April 29, 2019 Source: China Securities Journal

According to data released by the National Bureau of Statistics, the total profit of industrial enterprises above designated size increased by 13.9% year-on-year in March, and decreased by 14.0% in January-February. In the first quarter, the accumulated profit decreased by 3.3% year-on-year, and the decline was 10.7 percentage points narrower than that in January-February.

Experts believe that the profit growth rate in March has rebounded a lot, and the industrial added value and PPI volume and price have risen, mainly from the automobile manufacturing, petroleum processing, steel and chemical industries. In the second quarter, the profit growth rate of industrial enterprises may continue to rise under the effect of VAT tax cuts.

Four industries such as automobiles are picking up profits

Zhu Hong, senior statistician of the Industry Department of the National Bureau of Statistics, said that in March, production and sales growth accelerated, industrial prices stabilized and rebounded, and profits in key industries such as automobiles, petroleum processing, steel and chemicals rebounded, and industrial profit growth rebounded markedly. In addition, the efficiency of industrial enterprises has also improved: First, the unit cost has been transferred from rising to lower; second, the leverage ratio has continued to decrease; third, the turnover of finished goods inventory has accelerated; fourth, profitability has rebounded.

The chief researcher of fixed income of CITIC Securities clearly stated that the profit recovery mainly came from four industries. Due to factors such as price cuts and new model listings, the rebound in automobile production and sales in March led to a 1.0% year-on-year increase in automobile manufacturing profits, while the previous value was down. 42.0%; Under the influence of post-holiday resumed work and overseas supply side factors, the prices of industrial products rebounded. The profit of petroleum processing, steel and chemical industry decreased by 13.9%, 15.2% and 3.2% respectively, and the decline was sharply narrowed by 56.5 and 43.8. And 24.0 percentage points. The total of the four industries rebounded by 12.8% from January to February. In addition, the increase in early purchases and investment income caused by tax cuts has also increased profit growth.

According to the type of ownership system, the growth rate of private enterprises in the first quarter has turned from negative to positive, and it is also the only type of ownership that has been converted from negative to positive. The data shows that the state-owned holding enterprises realized a total profit of 414.62 billion yuan, down 13.4% year-on-year; the joint-stock enterprises realized a total profit of 917.09 billion yuan, down 1.0%; foreign and Hong Kong, Macao and Taiwanese investment enterprises realized a total profit of 318.22 billion yuan, down 7.9%; private The company realized a total profit of 325.98 billion yuan, an increase of 7.0%.

Zhou Yue, chief fixed-income analyst of Guojin Securities, said that the fact that the decline in profit margins of state-owned enterprises and the profits of private enterprises are growing year-on-year indicates that the short-term economy has improved in stages.

Tax reduction and fee reduction increase corporate profits

Looking forward to the future, Li Chao, chief macro researcher of Huatai Securities, believes that the rebound in profit growth in March is mainly due to the increase in industrial value added and PPI, so it still shows a certain seasonality. Whether the cumulative profit growth of the future profits can be positively changed depends mainly on whether the volume and price are sustainable and the effect of the tax reduction and fee reduction policy.

Guo Lei, chief macro analyst of GF Securities, believes that the profit growth rate of industrial enterprises in the first quarter has bottomed out and may continue to rise in the future. First, the average PPI in the second quarter may be higher than the first quarter. Under the hikes, the probability of PPI in April continued to rise compared with that in March. Although the hikes in May and June were lower, the new price hikes since the beginning of the year were generally stronger. Second, the VAT rate will fall on April 1st. The tax cut will have a certain thickening effect on corporate profits, and will be more obvious in the year-on-year growth rate of industrial enterprises' profits.

Zhang Wenlang, chief macro analyst of Everbright Securities, estimates that the annual industrial profit growth rate will be around 3.5%. In addition to the PPI continues to pick up, VAT tax cuts, the upcoming social security fee reduction is expected to increase industrial profit growth by 3-4 percentage points, infrastructure investment is picking up, real estate investment is high, and profit growth in cyclical industry and post-cyclical industry Pulling will continue. In addition, policies that stimulate car consumption will boost consumers' desire to buy. After considering the impact of tax cuts and reductions, the cumulative industrial profit growth year may be at the end of the year.