Shanghai state-owned assets have constantly expanded their deployment in emerging industries, but they still need to reinforce their strength for scale, technology and market. Shanghai will promote the development of a wave of small & medium state-owned enterprises (SOEs), which are listed with innovation and growth condition, and enhance the innovative capability of Shanghai SOEs, making them gradually adjust and exit from some industries.
As a start of “the second half part” for Shanghai state-owned assets and enterprises reform, 2016 has been quietly close to the end. One year will past soon, Shanghai, regarded as “demonstration” for local SOEs reform, has gained what achievements? Enterprises’ performance is the best indicator to reflect the true status.
Among 62 Shanghai listed SOEs having released financial report for the third quarter, 58 ones have realized profits, 4 suffered from losses, and the number of companies with losses has reduced to a half of that for the third quarter of 2015, based on wind data. 62 listed SOEs’ net profit belonging to shareholders of the parent companies and their revenue achieved a quicker growth rate year on year, 0.3 and 9.6 percentage points more than those figures of last quarter respectively.
Shanghai state-owned assets reform benefits from constantly-innovative reform measures. It finds that Shanghai SOEs reform has featured in various types of achievements and modes based on moves of these listed SOEs in recent years. The fundamental concept currently is to vitalize the existing shell resources, improve asset securitization ratio, collect massive funds for developing high-end industries, like hard science & technology, and make every effort for creating a global technology innovation center.
Previously, Shanghai proposed to focus state-owned assets of over 85 percent under State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government (SASAC Shanghai) on key fields and advantaged industries, such as strategic emerging industries, advantaged manufacturing & modern service industries, infrastructure, people’s livelihood guarantee and etc., at the end of “13th Five-Year Plan” period. The goal at the end of 2016 is to focus 75 percent of these assets on the said fields and industries, and it has already been 70 percent in the first half year. The mentioned reform concept also meets this goal, aiming to concentrating more state-owned assets in scientific & technological field.
Through these Q3 reports and Shanghai listed SOEs’ whole-year moves, we can see rapid development of companies linked to scientific & technological park, hi-tech and financial service; and meanwhile, traditional listed companies are also positively stepping into finance, internet, new energy and other emerging fields.
Rapid profit growth rate for listed SOEs in real estate and scientific & technological sectors
The net profit growth rate of real estate, retail, IT service, wholesale trade, general equipment manufacturing industries ranks high in the third quarter among these 62 SOEs, 21th century economic research institute found.
In particular, the real estate sector achieves outstanding performance among Shanghai listed SOEs. In terms of enterprises with growth rate ranking in the first ten, there are three real estate developers; Shanghai Shibei Hi-Tech Co., Ltd. (600604.SH) gains the fastest growth rate of 986 percent; additionally, China Enterprise Company Limited (600675.SH) and Shanghai SMI Holding Co., Ltd. (600649.SH) also realize a growth more than one time. This is enhanced by real estate trend in 2016.
Taking China Enterprise for example, it was suck in losses in 2014 and 2015, and even with huge loss nearly 2.5 billion yuan in 2015, ranking No.1 among listed real estate developers. As senior player for “land king” (which means land with surprisingly high price), it once offered high prices to acquire lands from 2009 to 2011, but suffered a lot in 2014 and 2015 when this market depressed.
Along with explosive growth of real estate sector in Shanghai, Hangzhou, Suzhou and other cities since 2016, China Enterprise had stopped the loss and gained profit since the second quarter, and realized a net profit of 360 million yuan in the third quarter.
Besides real estate industry, Shanghai listed SOEs linked to innovation and science & technology still maintained profit growth with rapid pace.
Among the enterprises with growth rate ranking in the first ten, Inesa Intelligent Tech Inc. (600602.SH) is the only one mainly engaged in information industry. It kept a fast net profit growth in the first and second quarters, and achieved 160 million yuan for net profit in the third quarter with growth pace high to 332 percent, ranking No.6.
Furthermore, construction of China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) and Shanghai Technology Innovation Center (Shanghai TIC) also greatly incents the Shanghai state-owned assets reform. SASAC Shanghai has proposed to highlight Shanghai FTZ and Shanghai TIC in the second half year according to its Q3 work meeting.
