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The market capitalization management of central state-owned enterprises is one of the focuses of the market in 2024. In recent yearsTutankhamRegulators proposed the construction of a "valuation system with Chinese characteristics", A-share "special valuation", the reform of state-owned enterprises continues to deepen, and state-owned central enterprises are ushering in a further revaluation.
At the 2024 summer strategy meeting of Cathay Pacific Fund, Zhang Ronghe, the manager of Cathay Pacific Central Enterprise Reform Fund, shared his prospects related to the reform of central enterprises. The specific points are as follows--
Market capitalization Management: from "value creation" to "value realization"
In fact, the concept of market capitalization management is relatively early, which can be traced back to 2005 at the earliest. Market capitalization management first appeared to serve the non-tradable share structure. Different from the value management in foreign countries, the market value management we are talking about is more comprehensive management of the intrinsic value and market value of the enterprise, including three aspects.
1. Value creationTutankham; 2. Value transmission; 3. Value realization.
Among them, value creation must be the most basic. Value transfer is the second step, and the third step is value realization, which needs the joint efforts of investors and listed companies.
In China, the concept of market capitalization management was reintroduced in 2013 and was written into the top document of the market for the first time in 2014.
The reform of central enterprises has been the focus of our discussion in recent years, especially since 2022, a new round of market value management reform of state-owned enterprises has been officially launched, dedicated to improving the value realization and value management ability of state-owned enterprises. the construction of a valuation system with Chinese characteristics has become our new investment goal.
We use a very figurative map here to put the market capitalization management system with Chinese characteristics that we are facing now. This explains the overall background of the times, the external environment and our main goals, as well as the main lines that can be done in the future.
Adjust and optimize the management index system to promote the high-quality development of central enterprises
First of all, 2023 is the landing of the top-level design of a new round of state-owned enterprise reform. The reform plan has been formally issued, and the State Council has also set up a corresponding work coordination mechanism. The purpose is very clear, mainly around the functional reform, as well as institutional and institutional reform to deepen deployment. On the basis of the previous round of state-owned enterprise reform, we will further promote the high-quality development of central state-owned enterprises.
First of all, from the perspective of high-quality development, we have further optimized the assessment objectives of central state-owned enterprises, from two benefits and four rates to one interest and five rates, and then further optimize within one benefit and five rates. At the same time, for the system of modern China, including the improvement of supervision, have put forward specific objectives.
In the functional reform, we still put forward the need to promote enterprises to continuously enhance their core functions and improve their core competitiveness. In building a modern industrial system and building a new development pattern, we should give full play to the role of scientific and technological innovation, industrial control and security support.
As you can see, this is the index mentioned earlier, with regard to the management system of central state-owned enterprises, from two interest rates and three rates as early as 2020 to two profits and four rates and one profit and five rates at the earliest. With the same rate of one profit and five percent, there will also be changes in the specific assessment contents.
When we first proposed it, we would certainly put the net profit and the total profit in a more important position. But with the advance of time, with the deepening of the assessment, we begin to further adjust some total indicators to the ratio indicators to further achieve this assessment of the volume of different companies.
For example, it is very typical that when we changed from two-interest and four-rate to one-five rate, we made a very obvious change. We changed the total profit into the form of ROE, reflected in the five rate, and increased the cash ratio at the same time. Why should we focus on the assessment goal of increasing the proportion of cash in the traction from two interest rates and four rates to one interest and five rates? We believe that it is also obviously related to the current market capitalization management of state-owned central enterprises.
In the past, the general market for the state-owned enterprises' attention or the inherent impression of the past, relatively speaking, people have some less positive impression on efficiency, enterprise management and corporate governance. However, from the perspective of reality, no matter from the top or middle level of the enterprise, or even to ordinary employees, we all need to bring the market value management of central enterprises or the management of state-owned enterprises into the overall management work. I hope to improve the quality of the company from various dimensions to realize the process of value creation, value transmission and value realization.
The cash ratio is a very important indicator. Why focus on the cash ratio in the assessment, because we have observed a lot of state-owned enterprises in the past on the statement of obvious revenue, for cash flow performance is not very good. If we put the cash ratio in the middle, the central enterprises will strengthen the management of liquidity, and there will be a better promotion for the undistributed profits and the future dividend ratio.
Speed up the construction of world-class enterprises and promote value creation to make a good start
In 2022, the Shenzhen Reform Commission examined and adopted the guidance on speeding up the Construction of World-class Enterprises. On March 3, 2023, SASAC held a meeting to mobilize and deploy world-class enterprise value creation actions aimed at state-owned central enterprises on the basis of the guidance of the whole document. We can see that for this mobilization deployment, it is still relatively specific, and put forward four outstanding concepts, as well as the concept of value creation throughout the whole process of business decision-making.
Back to this year, on January 24, 2024, SASAC held a press conference to further emphasize the role of listed central enterprises, and put forward more diversified requirements for the operation and management of central enterprises. At the whole meeting, we first reviewed the actions done by some state-owned central enterprises in the past, including excellent assets, helping listed companies, including strengthening scientific and technological innovation, including doing a good job of information disclosure of listed companies with high standards. at the same time, it puts forward some clear objectives for the future market value management of state-owned central enterprises and the reform of state-owned enterprises, to build a listing pattern with clear status and batch development, and to make continuous efforts. Improve the operation level of listed companies, and most importantly, incorporate market value management into the assessment of the heads of central enterprises.
In retrospect, in the past decade or so, the state has completed the restructuring of 26 groups of 47 central enterprises. We will see the number of central enterprises falling from more than 100 to the latest 97.
