The main line is clear!The head of the Chinese character leads the market out of the quagmire of consolidation, and the “China Special Evaluation” is waiting for the flowers to bloom | Strategy Focus
The “China Times” reporter noticed that since the opening after the festival, the Shanghai Composite Index has been consolidating in the range of 3220 points to 3310 points. Starting from March 1, the Chinese prefix sector index rose by 5.79% in three days, leading the Shanghai Composite Index out of the quagmire of consolidation.
A private equity person who has been interviewed many times told reporters: “In the last interview, I said that I should switch from bear market thinking to bull market thinking as soon as possible. The market’s heavy volume on the first day after the festival seems scary, but it is actually a rotation. If there is no clear understanding of the market trend, it is very easy to be thrown off during the consolidation of more than a month. During the consolidation, the market was first worried that it had not fully absorbed the bad news from the Fed. I always think that since the end of September last year, , the Federal Reserve’s interest rate hike will no longer be the dominant force in the market, and the market has tried recovery logic and artificial intelligence logic, but finally, under the leadership of the Chinese prefix, it walked out of the consolidation zone.”
He further said: “The market has opened up room for growth. In October last year, the Xinchuang sector was the first to strengthen. I have been hesitating whether the main line of the market is Xinchuang or ‘China Special Evaluation’? Now I think that with the SASAC on the 3rd The meeting has provided a solid logical foundation for the interpretation of “China Special Evaluation” in the market, and the main line in the future will be the logic of “China Special Evaluation” represented by the Chinese prefix.”
On March 3, the Shanghai Composite Index closed at 3328.39, up 0.54%, with a turnover of 388.9 billion yuan; the Shenzhen Component Index closed at 11851.92 points, up 0.02%, with a turnover of 480.6 billion yuan; the ChiNext Index closed at 2422.44 points, up 0.16%, with a turnover of 174.4 billion yuan . The trading volume of the Shanghai stock market shrank slightly, and the trading volume of the ChiNext Board shrank the most, followed by the Shenzhen Component Index. The Shanghai and Shenzhen stock markets rose by 2,224 and fell by 2,648.
It is worth noting that the China prefix sector index rose by 5.79% in three days. From March 1st to March 3rd, the Chinese prefix sector index rose by 1.8%, 1.34% and 2.54% respectively, and the transaction value was gradually enlarged to 63.8 billion yuan, 72.8 billion yuan and 84.6 billion yuan.
On March 3, among the 97 stocks in the entire sector with the Chinese prefix, 89 rose, 7 fell, and 1 was flat. Among them, China Railway Assembly rose 15.91%, ranking first, and Zhongcheng shares had a daily limit, becoming the only stock with a daily limit.
There are 11 companies with an increase of more than 5%. In addition to the above two, there are COFCO Science and Technology, which rose 9%, China Haicheng, which rose 7.75%, China Satcom, which rose 7.45%, CSSC Defense, which rose 6.62%, and China Communications Construction, which rose 6.21%. %, China Shipbuilding rose 5.78%, China CRRC rose 5.56%, Zhongbing Hongjian rose 5.34%, China Textile Standard rose 5.32%, and China Railway Group rose 5.21%.
On the news, on March 3, the State-owned Assets Supervision and Administration Commission of the State Council held a meeting to mobilize and deploy state-owned enterprises to carry out world-class enterprise value creation actions against benchmarks. The meeting held that the mismatch between value realization and value creation of central enterprises is still prominent, and the State-owned Assets Supervision and Administration Commission also clearly requires central enterprises to achieve both value creation and value realization.
The meeting emphasized that it is necessary to highlight efficiency and efficiency, accelerate the transformation of development methods, focus on indicators such as labor productivity, return on net assets, and economic value-added rate, and focus on improving quality, increasing efficiency, and stabilizing growth, and effectively improving the level of return on assets. State-owned central enterprises should strengthen reform and tackle difficulties, and strive to build a good ecology that is conducive to the creation of corporate value.
At the meeting, CNOOC, China Resources Group, Shanghai State-owned Assets Supervision and Administration Commission, Shenzhen State-owned Assets Supervision and Administration Commission and other units made exchange speeches. Aerospace Science and Technology and Sinopec made written exchanges.