The two big sectors indeed satisfy the market based on Q3 reports. Shanghai Zhangjiang Hi-tech Park Development Co., Ltd. (600895.SH), Shanghai Lingang Holdings Corporation Limited (600848.SH), Orient International Enterprise, Ltd. (600278.SH) and Shanghai Shenda Co., Ltd. (600626.SH) have all achieved favorable performances with net profit ranking in the first 25th.
Especially, Shanghai Waigaoqiao Free Trade Zone Group Co., Ltd. (600648.SH) has always been the main developer and constructor for Waigaoqiao area in Shanghai FTZ. It has been one of the first reform movers since last year, also one of the first wave of reform enterprises directly under the central government since the 18th scheme for state-owned assets and enterprise reform of Pudong New district. It also ranked No.8 regarding to its net profit growth of 166 percent.
Traditional listed companies step in emerging fields
Focusing on construction for the said center, traditional listed companies also pursue for new development opportunities.
The listed companies ranking in the first 15th regarding to revenue have obtained 356,577 million yuan, accounting for 87 percent, while based on asset scale ranking, industries with favorable performance include automobile manufacturing, retail, construction, transportation, general equipment manufacturing, radio & TV service and wholesale trade, Q3 data of these 62 SOEs shows.
It shows that most of Shanghai state-owned assets are still distributed in large & super enterprises and groups. Based on industrial distribution, automobile industry led by SAIC Motor Corporation Limited (600104.SH) and complete equipment manufacturing industry led by Shanghai Electric Group Company Limited (601727.SH) still belong to advantaged fields regarding to Shanghai’s emerging sectors.
SAIC Motor, in particular, has viewed new energy automobile project as a significant measure to realize strategic transformation; although it received a total governmental subsidies of 1,134 million yuan in the first three quarters due to this project, which directly or indirectly incents its revenue and profit growths, it has achieved a revenue of 180,318 million yuan in a single quarter based on its Q3 report, up 18.3 percent year on year, with 8,000 million yuan for net profit, up 13.2 percent year on year. This implies that its self-transformational development brings in more drives.
It can be seen from the reform path inside enterprises that the arrangement of state-owned assets also has changed. SAIC Motor will transform from a traditional finished automobile manufacturer into a service manufacturer in the future. Efforts will be mainly made in improving the functions of chexiang.com, an O2O platform under SAIC Motor, and expanding the automobile financial service business of SAIC Finance Co., Ltd. It shows the market’s expectation on strategic emerging industries. Some traditional manufacturing industries are actively expanding to more emerging fields.
The radio and television service industry, represented by Shanghai Oriental Pearl Group Co., Ltd. (600637.SH), stands out among various manufacturing industries. As the largest listed company engaged in the media industry, Oriental Pearl proposes to build itself into an Internet company and develop Internet-based TV products after reorganization. In Q3, the company pocketed revenue of 5.776 billion yuan, ranking the 10th, and a net profit of 650 million yuan, ranking the 7th. The growth of net profit in Q1 and Q3 was both in negative territory, meaning that the company is still faced with pressure on reform.
Financial assets are also quite attractive in the state-owned assets reform in Shanghai.
Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. (600663.SH) recently is acquiring 88.2 percent equities of Shanghai Lujiazui Financial Development Co., Ltd. held by Shanghai Lujiazui (Group) Co., Ltd. and Shanghai New Bund International Business District Investment (Group) Co., Ltd. with cash. The listed company will indirectly obtain the financial licenses for trust, securities and insurance and be able to get involved in the investment in several financial industries, building a development structure driven by both “real estate and finance”.
The 21st Century Economics Research Institute held that the coverage of Shanghai state-owned assets in emerging industries keeps expanding, but more efforts are required in scale, technology and market. In the future, Shanghai will boost the development of a batch of innovative and growth state-owned SMEs, sharpen the innovation ability of Shanghai state-owned assets, and gradually adjust and withdraw from some industries.
Translated by Jennifer Lu and Jelly Yi
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