The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that the total net profit of the 26Q3 full A income increased 7.8% year on year, down 10.8 pcts from the interim report. Non-financial petroleum and petrochemical caliber still increased 16.3%, and profit recovery was shifting from expansion to structural support. Finance has changed from profit growth to drag down. AI demand and price increases for resource products are still the main support. The positive profit growth rate in the secondary sector fell from 56.2% to 42.3% in a single quarter, and the coverage of high-growth industries narrowed markedly. Non-financial petroleum and petrochemical ROE rebounded to 7.04%, mainly driven by net interest rates, and asset turnover is still awaiting demand. Net operating cash flow turned negative year on year, inventory growth rate rose to 5.3%, net working capital expanded month-on-month, inventory replenishment driven by price increases faster than demand recovery, and cash conversion was under pressure. The growth rate of capital expenditure has rebounded at a low level, investment in technology and resource products has been relatively active, traditional manufacturing has remained restrained; the pharmaceutical and some consumer industries have shown marginal improvements.
CITIC Construction Investment's main views are as follows:
Profit growth has declined marginally, and growth and resources are still providing support
The cumulative net profit of All A and All A (non-financial petroleum and petrochemical) in the first three quarters of 26 increased 7.8% and 16.3% year on year, down 10.8 and 3.7 pct from the interim report, respectively; total operating income increased 5.4% and 6.2% year on year, and the scissor gap between full A's profit and revenue narrowed to 2.4 pct. Overall A profit fell 11.1% year-on-year in the third quarter. Financial sector profit fluctuations, upstream price increases squeezing midstream profits, and slowing technology profit growth all dragged down the overall performance of A-shares.
The “face” of the economy has shrunk markedly, and the profit “gap” has further widened
In 26Q3, the positive profit growth rate of Shenwan's second-tier industry fell from 56.2% to 42.3%, the share of industries with a growth rate of more than 30% fell from 33.1% to 20.8%, and the proportion of deeply negative growth industries rose to 31.5%. The boom changed from expansion and restoration to concentration in a few high-growth industries. According to the quarterly performance growth rate, the first tier (> 50%) still focuses on AI technology, some upstream materials, pharmaceutical services and retail. The second tier mainly focuses on industrial metals, coal mining, refining and some equipment manufacturing, and the third tier mainly focuses on domestic consumption, traditional manufacturing, and real estate chains. Demand for technology is still strong, and resource price support is still there, but upstream costs are transmitted to the midstream, and marginal improvements in pharmaceuticals and some retail sales have yet to form a broad relay of domestic demand.
The continued rise in low ROE is dominated by profit margins, and turnover repair is still in demand
The 26Q3 All-A (non-financial petroleum and petrochemical) ROE (TTM) rose to 7.04%, up 0.14pct from month to month, the net sales interest rate rose to 5.15%, and the total asset turnover ratio basically remained flat at 0.56 times. Industrial capacity utilization is still low, and price side improvements are ahead of demand expansion. Major increases in volume and price include electronics, coal, petroleum and petrochemicals, telecommunications, etc. Non-ferrous metals are more driven by improved profit margins, and domestic demand consumption and real estate chains are weak.
Operating cash flow turned negative year on year, and inventory reimbursement boosted working capital consumption
26Q3 Full A (non-financial petroleum and petrochemical) operating cash flow (TTM) fell 2.7% year on year, turning negative from +1.3% in the second quarter, and sales revenue growth rate rose to 5.9% year on year. Inventories increased 5.3% year over year, up markedly from 2.35% in the second quarter, and net working capital expanded 6.3% month-on-month. The recovery in PPI is driving enterprises to procure ahead of time and increase raw material reserves, while improvements in terminal demand are relatively limited, and reserve fund consumption suppresses operating cash flow. The net outflow of financing cash flow has narrowed markedly, but the company is still cautious about expanding production as a whole.
The capital expenditure structure is divided, and the willingness to invest in technology and resources is stronger
26Q3 All-A (non-financial petroleum and petrochemical) capital expenditure (TTM) increased 2.1% year-on-year. Capital expenditure on electronics, non-ferrous metals, defense, military, and computers continued to grow, and automobiles, basic chemicals, and household appliances were still shrinking. In the industry, demand for electronics, non-ferrous metals, defense and military, and computers resonates strongly with investment, and the industrial boom continues; production expansion is relatively restrained due to improved demand for mechanical equipment, communications, and power equipment; demand restoration for automobiles, basic chemicals, home appliances, etc. coexists with supply contraction, and the supply and demand pattern tends to be optimized. Technological hardware and resource products are still the main line of the boom, complementing marginal improvements in pharmaceuticals and some consumption.