“China Special Evaluation” is waiting for the flowers to bloom
Prior to this, on November 21, 2022, Yi Huiman, Chairman of the China Securities Regulatory Commission, stated at the 2022 Annual Meeting of the Financial Street Forum that he would “explore and establish a valuation system with Chinese characteristics.”
“The proposal of a valuation system with Chinese characteristics is essentially a revaluation of China’s advantageous assets.” A brokerage analyst told reporters that the reshaping of the valuation of state-owned enterprises mainly lies in the re-evaluation of enterprises that have improved their competitiveness after transformation, that is, the reform of state-owned enterprises and the revaluation of the growth state-owned enterprises brought about by industrial transformation.
Yang Delong, Chief Economist of Qianhai Kaiyuan, told the reporter of China Times: “The valuation system with Chinese characteristics is based on the characteristics and development stages of the Chinese economy and the constitution of the capital market for valuation, so as to promote the better function of market resource allocation. This is a valuation system that fits the characteristics of Chinese modernization. It is a major benefit for good companies with Chinese characteristics and long-term profit growth, and it will help improve the valuation of good companies and bring a valuation premium.”
The background of Chairman Yi Huiman’s speech above is that, both horizontally and vertically, the value of A-share state-owned enterprises and central enterprises has been greatly underestimated.
According to Wind data, as of February 28, 2023, the price-earnings ratio of Wind’s central enterprise large-cap index is 9.99 times, which is significantly lower than the 17.99 times of all A-shares. Moreover, from the perspective of equity risk premium, the equity risk premium of the Wind central enterprise large-cap index is at 85.1% since 2010.
Through vertical comparison, we can see that the characteristics of A-share valuation are reflected in the historical valuation rotation and overall long-term undervaluation. A-shares have a 2-3 year rotating market in which high-valued stocks dominate or undervalued stocks dominate. Usually, when the economy is down and corporate profits are down, undervalued and low-volatility stocks are dominant due to their defensive nature. On the contrary, high-valued stocks are dominant. At present, the PE of A-share central enterprises of 8.5 times is only 14.7% of the historical valuation data, and the PB of 0.96 times is only 12.2% of the historical data.
In the transformation of the economy to the mid-to-high end, the status of the mainstay of state-owned enterprises has been further enhanced. Statistics show that between 2017 and 2021, the average annual growth rate of investment by state-owned enterprises in emerging industries exceeds 20%. At the same time, state-owned enterprises account for a relatively high proportion of industries involving national security, such as energy, upstream industrial products, aerospace, and finance.
How to choose the target?
The proposal of the valuation system with Chinese characteristics has provided the wings of valuation improvement for the stock prices of central enterprises, and the deployment of the State-owned Assets Supervision and Administration Commission on “state-owned enterprises to benchmark against the world-class enterprise value creation action” has inserted fundamentals for the performance of the stock prices of central enterprises. wings.
Standing at the current point of time, how should investors choose investment targets?
Industrial Securities believes that the path to reshape the value of central enterprises can be divided into four categories. The four paths include industry-finance interaction (listing financing, implementation of performance commitments, professional strategic integration and other measures to promote the layout optimization and function of the listing platform), value management (introducing strategic investment, improving the ESG system, preventing and defusing major risks, etc. to promote listing) The company’s measures to improve governance and standardize operations), value creation (improving quality and efficiency, technological innovation, strengthening talent development, etc.), value realization (strengthening investor relationship management, share repurchase, improving profit distribution, etc.).
China Merchants Securities believes that we can focus on five major areas. They are the infrastructure chain, including transportation infrastructure construction, water conservancy, urban pipe network renovation and construction, affordable housing projects (indemnificatory housing construction & old community renovation), industrial parks, etc. The relevant listed central enterprises deserve special attention; aviation equipment Aviation equipment industry chain represented by domestically produced large aircraft and military industry; power grid investment under the dual-carbon background; domestically produced alternatives, it is recommended to focus on listed central enterprises related to the “stuck neck” fields such as semiconductors, CNC machine tools and robots, and large aircraft; restructuring expected areas Here, focus on the six key areas of medical health, power transmission and distribution equipment, modern logistics, strategic resources, grain storage and processing, and marine engineering equipment.
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