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A total of 1,417 listed companies in the Shanghai market released their 2017 annual reports on April 30, 2018. Over the past year, the socialist economic construction has come to a new era; the supply-side structural reform has been further advanced; and the SSE-listed companies have seized the momentum to advance their business performance to new levels. The SSE-listed companies have taken the initiative to adapt to the national strategic development of promoting economic restructuring and upgrading, realized the reform in quality, efficiency and driving force for their business operation, and achieved an array of outstanding results. In 2017, they realized the operation revenue of RMB27.97 trillion, up by 14.46% year on year, and the net profit of about RMB2.62 trillion, up by 18.55%. The growth rate has set a new record in recent years, and achieved continuous growth since the implementation of the 13th Five-year Plan. Judging from the business performance, the SSE-listed companies have presented 8 new highlights in terms of their economic development tenacity, structural optimization and new kinetic energy development.
1. In-depth reform assists the real economy in marching to a new level. With the in-depth promotion of structural reform, company entities (non-financial) in the Shanghai market presented double growth in their revenues and net profits in 2017, continuing the good situation in the previous year. The company entities achieved the operation revenue of RMB21.98 trillion, up by 16.32% year on year, and the net profit of RMB1.03 trillion, up by 39.80% year on year. The good news is that their growth quality has been remarkably improved, and the net profit excluding non-recurring profit and loss was RMB0.90 trillion, up by 49.27% year on year. Besides, large companies and SMEs (small and medium-sized enterprises) have advanced side by side, and the SSE 50, a representative of large leading blue-chip companies, and the SSE 380, a representative of SMEs, realized the net profit growth of 13.92% and 26.99%, respectively, thus highlighting the coordinated development of the market's operation quality.
2. Innovative strategy leads to new breakthroughs in emerging industries. In recent years, China has adhered to innovating development ideas, accelerated to implement the innovation-driven development, and greatly promoted the implementation of the "manufacturing power" macro-strategy. As the main force for economic construction, the SSE-listed companies have actively implemented national strategies, and the research and development input of innovative company entities exceeded RMB250 billion in 2017, up by 8.55% year on year. Guided by the innovation, a group of companies characterized by new-generation information technology, high-end equipment, new energy and other hi-tech and high-value-added industries have grown rapidly and become the new engine for economic growth, thus forming the new development situation of "new companies emerge, some of them further upgrade themselves, and the new companies integrate with the old ones". First, high-end manufacturing has shown new vitality under the innovation orientation and presented a high-quality development trend. For example, Hengtong Optic-electric Co., Ltd. has been active in seeking the road to high-end transformation and upgrading in smart power grids, making arrangement for the 5G/6G future communication technology and chip industry, and its business revenue and net profit have hit record highs and maintained high growth for 3 consecutive years. Taking Shanghai Zhenhua Heavy Industries Co., Ltd. for another example, it has occupied the 1st place in the ranking of container crane orders in the world, and its products have entered 99 countries and regions, and its net profit realized steady growth in the reporting period. Second, information technology has brought about technical change, and a group of "new enterprises" representing the future technical reform and development direction have emerged in the Shanghai market. For example, Jiangsu Hengrui Medicine Co., Ltd. and Yonyou Network Technology Co., Ltd. have made huge input in innovative research and development and obtained strong competitive edge in medicines and cloud service, respectively, as well as achieved rapid growth in their business performance. Third, the new concept of green development has led a group of companies to commit themselves to the new energy industry to promote the high-quality sustainable development of the social economy. LONGi Green Energy Technology Co., Ltd., for example, has concentrated on providing global clients with efficient mono-crystal solar power generation solutions, and some of its core technologies and products have taken the leading position in the industry, thus achieving development advantages in solar energy. In addition, as driven by innovation, such phenomena as new-old economies integration and military-civilian integration have occurred. For example, Tencent has become a shareholder of Yonghui Superstores with RMB4.2 billion and increase capital in Yonghui Yunchuang Technology Co., Ltd., so as to jointly advance the online-offline integrated development mode. The two sides are expected to achieve great coordination by complementing each other's advantages and accelerate the reform and innovation of the retail technology and retail format.
