According to the data released by the National Bureau of Statistics on April 27, from January to March, the total profit of industrial enterprises above designated size was 153.332 billion yuan, a year-on-year increase of 11.6%, and the growth rate slowed by 4.5 percentage points from January to February. “From January to March, profits of industrial enterprises above designated size increased by 11.6% year-on-year, continued to maintain double-digit and rapid growth, the profit structure was optimized, corporate profits continued to improve, and the industrial economy’s steady and positive pattern remained unchanged.” Bureau of Statistics Industry Department He Ping made the above evaluation.

Huatai macro Li Chao's team commented on the profitability data of industrial companies, saying that the large-scale decline in March and the late Spring Festival this year, postponed start of work after the holiday, and the volume and price of the industrial sector fell, reflecting a certain seasonality. It is expected that with the phased rebound of the PPI in the second quarter, the profits of industrial companies will also improve in stages, and it is expected that they will not exceed the expected decline for the whole year. Tax reduction and fee reduction will also delay the downward trend of profits.

Factors affecting the decline in profits of industrial companies are expected to be eliminated in April

Data show that in March, the profits of industrial enterprises above designated size increased by 3.1% year-on-year, and the growth rate dropped by 13% compared with January to February. In the eyes of the industry, the late start of construction and the fall in prices are the main reasons for the continued decline in profits.

He Ping believes that in March, the growth rate of profits of industrial enterprises above designated size has dropped significantly, mainly due to three factors. One is the postponement of the Spring Festival. During the Spring Festival holiday in 2018 in mid-to-late February, on March 2nd, some enterprises had not resumed work. The number of actual production and operation days decreased compared with the same period of last year. Affected by this, the added value of industrial enterprises above designated size and the growth rate of main business income all declined.

The second is the fall in the price of industrial products. In March, the ex-factory price of industrial producers rose by 3.1% year-on-year, which was a 0.9 percentage point drop from January to February; the purchase price of industrial producers rose by 3.7% year-on-year, a decrease of 1.1 percentage points from January to February. According to preliminary estimates, due to price changes, profits increased by approximately 62.46 billion yuan year-on-year, and the driving force for profit growth was 10.9 percentage points, which was a significant drop from 5.9 percentage points from January to February.

Third, foreign exchange losses have increased financial costs. Since the end of the previous year, due to the exchange loss and the increase in net interest expenses, the growth of corporate finance costs has accelerated. In March, the financial expenses of industrial enterprises above designated size increased by 15.1% year-on-year, and the growth rate accelerated by 2.8 and 8.6 percentage points respectively from January to February and the entire previous year.

Judging from the recent operation of industrial enterprises, Guotai Junan (17.650, 0.27, 1.55%) fixed-income research team believes that since the last week of March, post-holiday start-ups have shown signs of accelerated recovery, and the price of thread has also picked up from the bottom. The impact of negative factors is expected to be eliminated in April, and the rapid decline in profit data is not sustainable.

Profit Structure Improves Business Benefits

From January to March, although the total profit growth rate of industrial enterprises above designated size was 4.5 percentage points slower than in January-February, it also showed a favorable trend of continuous optimization of profit structure and continuous improvement of corporate profits.

Specifically, first, profitability has increased and the proportion of manufacturing has risen. From January to March, the profit rate of main business income of industrial enterprises above designated size was 6.18%, an increase of 0.11 percentage points year-on-year. He Ping said that from January to March, among the total profits of industrial enterprises above designated size, the proportion of manufacturing industry was 83.9%, which was 0.3 percentage points higher than that of January to February. According to calculations, from January to March, the profit of industrial strategic emerging industries rose by 10.7%, maintaining a relatively rapid growth.

Second, the cost dropped and the leverage ratio decreased. From January to March, the cost of main business income per 100 yuan for industrial enterprises above designated size was 92.61 yuan, a year-on-year decrease of 0.13 yuan; of which, the cost per 100 yuan of main business income was 84.33 yuan, a year-on-year decrease of 0.18 yuan. At the end of March, the asset-liability ratio of industrial enterprises above designated size was 56.4%, a year-on-year decrease of 0.8 percentage point. Among them, the asset-liability ratio of state-controlled enterprises was 59.5%, a year-on-year decrease of 1.5 percentage points.

In addition, the turnover of finished products and accounts receivable has been accelerated. According to Gao Ming, a macro analyst at China Merchants Securities (16.430, 0.13, 0.80%), the accumulated inventory of industrial finished goods in the first quarter increased by 8.7% year-on-year, indicating that the current inventory cycle has a higher degree of resilience and the probability of a stalled industrial economy is not high. Non-governmental investment rebound, high-speed growth of new kinetic energy and other support.

Huatai macro Li Chao team believes that this round of inventory cycle is different from the past, may be affected by environmental restrictions and production phased repeated, it is expected that this year the company will continue to be in the inventory phase.