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By October 31, 2007, 855 SSE-listed companies had disclosed their 3rd quarter reports of 2007. Driven by such factors as the rapid growth of the macro-economy, the bullish growth of the stock market, as well as the adjustment of the assets structure and the expansion of the investment scale, the overall performance of listed companies, following the good momentum from the beginning of 2007, sees a stable and healthy increase in the 3rd quarter. Statistics show that the SSE-listed companies realized a net profit of RMB512.3 billion in the first three quarters, beating the total net profit of 2006 by RMB320.2 billion. According to the listed companies’ annual performance prediction, their overall performance in 2007 will realize a dramatic year-on-year increase.
Statistics show that the 885 companies’ business income totals RMB4.3579 trillion in the first three quarters of 2007, with a year-on-year increase of 43.7%; the total net profit was RMB512.3 billion, with a year-on-year increase of 73.8%; the growth rate of the net profit was higher than that of the business income. Eight listed companies realized the net profit of more than RMB10 billion. Among them, Industrial and Commercial Bank of China Limited realized the net profit of RMB63.882 billion, ranking No. 1 on the Shanghai stock market. The weighted average earning per share of the 855 listed companies was RMB0.301 in the first three quarters of 2007, and the weighted average return on net assets was 11.3%, with a year-on-year increase of 98% and 67%, respectively. Forty listed companies realized the earning per share of more than RMB1. Among them, ST Sichuan Langsha Holding Co., Ltd. realized the highest earning per share of RMB5.034. Yunnan Chihong Zinc & Germanium Co., Ltd. realized the highest earning per share, RMB2.61, after excluding extraordinary profit and loss.
The large-cap blue chip companies accelerated the overall performance increase of the SSE-listed companies. The business income and net profit realized in the first three quarters mainly came from these large-cap blue chip companies. According to the statistics, the constituent companies of the SSE 50 Index realized the total business income of RMB2.4422 trillion (accounting for 56% of the total business income of all listed companies) in the first three quarters of 2007; their net profit totals RMB342 billion (accounting for 67% of the total profit of all listed companies); their weighted average earning per share was RMB0.328, and the weighted average return on net assets was 12.4%, higher by 8.9% and 9% than the average market level, respectively.
Constituent companies of the SSE 180 Index realized the major business income of RMB3.1284 trillion (accounting for 72% of the total major business income of all listed companies) and the net profit of about RMB393.4 billion (accounting for 77% of the total net profit of all listed companies) in the first three quarters of 2007. Their weighted average earning per share and weighted average return on net assets are RMB0.333 and 12.1%, respectively, in the first three quarters of 2007, or 10.9% and 6.4% higher, respectively, than the average market level.
The industry prosperity attributes to the overall good performance of listed companies of different industries. According to the reports, listed companies from the industry of basic raw materials of coal, steel and nonferrous metals, the industry of machinery equipment manufacturing, the petrochemical industry and the mining industry, benefited from the continually soaring industry prosperity, see a dramatic increase in their performance. Thanks to the rapid development of the national economy, listed companies engaged in financial and real estate sectors, inspired by the industry prosperity, also see a strong performance increase.
The reports also show that the SSE-listed companies' overall performance in the third quarter kept the growth momentum in the first half of 2007 despite a slight slow-down of the increase rate, with the quarter-on-quarter performance increase lower than that in the first two quarters. According to statistics, the SSE-listed companies realized the business income of RMB1.6669 trillion in the third quarter, with a quarter-on-quarter increase of 96.47%, lower than that of the second quarter of 179.43%. The net profit realized in the third quarter is RMB222 billion, with the quarter-on-quarter increase of 125.99%, lower than that of the second quarter of 154.43%.
The major cause to the decline of the quarter-on-quarter performance increase in the third quarter is the slow-down of the increase rate of listed companies' business income. The excessive performance increase of listed company in the first half of 2007 resulted in a dramatic increase of the performance base. In addition, the increase rate of the business income also falls. All this indicates that listed companies' businesses, after the continually rapid growth in the first half of 2007, have been gradually entering a stage of stable performance with moderate increase.
The decline in the growth of investment income is another major factor behind the quarter-on-quarter decrease in the 3rd quarter. Statistics in the quarterly reports show that, in the first three quarters, the SSE-listed companies have acquired RMB165.1 billion worth of investment income (a 283% year-on-year increase), which accounts for 23.25% of the total profit. Although the 3rd quarter’s investment income keeps growing, both the income and its quarter-on-quarter growth rate have decreased compared with those in the first half of 2007. In particular, the RMB59.2 billion worth of investment income and a mere 74.28% quarter-on-quarter increase in the 3rd quarter is much lower than the 2nd quarter’s RMB79.7 billion and 304%. In the first half of 2007, listed companies owed the substantial increase of investment income to the continuous rise on the stock market. Especially, they gained a considerable investment income when cashing out equity investment in banks and securities companies in the financial sector and selling their floating shares with sales limit after the expiration of the limit period. Influenced by the same factors, the stock market fluctuated in the 3rd quarter, which led directly to the decrease in their income by cashing out equity investment on the secondary market, and furthermore, to the decrease in the overall performance increase rate of the 3rd quarter. For companies still holding a large amount of equities of other listed companies, the changing of their performance may be in part correlated with the future trend of the securities market.
Despite a decreasing weight on the total profit, the extraordinary profit and loss is still exerting a great impact on the performance increase of some listed companies, especially ST companies. According to statistics, the extraordinary profit and loss of listed companies on the SSE in the first three quarters was RMB17.803 billion, accounting for a mere 2.5% in the total profit; however, some individual companies’ extraordinary profit and loss consists the largest part of the total profit. For example, ST Sichuan Langsha Holding Co., Ltd., whose earning per share (RMB5.034 per share) tops on the SSE. As its income comes largely from debt reorganization and disposal of non-floating assets, the earning per share will slide to only RMB0.11 per share after excluding the extraordinary profit and loss. The great uncertainty of the extraordinary profit and loss and its unstable income has made it hard to accurately reflect the actual operating states and profitability of listed companies. Therefore, pay due attention to the indicator when evaluating the value of listed companies and be cautious of performance bubbles behind the extraordinary profit and loss.
