The profit growth of industrial companies with annual revenue over 20 million yuan declined in July due to the weather. Analysts believe that the profit growth will continue slowing down in the second half, but it will remain medium to high growth.
It is noteworthy that state-owned enterprises (SOEs) and non-SOEs saw differentiated profit growth. SOEs saw a significant profit growth of 34.2 percent in July while the debt ratio dropped 0.5 percentage points year on year thanks to the de-leveraging in SOEs.
Industrial profits to maintain high growth
From January to July, industrial companies with annual revenue over 20 million yuan reported industrial profits growth of 21.2 percent year on year, 0.8 percentage points lower than that of the first six month, according to the statistics released by the National Bureau of Statistics (NBS) on Aug. 27. The total growth has been declining for five straight months.
The profits of industrial companies hiked 16.5 percent in July year on year, 2.6 percentage points lower than that of June.
NBS statistician He Ping attributed the slower growth in profit to high temperatures in July when a number of factories halted production. However, industrial performance has kept improving and has profit maintained fast growth thanks to ongoing supply-side structural reform, He added.
The higher growth of industrial profits in the first half was attributed to the low base and surging PPI, said Zhu Jianfang, chief economist with the CITIC Securities. It is expected that as the PPI growth will decline with the low base in the second half, the industrial profits growth will continue declining.
However, Zhu believes that as the GDP will maintain a medium to high growth of 6.5 to 7.0 percent, the excessive capacities of industrial products have been solved. The industrial profits are expected to maintain a growth of eight to 12 percent in the following half to one year.
As a matter of fact, industrial profits will be supported by the current industrial production and the stable PPI growth. It is widely expected that the industrial added value of August to be released soon will recover while the PPI is likely to remain a growth of around 5.5 percent year on year.
SOEs see significant recovery with de-leveraging showing results
SOEs and non-SOEs saw differentiated profit growth.
Statistics show that SOEs’ profits reported a growth of 44.2 percent year on year in the first seven months. It hiked 34.2 percent in July, 13.5 percentage points higher than that of June. During the same period, collective enterprises, joint-equity enterprises and private enterprises reported an increase of 3.7 percent, 22.9 percent and 14.2 percent, respectively.
To the contrast of the whole industry and non-SOEs, SOEs saw higher profits growth, said Li Huiyong, a senior analyst with Shenwan Hongyuan Securities. It is mainly attributed to the benefit improvement in petroleum processing, coal, iron and steel industries. “Resources are increasingly flowing into leading SOEs during the process of the supply-side reform.”
It is noteworthy that while improving the profits, SOEs also made progresses in de-leveraging.
The assets liabilities ratio of industrial companies with annual revenue over 20 million yuan was 55.8 percent as at the end of July, 0.7 percentage points lower from the same period of last year. The assets liabilities ratio of SOEs was 61.1 percent, 0.5 percentage points lower from the same period of last year.
The central government has required giving priorities to SOEs de-leveraging many time in the second half. The executive meeting of the State Council held last week proposed to reduce the debts of central enterprises by taking advantage of favorable opportunities of improving the profits of central enterprises.
Analysts believe that more policies in the de-leveraging of SOEs, central enterprises in particular, will be introduced. With the implementation of policies, the assets liabilities ratio of central enterprises will remain stable or decline on the whole.
In addition, upstream industries maintained high growth in profits. Statistics show that the total profits of coal mining and washing enterprises surged 13.7 times in the first seven months. The ferrous and non-ferrous metal smelting and processing industries hiked 100 percent and 45.6 percent. The petroleum and natural gas mining turned losses into profits compared with the same period of last year.
Translated by Star Zhang
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