This article is from WeChat public account:Guotai Junan Securities Research (ID: gtjaresearch), author: Guotai Junan strategy team, cover: vision China
On March 8, 2018, when Trump signed a notice to impose tariffs, not many people realized that the dispute between China and the United States would be so intense and sustained.
19 months have passed, what is the Chinese business community’s response?
If we go through the quarterly performance reports to observe more than 3,000 listed companies in A-shares, we will find some of them injured, some fall, some carry forward, but also a large number of companies are In the opportunity of domestic substitution and industrial chain migration, we will create our own unique competitiveness and continue to grow and change under the new environment.
They started to get through the early days and embarked on new heights.
The Guotai Junan Strategy Team recently released a special report, “Bottom-up Deconstruction of Trade Friction Impact and Q3 Profit Outlook”. Based on the contents of the 2018 and 2019 financial reports, it analyzed the trade frictions of listed companies for 19 months. Those thrilling growth and counterattacks, as well as which industries in the post-trade war era, are more likely to stand out.
01 Rainstorm transit
In the past two years, “great environment” and “trade friction” have frequently appeared in the performance reports of listed companies.
If Air China wrote in its 2018 mid-year report:
“Since this year, Sino-US trade friction has been escalating and international environmental risks have been increasing. According to current tariff measures, the tariffs of the Group’s B737NG series aircraft and B737MAX aircraft imported from the United States will increase to 25%, resulting in Increased costs. Trade frictions and increased tariffs may affect the passenger and freight demand between China and the United States, which will affect the revenue of China-US routes.”
Twice the impact of the larger photovoltaic industry, Tongwei shares:
“On January 22, 2018, the US government announced a 30% guaranteed tariff on imported photovoltaic cells and components. On July 16, the Indian government announced the final results of the investigation on imported photovoltaic cells and components. It is proposed to impose a 25% guarantee tariff on imported photovoltaic cells and components. Based on the original intention of developing domestic manufacturing industry, the United States and India have successively launched trade protection investigations on China’s photovoltaic products, which has pushed up barriers to domestic product exports and lowered products. Export earnings.”
Some companies’ semi-annual report announcements are greatly affected by trade friction
Data Source: Wind, Guotai Junan Securities Research
Only from the contents of the published financial reports, the negative impact of trade friction on Chinese companies can be divided into three categories:
1. Increased tariff costs
Petit, China Pet, Lianhua Technology and other companies all said in their performance report that the company’s products in the US tax list, the company’s profit is inevitably affected by factors such as product price cuts.
2. Loss of American staff
Trade friction has caused some companies to operate turbulently, which is likely to cause brain drain. The embargo measures that the United States intends to adopt for companies such as Huawei also limit the research and development of American technicians in domestic companies.
For example, in the semi-annual report of 2018, Shangying Global reported that due to the trade friction between China and the United States, the core personnel of the United States left the company, resulting in the loss of major customers.
3. Imports of raw materials such as US chips are limited
For our high-tech companies, the United States restricts its entry into the US market on the one hand, and restricts its imports of high-end raw materials such as chips from the United States. Some technology companies, especially those involved in military business, are at higher risk of embargo.
For example, in the report, the company’s purchase of US chips may be affected by trade friction.
02 Who is overtaking? Who is fighting back?
In the storm, Chinese companies react differently.
For some companies whose brand advantages are obvious and the overseas business accounts for a relatively high degree of international operations, trade friction has gradually become a rare opportunity to overtake a corner.
For example, HKUST:
“In the trade war, the company has maintained close cooperation with influential chip manufacturers at home and abroad, including NVIDIA, Intel, ARM, Qualcomm, DSPG, MTK. Etc., Xunfei also strategically invested in the artificial intelligence chip Unicorn Cambrian. Therefore, the Sino-US trade dispute will not have a major impact on the fundamentals of Xunfei, but will promote the country to further increase the support of the source core technology field. Strength, promote artificial intelligence industry applications and industrial upgrades.”