3. Supply-side structural reform adds radiance to traditional industries. In 2017, the companies in traditional industries in the Shanghai market have closely seized the mainline of the supply-side structural reform to reduce low-quality capacity and increase efficient supply, thus realizing further improvement on the middle-upper stream supply-demand relationship. The industry operation revenue and net profit have maintained the growth trend of the previous year, and the 3 de-capacity industries, in particular, have presented outstanding performance. The ferrous metals industry, coal industry and non-ferrous metals industry realized the total business avenues of RMB850.1 billion, RMB795.8 billion and RMB955.5 billion respectively, up by 32.11%, 35.46% and 15.96% year on year, and the total net profits of RMB46.2 billion, RMB78.2 billion and RMB26.3 billion respectively, up by 503.93%, 152.42% and 138.42%, respectively. Meanwhile, driven by the deleverage policy, the traditional de-capacity deleverage level has kept being improved, with the financing expense rate keeping decreasing, the leverage structure being improved and the systematic risks being relieved. Some companies have shown outstanding performance. For example, the annual report of Baoshan Iron & Steel Co., Ltd. showed that the integration of Baosteel Group and Wuhan Iron and Steel Group has achieved unexpected effects, and the company achieved the net profit of RMB19.17 billion, up by 111.22% year on year. In particular, the efficiency of Wuhan Iron and Steel Co., Ltd. has been greatly improved, and it realized the annual net profit of RMB590 million, presenting a remarkable growth.
4. M&A and reorganization facilitate new results in transformation and upgrading. In 2017, the M&A and reorganization of the SSE-listed companies have highlighted the aim of "returning to the origin and serving the entities" while continuing the good trend in recent years. In 2017, the M&A and reorganization involved 864 company-times with the total trading amount of RMB920 billion, up by 45% and 8% compared with the previous year. In particular, 74 companies have completed major assets restructuring, involving the trading amount of about RMB250 billion and the total added market value of about RMB230 billion, and 13 companies with each market value of over RMB10 billion were added to the market. A batch of typical cases that boosted reform and displayed a demonstrative role has come forth in assisting structural optimization and driving force conversion during the M&A and reorganization. For example, 360 Security Technology Inc. restructured and went public through Suzhou Jiangnan Jiajie Elevator Co., Ltd., which has realized the autonomy and control of the Chinese network security technology system and laid a solid technical foundation for China to build itself into a internet power, and this has become a hallmark event in the "New Blue-chip" Action of the Shanghai market.
5. The Belt and Road Initiative helps to obtain new space for overseas development. Under the background of economic globalization, the SSE-listed companies have actively practiced the national initiative, responded to the Belt and Road strategic development, strived to expand overseas markets, and focused on enhancing their own strength. For example, China State Construction Engineering Corporation Limited newly signed the contracts of RMB209.6 billion for its overseas business, presenting a remarkable growth of 65.7% year on year; it has operated substantially in 9 new national markets and set up offices in 20 new countries; and it has 26 overseas markets in 2017 with the newly signed contracts amount of RMB500 million and above and 15 ones with the newly signed contracts amount of over RMB3 billion and above. Taking another example, Zhengzhou Coal Mining Machinery Group Co., Ltd. has obtained two important technologies of start-stop motor and energy recovery boosting system in hybrid electric vehicles and full electric vehicles through purchasing the starting engine and electric generator business of Bosch, and the company has gradually become a leading manufacturer of starting engine and electric generator in the world.
