Big-cap reports: securities & insurance outstood; banking & oillackluster

As interim report disclosure is drawing to a close, editors reviewed the performance of the industries with traditional big-cap stocks, finding that the securities, insurance and electricity industries presented satisfying result in the first half of this year; while the banking, coal and oil industries declined significantly.

Securities companies outstood in interim reports, yet may slide in H2.

Thanks to the stock market rally in the first half year, securities companies posted outstanding performance in their interim reports. Listed securities companies who have disclosed their interim reports saw their net profit surge by over 200 percent in the first half.

Specifically, the net profit of Everbright Securities Company Limited (601788.SH) was 4.87 billion yuan, up by 1180.05 percent year on year. Its operating revenue was 9.52 billion yuan, up by 395.32 percent year on year. Everbright Securities discloses that a sharp year-on-year increase in stock and fund trading brokerage pushed up its commission revenue. The net commission revenue reached 5,545 million yuan, rising by 3.2 percent year on year. The net revenue in margin trading and short selling profits was 1,364 million yuan, rising by 142 percent year on year. Other securities investment business also yielded remarkable results. The revenue from other securities investment and fair value changes was 2,582 million yuan, representing a 107-percent growth from the 24 million over the same period last year.

The net profit of Western Securities Co., Ltd. (002673.SZ) jumped by 896 percent in the first half. The Pacific Securities Co., Ltd. (601099.SH) and Guosen Securities Co., Ltd. (002376.SZ) are also among those whose net profit grew by over 500 percent.

Besides, the net profit of Citic Securities Company Limited (600030.SH; 06030.HK) and Haitong Securities Company Limited (600837.SH; 06837.HK) was 12.47 billion yuan and 10.15 billion yuan, a year-on-year increase of 205.97 percent and 252.90 percent, respectively. The net profit of Guotai Junan Securities Co., Ltd. (601211.SH) and Guosen Securities Co., Ltd. (002376.SZ) recorded more than 9 billion yuan, and increased by 350.72 percent and 503.10 percent year on year, respectively.

However, it is noteworthy that the recent vitality in A-share market gave a hard blow to brokerage, margin trading, investment banking and self-operated business of securities which saw a sharp slide in performance in July on a monthly basis. According to the data on the first week of August, their trading volume and the balance in margin trading shrank significantly. As the market is still on the track of leverage reduction, the net profit of securities companies is very likely to decline from the previous month in August. The securities companies sector can hardly perform well in a short term until the market restores its confident.

“In the next half, three kinds of companies are highly recommended: the first are those with long-term competitiveness. It is suggested that investors should focus on companies with strong comprehensive strength and innovation ability, like Guotai Junan Securities, Huatai Securities Co., Ltd. (601688.SH) and Citic Securities. The second is those Internet-based financial companies. Sinolink Securities Co., Ltd. (600109.SH) is highly recommended. The third are those which expect a state-owned enterprises (SOEs) reform. Soochow Securities Co., Ltd. (601555.SH) and Guoyuan Securities Company Limited (00728.SZ) are highly recommended,” an analysis of Northeast Securities Co., Ltd. (00686.SZ) notes.

Well, still see opportunities for higher valuation

Driven by the supportive policies, such as the new “action plan” for the insurance industry, both the operating revenue and net profit of listed insurance companies expanded in the first half year. Based on the interim reports released, three insurance companies witnessed their net profit up by over 50 percent.

Ping An Insurance (Group) Company Of China, Ltd. (02318.HK; 601318.SH) saw a net profit of 39.91 billion yuan in the first half of 2015 according to its interim report, up by 54.3 percent from the previous year. The report indicated that as of June 30 this year, the total assets of the company stood at 4.6 trillion yuan, presenting an increase of 15.6 percent when compare with the beginning of the year. 331.19 billion yuan contributed to shareholders’ equity of parent company, up by 14.4 percent compared with that in the beginning of the year. The basic earnings per share were 1.9 yuan, up by 40.7 percent when compared with that in early 2015.

In the first half, New China Life Insurance Company Ltd. (01336.HK; 601336.SH) recorded a net profit of 6.75 billion yuan, showing a year-on-year growth of 80.1 percent. During the period, on a year-on-year basis, the company saw a total assets of 659.84 billion yuan, up by 2.5 percent; operating revenue of 103.99 billion yuan, up by 27.9 percent; earnings from insurance business of 72.66 billion yuan, up by 8.7 percent. 56.93 billion yuan contributed to shareholders’ equity of parent company, up by 17.7 percent from a year earlier.

The interim report of China Life Insurance Company Limited (02628.HK; 601628.SH) is catchier. As disclosed, in the first half, China Life Insurance obtained 31,489 million yuan of net profit belonging to shareholders of parent company, increasing by 71.1 percent. The company witnessed operating revenue of 333,411 million yuan during January-June, surging by 36.8 percent. The new businesses were valued at 18,637 million yuan in the first half, up by 38.5 percent year-on-year.