A comprehensive analysis of companies that are less affected by trade frictions, we can see that they have some obvious characteristics:
1. The company’s business has significant advantages and irreplaceability
As mentioned by Yilian Network, US dealers’ reserve stocks in advance pushed up the company’s earnings in the second quarter.
The products of Superstar Technology and Taichenguang have obvious cost advantages. Although the sales ratio in the US market is relatively high, the company has achieved rapid growth under the condition of increasing tariffs.
2. Better sales channels in international markets outside the US
In the first half of 2018, Zhejiang Dingli’s revenue in the North American market decreased by 54%, but the European market revenue increased by 47% year-on-year; Zhejiang Yongqiang’s North American market revenue increased by 15% year-on-year, but the European market revenue increased by 43%. %, the development of the non-US market has reduced the impact of trade friction.
3. Complete overseas production capacity and avoid US tariff barriers with strong overseas production capacity
For example, the production bases of Dream Lily in Serbia, Spain and Thailand have the ability to be put into production and supply to the world. Yutong Technology has deployed multiple production bases in Vietnam, India and Indonesia, and the Vietnam factory of racing tires in the first half of the year. Contributed to 64% of the company’s earnings.
4. The domestic market has great potential
In the case of Zhejiang Dingli, which was mainly engaged in export business, domestic business increased by 35% in the first half of 2019, and its operating income increased from 39% in the same period last year to 51%.
Overview the group of companies with high overseas business, such as consumer electronics head company Lixun Precision, Goer shares, pharmaceutical outsourcing service company Kelley Ying, Kanglong Huacheng, tire company triangle tires, racing wheel shares, etc. Both achieved rapid profit growth in the first half of 2019.
Some of the companies with faster earnings growth in the first half of 2019 and higher overseas business
Data Source: Wind, Guotai Junan Securities Research
And for the rest of the listed companies at risk, how to fight back and evade becomes an imminent thing.
Most companies are beginning to develop or further deepen their internationalization strategy.
For example, China Construction, as one of the earliest construction companies to undertake overseas projects, has made a judgment on the external environment that “there is a long-term, trend-changing change”:
The external environment of the company’s ‘going out’ is undergoing long-term and trend-changing changes. It is necessary to prevent risks, properly handle overseas investment barriers, market restrictions and discrimination, deterioration of project operating conditions, and preservation and appreciation of local currency assets. If you have problems, you need to analyze the opportunities and accelerate the development of quality overseas.”
As another logistics leader, SF Holdings:
“At present, the company has openedExpress services to countries such as the United States, Japan, South Korea, Singapore, and cross-border B2C and e-commerce services in multiple countries and regions. In the future, with the development of SF Holdings’ overseas business, the proportion of foreign currency-denominated businesses will gradually increase.
According to our summary of the listed company’s 2019 semi-annual report, listed companies have the following counterattacks:
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Listed companies increase their product competitiveness
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Set up a factory overseas
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Explore non-US markets
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Explore the domestic market
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Enhance customer collaboration sticky
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Related Diversity
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Research on trade policies and laws and regulations to deal with trade frictions
Some companies plan to increase product competitiveness to deal with trade friction
Data Source: Wind, Guotai Junan Securities Research
Some companies plan to respond to trade frictions through overseas factories
Data Source: Wind, Guotai Junan Securities Research
Some companies plan to address trade frictions by exploring non-US markets
Data Source: Wind, Guotai Junan Securities Research
Some companies intend to address trade frictions by exploring the domestic market
Data Source: Wind, Guotai Junan Securities Research
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Some companies intend to respond to trade frictions by enhancing customer engagement
Data Source: Wind, Guotai Junan Securities Research
Some companies intend to deal with trade friction through relevant diversification
Data Source: Wind, Guotai Junan Securities Research
Main 3 quarterly report pre-increase reasons
Data Source: Wind, Guotai Junan Securities Research
In 129 companies with pre-reduced performance, falling demand, corporate factors and cost increases are the most critical reasons.
Main 3 quarterly report pre-reduction reasons
Data Source: Wind, Guotai Junan Securities Research
Next, we categorize the companies that publish the reasons for the pre-increased performance.