6. Mixed ownership reform adds new vitality to state-owned enterprises. During the reporting period, state-owned enterprises in the Shanghai market have actively promoted the resources integration and quality and efficiency improvement through the mixed ownership reform, debt-to-equity pilot, asset securitization and professional reorganization, and have achieved the first in many fields. The positive situation of overall breakthrough of the state-owned enterprise reform has formed. Specifically, the total M&A and reorganization amount of listed state-owned enterprises in the Shanghai market exceeded RMB540 billion, with the amount of major assets reorganization up to nearly RMB200 billion. For example, China Unicom has introduced such strategic investors as Ali, Tencent, Baidu and JD and simultaneously strengthened its capital strength and improved the corporate governance structure, making it a "milestone" case in the mixed ownership reform of state-owned enterprises. China Shipbuilding Industry Corporation launched the first marketized and legalized debt-to-equity scheme, which has helped to reduce the overall asset-liability ratio by 5 percentage points, blazed a new trail for the sustainable deleverage of state-owned enterprises and enriched the ideas and methods of serving the supply-side structural reform by the capital market.
7. Sense of duty guides social contribution to make new progress. According to the arrangements and requirements of finishing building a moderately prosperous society in all respects of the 19th CPC National Congress, we must take tough steps to forestall and defuse major risks, carry out targeted poverty alleviation, and prevent and control pollution. The SSE-listed companies have actively responded to the national call, fulfilled their social responsibility, and become the major force of driving to construct a harmonious society. For example, China Unicom has, according to its industrial advantages, focused on promoting fixed-point poverty alleviation in industry, education and employment and it invested the poverty alleviation funds and supplies of about RMB84 million and assisted 19,300 registered poverty-stricken families in getting rid of poverty in 2017. With regard to pollution prevention and control, over 370 listed companies in the Shanghai market have established the environment information disclosure system to release relevant environmental information. For example, Universal Scientific Industrial has made detailed quantitative analysis on electronic energy consumption and released the progress of its green management, green supply chain, green education and green expenditure on its own initiative.
8. Shareholders' sense of pay-back boosts cash dividend distribution to reach a new high. The pay-back sense of the SSE-listed companies has been continuously strengthened, and the cash dividend distribution has maintained a high level. In 2017, the overall proportion of cash dividend distribution of the SSE-listed companies was 37.92%, about 5 percentage points higher than the previous year. Statistics show that over 1,000 companies have launched the cash dividend distribution scheme, accounting for 74.47% of the total companies (up by about 5 percentage points year on year); and they've distributed total cash dividends of over RMB811.1 billion, up by 18 percentage points and hitting a new high. Among the companies that distributed cash dividends, constituent stock companies of the SSE 50 and the SSE 180 that represent the blue chips were the main force, distributing the cash dividends of RMB498.8 billion and RMB686.1 billion, accounting for 61.50% and 84.59% of the total in the Shanghai market, respectively. Judging from the companies' distribution, a group of companies that have kept distributing cash dividends at high proportions has appeared, among which 194 companies and 778 companies presented the cash dividend distribution proportion of 50% and above, and 30% and above in a year, respectively. In particular, over 370 companies have realized the cash dividend distribution proportion of over 30% for 3 consecutive years, and companies like China Shenhua, Fuyao Glass and SAIC Motor have become the models of distributing high proportions of cash dividends for a long time. Meanwhile, some enterprises have started to distribute cash dividends from scratch as driven by regulation.
Nevertheless, their annual reports also showed that under the background that outdated capacity has been rapidly cleared from the market, some listed companies have still encountered staged business difficulties or risks, and over 70 companies suffered losses. These companies generally had the problems of unclear main businesses, heavy historical burdens and no clear direction for transformation, and their future business performances might encounter great uncertainties. And investors should pay great attention to relevant risks. Besides, some listed companies have the operation risk. In particular, controlling shareholders and their persons acting in concert of some companies have credit risks under the strict regulation, and they have harmed the interests of their companies, disturbed the corporate management and even directly occupied funds and made illegal guarantees in different ways. The SSE will continue to make strict regulation against major risks.