BOCI International (China) Limited (BOCI) pointed out in an article, “the insurance sector is basically in margin of safety with its intrinsic value and support of performance. The style change in focus of blue-chip market is still mainly contributed by passive factors and the capital-driven active style will boost the insurance stocks to climb further. There might be chances for trade during that period.”

Pingan Securities believed that the insurance industry sees various supportive policies in 2015. The interim measures for preferential individual tax for health insurance has been launched. The tax-deferred pension insurance is expected to be unveiled within the year. The taxation expense reform on vehicle insurance and life insurance is under progress. The launch and promotion of several dividend policies will help insurance premium income and profit margin of insurance companies rise. In addition, there will be grater room for the development of Chinese insurance industry in the long run. Driven by low valuation, growth potential and performance in interim reports, the insurance industry will see opportunity for resource allocation.

Performance of electricity stocks beats expectation, electricity reform to release dividend

As coal cost takes up about 70 percent of cost of thermal power enterprises, the drop in coal price is undoubtedly good news for thermal power industry. According to the interim reports released by the electric power companies, the profit growth rate stays at 30 percent by average, beating the market expectation. The thermal power enterprises in particular experienced excellent performance on the whole. 14 of 20 listed thermal power companies saw double increase in profit. These companies accounted for as high as 70 percent among the 20 ones. For example, Jilin Power Share Co., Ltd. (000875.SZ) turned to profits in the first half of the year. The net profit belonging to shareholders of parent company surged by 211 percent year-on-year. The main reason for stopping loss lied in year-on-year increase in gross margin of thermal power business. Due to the cost decline resulting from the low coal price, the leading companies in the industry such ad Huadian Power International Corporation Limited (600027.SH) and Shanghai Electric Power Co., Ltd. (600021.SH) saw increase in net profit by 31 percent and 36 percent respectively in the first half.

In terms of the hydropower, the water yield was abundant on the whole in the first half year. Large and medium hydropower stations are constantly put into production, with a rapid growth in the hydropower output. Among the listed companies with the net profit growth ranking in Top 10 based on the current interim reports, there are 6 hydropower companies: Guangxi Guidong Electric Power Co., Ltd. (600310.SH), Guizhou Qianyuan Power Co., Ltd. (002039.SZ), Guangxi Guiguan Electric Power Co., Ltd. (600236.SH), HuBei Energy Group Co., Ltd. (000883.SZ), Sichuan Chuantou Energy Co., Ltd. (600674.SH) and Sichuan Guangan Aaa Public Co., Ltd. (600979.SH).

Analysts point out that top-level design for the SOEs reform will be released soon, with 5 core supporting documents predicted to be released soon for the electric power system reform. In the future, new electric power system reform will have important impact on all respects of the industries, especially the power generation enterprises. The restriction on the side to sell the electricity will be eased, bringing new opportunities. Besides that, the segments previously compressed in the electric power system will also continue to release the energy. It is a principal line for the SOEs reform in the electric power industry to increase the assets securitization ratio. The companies, which are reform forerunners with definite commitment of the substantial shareholder and large extension space, will benefit in advance.

Senior analyst of Founder Securities Co., Ltd. (601901.SH), Zhou Ziguang, suggests the investors pay attention to three main lines: electric power system reform + energy internet, ‘One Belt and One Road’ strategy + nuclear power as well as stably -increased investment + distribution network. In addition, the electric power companies with over-expected performance and increasing clean energy ratio are also worthy of the attention.

Profit growth rate of banks lowers again, with severe situation in the second half year

After stating the worst performance report of the first quarter, the listed banks issued more depressed net profit growth rate in the interim reports. On Aug. 27, the state-owned Industrial and Commercial Bank of China Limited (ICBC) (601398.SH; 01398.HK) and Agricultural Bank of China Limited (ABC) (601288.SH; 01288.HK) released the net profit growth rates less than 1 percent in the interim report.

Bank of Communications Co., Ltd. (601328.SH; 03328.HK) obtained a net profit of 37,324 million yuan in the first half year of 2015, with a year-on-year growth of 1.5 percent; ICBC and ABC obtained a net profit of 149.4 billion yuan and 104,564 million yuan respectively in the first half year, with a year-on-year growth of 0.7 percent and 0.5 percent. The ABC has initially suffered the growth rate dropping below a single digit since its listing.

Additionally, the growth rates of Hua Xia Bank Co., Ltd. (600015.SH), Shanghai Pudong Development Bank Co., Ltd. (600000.SH) and China CITIC Bank Corporation Limited (601998.SH; 00998.HK) all fell below the double-digit, with a net profit growth rate of 7.69 percent, 4.89 percent and 2.14 percent respectively. However, the Bank of Nanjing Co., Ltd. (601009.SH) and Ping An Bank Co., Ltd. (000001.SZ) still maintained a double-digit net growth rate of 24.45 percent and 15.02 percent respectively.

Vice president of China CITIC Bank, Fang Heying, responded that the slowing-down growth in net profit was a common issue faced by the whole banking industry, mainly as the ‘bad debts increase, rise of summing and drawing underperformed reserves and and write-off have increased in the period of economic downtrend’.

