

• Pre-tax Profit Drop (YoY): Paper & Paper Products (-35.2%), General Equipment (-18.5%), Automobile (-15.3%)
• Reasons: High material costs and weak demand

Profit Growth Projections for 2022

• April: Deterioration expected due to epidemic shock.
• May: Gradual improvement as the epidemic fades.
• 2Q22: Continued pressure from high costs and weak demand.
• 2H22: Expected rebound due to cost declines and stabilized demand.
• Full-Year Target: Industrial profit growth is projected to reach 10% for 2022.

Analyst Information

• Analyst: Bingnan YE, Ph.D
• Contact: (852) 3761 8967 | yebingnan@cmbi.com.hk

Disclaimer and Risk Information

• No Investment Advice: The report does not provide individually tailored investment advice.
• No Guarantee: Past performance does not indicate future results, and actual outcomes may differ.
• Risks Involved: Trading in securities involves risks, and the value of investments may fluctuate.
• Liability Disclaimer: CMBIGM is not liable for any loss or damage resulting from reliance on the information in this report.
• Use Restriction: The report is intended for specific clients and should not be reproduced or distributed without prior consent.

CMBIGM Ratings

• BUY: Expected to outperform the market.
• HOLD: Expected to perform in-line with the market.
• SELL: Expected to underperform the market.
• NOT RATED: No rating issued.

Additional Notes

• The report includes data from the National Bureau of Statistics (NBS) and CMBIGM.
• The analysis is based on publicly available and reliable information, but not guaranteed for accuracy or completeness.
• CMBIGM may have conflicts of interest and is not responsible for any resulting issues.