1 Some companies benefiting from the industry boom: consumer electronics, 5G, military, API, and farming.
Parts of the first three quarters of profit benefiting from the industry’s booming
Data Source: Wind, Guotai Junan Securities Research
The consumer electronics industry is recovering significantly. Goer shares, Xinwei Communications, Lixun Precision and other stocks have a good profit growth rate. With the advent of the 5G era, consumer electronics is expected to continue.
The 5G industry chain has a high degree of prosperity. Base station PCB head company Hudian shares, RF parts company Wuhan Fangu, Sega Technology have a higher profit growth rate.
The military industry is still in a high level of prosperity. The delivery of orders for military products such as Gaode Infrared, Dali Technology, and Weihai Guangtai has improved significantly.
The profitability of raw materials is good. Benefiting from the supply contraction and the technological upgrading of China’s API companies, the profitability of a number of API companies such as Tianyu, Puluo and Kailaiying increased significantly year-on-year.
The aquaculture industry chain has good profitability. Benefiting from the price of white feather broiler chickens and pigs rising to historical highs, Shengnong Development of the Baiyu Broiler Industry Chain, Yisheng Shares, and the stocks of the stocks of the pig breeding industry chain and the stocks of Wenshi were all better.
2 Some companies benefiting from the company’s own factors such as production expansion and management improvement.
Parts that benefited from production expansion and management improvement in the first three quarters
Data Source: Wind, Guotai Junan Securities Research
Optimize product structure. Many companies such as CITIC Special Steel and Skyworth Digital mentioned increasing profit margins by improving product mix.
Strengthen market development efforts. Companies such as Wanfu Bio, Zhifei Bio, and Tomson Becky attributed the profit growth to increasing market development.
Expand capacity. The expansion of production capacity of Yantang Dairy, Changqing Group and Kodali has increased the company’s profitability.
Improve operational efficiency. For example, ZTE mentioned that the profit growth has changed from a mixed company to a flexible, efficient and market-oriented system. Zheshang Zhongtuo and Zhejiang Yongqiang mentioned improving internal production efficiency.
3 Some companies that benefit from increased competitive advantage and increased market share.
Mainly include Lixun Precision, Vision Source, Dahua, Wentai Technology, Ziguang Guowei in the electronics industry; Enjie shares in the new materials industry, Jacques Technology; new media shares and tourist networks in the media industry; Siyuan Electric, Weihai Guangtai, equipment manufacturing industry; Kelly Ying, Kangtai Medicine, and Taige Medicine, related to medicine.
Parts that benefited from a competitive advantage in the first three quarters
Data Source: Wind, Guotai Junan Securities Research
4 Some companies that benefit from lower raw material costs or greater operational cost optimization.
The cost of raw materials has decreased. Kangli Elevator, Gaomeng New Materials, Changyuan Power and other companies mentioned the contribution of raw material cost reduction to profitability.
Expanding scale to reduce costs. Companies such as Jucan Optoelectronics, Huachang Chemical, and Jianlang Hardware have reduced unit costs through expansion.
Improve cost control. Gold ham is controlled by inventory managementCost, maiden voyage energy management to finely manage costs and expenses, Yuntianhua optimizes bulk material procurement to reduce costs.
Measures for tax reductions and reductions. Minfa Aluminum mentioned the positive impact of government tax cuts and fee reductions on earnings.
Parts of the first three quarters of profit benefiting from cost and expense reduction
Data Source: Wind, Guotai Junan Securities Research
5 Benefit from some of the companies that have expanded their scope of consolidation.
Parts of the first three quarters of profit, benefiting from the consolidated reporting company
Data Source: Wind, Guotai Junan Securities Research
The main reason for the profit growth of the first three quarters of 10 companies including Guangzheng Group, Meijimu and Kailitai was the completion of the outbound merger and acquisition, and the newly added consolidated subsidiaries contributed profit.
public channel number from the micro herein: Guotai Junan Securities Research (ID: gtjaresearch), author: Guotai Junan strategy team