In the interim report statement meeting, president of China Merchants Bank Co., Ltd. (600036.SH; 03968.HK), Tian Huiyu, provided the data: the bad loans to assets ratio of China’s banking industry reached 1.8 percent, with 1.5 percent in the commercial banks and 3.64 percent in special-mentioned loans (which may be trapped in bad loans and assets in the following development). On the whole, the bad loans to assets ratio plus that of special-mentioned loans exceeds 5 percent, closely related to China’s economic development.

Fang Heying also said: “The economy will be under great pressure in the second half year, with asset quality compressed. Bad loans will also naturally increase, stressing the banks’ operations. And the banks’ operation modes also face a severe situation.”

The petroleum magnates suffered the dramatic hit in performance, with opportunities in the oil reform

The three largest state-owned listed petroleum companies, including PetroChina Company Limited (601857.SH; 00857.HK; PTR.NYSE), China Petroleum & Chemical Corporation (600028.SH; SNP.NYSE) and China National Offshore Oil Corporation (CNOOC) (00883.HK; CEO.NYSE), have already issued the interim report for the first half year. The PetroChina obtained a net profit of 25.4 billion yuan, with a year-on-year decrease of 62.7 percent. China Petroleum & Chemical obtained a net profit of 25.4 billion yuan, with a year-on-year decrease of 22 percent. CNOOC obtained a net profit of 14.73 billion yuan, with a year-on-year decrease of 56.1 percent.

The year-on-year sharp decline of the international crude oil price is undoubtedly the main factor that influences the profits of the three major oil producers in China, namely PetroChina Company Limited (PTR.NYSE; 00857.HK; 601857.SH), China Petroleum & Chemical Corporation (Sinopec, SNP.NYSE; SNP.LSE; 00386.HK; 600028.SH) and CNOOC Limited (00883.HK). According to their interim report, in the first half, the oil exploration and production sections of PetroChina realized an operating profit of 32.9 billion yuan, 68 percent down from the first half of last year; China Petroleum & Chemical Corporation lost 1.8 billion yuan in its oil and gas exploration and development business, with the revenue decreasing 30.1 billion yuan from the same period of last year; CNOOC Limited, which focuses on the upstream oil and gas development and production witnessed a substantial decline of more than 50 percent in its net profit in the first half of the year.

Wang Dongjin, president of PetroChina disclosed in the performance news conference that the National Energy Administration is soliciting opinions and improving the overall reform plan on the oil and gas system. One of the key contents in the plan is the separation of oil and gas pipeline networks so as to conform to the major trend of the reform on oil and gas system.

The industry universally holds that if the future demand side cannot be boosted, then it’ll be difficult for the oil price to rebound. Within a short term, America and OPEC are basically not expected to reverse the trend of high output and sufficient supply, so the oversupply situation cannot bolster a price rise. Meanwhile, the expectation for the Fed to raise interest rate is still lingering, and the strong dollar is still there, so it’s be quite a while that oil will remain at a low price. This will be difficult for the three major oil producers in China, which are unlikely to see an upturn for another term.

Coal industry remains in continuing plight for the forth year

Recently, the two coal magnates China Shenhua Energy Company Limited (601088.SH；01088.HK) and China Coal Energy Company Limited (601898.SH; 01898.HK) published their performance report for the first half of 2015. The previous’ net profit in the first half declines year on year for the third consecutive year, which is also the sharpest decline in the three years. The latter company witnesses a profit loss in its interim report for the first time since 2012.

As the biggest coal enterprise, China Shenhua Energy’s interim report shows that the company has achieved a total profit of 20.87 billion yuan, down 37.4 percent year on year; the net profit that goes to the company’s shareholders is 11.73 billion yuan, down 45.6 percent year on year. Another coal magnate, China Coal Energy does not have a sound performance, either: in the first half of the year, the operating revenue of the company is 29,747 million, a year-on-year decrease of 16.1 percent. A negative 965 million yuan of the net profit goes to its parent company, which is a year-on-year decrease of 240.7 percent. This is the company’s first loss since the 2012 interim report. In the same period last year, the net profit of the company is 686 million yuan.

The domestic coal price has gone through substantial decline for a third consecutive year. The price of 5,500-kilocalorie thermal coal has declined from the 860 yuan per ton in November 2011 to the current 410-420 yuan per ton, a drop of more than 50 percent. The price of coking coal has dropped from the high point of 2,100 yuan per ton to the current 900 yuan per ton, with a 60 percent decrease in price.

With the slump of coal price, the industry is bearing broadening losses. At the press conference held recently, Lu Junling, deputy director of the Bureau of Economic Operation Regulation of the National Development and Reform Commission introduced that, in the first half of the year, major coal enterprises have realized a profit of 20.05 billion yuan, which is only 10.5 percent of the same period in 2012, and more than 70 percent of medium-to-large coal enterprises have lost in profit.

Experts hold that the performance slump of China Shenhua Energy and China Coal Energy reveals that the coal industry is still in a plight. Due to insufficient impetus for economic growth and rather severe overcapacity, it’s very difficult for the coal market to have a big change in the short run and coal enterprises may encounter aggravated hardships.