Inside, it is familiar to everyone that the north-south cars in 2015 have been integrated into China Motor bus. Including the merger of Guodian and Shenhua in 2017, and then to the neighboring Baosteel, WISCO, and then to Poly, everyone pays a lot of attention to it. Some of these actions will make more resources focus on advantages and leading enterprises, and achieve cost reduction and efficiency efficiency on a scale through business focus.
Later, I will mention some of the actions we can do in analyzing the market capitalization management of central state-owned enterprises and the reform of central state-owned enterprises, as well as our approach to central state-owned enterprise investment from this perspective.
Construction of market capitalization management toolbox with Chinese characteristics: the application of dividends has become more mature
First of all, from the management toolbox with Chinese characteristics, dividend should be an unavoidable tool, and this tool has attracted more attention from the market since last year, including the significant strengthening of the dividend index to other indexes. From many market capitalization management tools, we can see that dividend is the most commonly used tool for central state-owned enterprises, and its scale, volume and dividend willingness are significantly ahead of private enterprises.
The performance of the dividend rate of central state-owned enterprises in China is basically the same as that of foreign developed countries. Of course, the persistence of dividends here, there is room for further improvement. The dividend scale of our central state-owned enterprises has increased rapidly with an annualized growth rate of about 13% in the six years from 2017 to 2022. At the same time, the number of dividends paid by central enterprises for five consecutive years has also reached more than 50%.
Of course, from the perspective of sustainability, there is still a certain gap compared with the leading enterprises in foreign developed countries, but it also has a lot to do with the characteristics of our own economic development.
Because from the experience of overseas developed countries, most of the companies that can continue to pay dividends are global companies, which will not have a significant impact on the operation of companies because of the changes in the economic cycle of a place or a country.
But for us, especially our central state-owned enterprises, we operate more in our own country. When the Chinese economy suffers from some cyclical fluctuations, such as the impact of the epidemic, the operating capacity of its own enterprises is indeed affected to a certain extent, so dividends are also affected to a certain extent.
Construction of market capitalization management toolbox with Chinese characteristics: there is more room for optimization of buyback scale and rhythm
Buyback, people study the tools that have been seen in overseas markets, for example, well-known overseas companies often have relatively large buyback policies. As far as we are concerned, buyback must be an important business tool to stabilize investor confidence when there is great downward pressure. Our central state-owned enterprises have a relatively short history of using the buyback tool, and there is a certain lack of awareness. Specifically reflected in the laws and regulations, including the scale and pace of buybacks, and overseas countries, there are still some deficiencies.
During the period of relatively great downward pressure on the stock market, we can see that these enterprises in the United States, Japan and other developed countries will significantly increase their buyback efforts. Judging from the repurchase cases of our central state-owned enterprises, the proportion used for market value management is relatively small, and the buyback rhythm does not well serve the purpose of market value management, which is also for a period of time in the future. our central state-owned enterprises can obviously improve in market value management.
Constructing the Toolbox of Market capitalization Management with Chinese characteristics: M & A
M & An is also one of the important strategic tools for market capitalization management when there is great downward pressure in the market, which is conducive to boost the long-term performance of the market.
We have carried out many rounds of state-owned enterprise reform, especially since 2022, the state-owned enterprise reform has entered the deep-water stage, for the central state-owned enterprise restructuring and mergers and acquisitions, has entered a relatively volatile state, has become our overall capital market M & A transactions of the main contribution.
In terms of the proportion of M & A scale in GDP, to measure the application level of M & A, it should be said that there is still a certain gap between our central state-owned enterprises and developed countries, mainly reflected in the gap with the United States. The gap between us and our East Asian neighbors is not particularly large.
Constructing the Toolbox of Market capitalization Management with Chinese characteristics: shareholder increase and Equity incentive
On the increase of shareholders' holdings and equity incentives. Increasing holdings will obviously play a role in conveying confidence and stabilizing stock prices. This is also a very important part of our first three pieces of content, value creation, value transmission and value realization. Buying at a low level also helps to achieve capital gains.
Looking back on the situation of A-shares, the bottom of each round of A-shares is often accompanied by an increase in the proportion of central state-owned enterprises. This also shows that under the obvious downward pressure of the market, the central state-owned enterprises should play a more important role in protecting the market.
Similarly, equity incentive is also a long-term incentive mechanism for enterprises to encourage, retain and attract talents. Our equity incentive, relatively speaking, the use of time is not long, the culture is not deep enough, and need to be further deepened. From our statistics of equity incentives since 2010, the motivation of central state-owned enterprises for equity incentives is obviously weaker than that of private enterprises.
Constructing the toolbox of market capitalization management with Chinese characteristics: spin-off and listing
Spin-off listing does not reflect much in our actual process. On December 13, 2019, we issued a number of provisions on the domestic listing of listed companies' spin-off subsidiaries, which made clear the pilot conditions for spin-off listing. There are not many actual application cases. In the past, because of the gap in the system of spin-off listing, it was very difficult for many enterprises to choose domestic spin-off listing and more chose to list in Hong Kong. Under such changes, the future spin-off listing should also be said to be an important tool for the reform and management of central state-owned enterprises. The split will help listed companies to highlight their main business and enhance their independence.
Finally, let's talk about our conclusion:
From the perspective of market value management, there are three pieces of content: value creation, value realization and value management.
If the value creation is ignored and the value is realized only through value transmission, this is the pseudo-market value management that is clearly attacked or targeted at from the current regulatory point of view. This form of making jokes and publicity will gradually fade out of the market environment we are facing under strict supervision.
And more central state-owned enterprises are faced with the problem is, after their own value creation, how to use a better form to achieve value transmission.
We also mentioned earlier, through more exchanges, better, higher standards of disclosure, and increase some signals, to better convey business confidence to the market. And the part of the final value realization, also need the majority of investors to deepen the understanding of the central state-owned enterprises, more deepen the understanding of the central state-owned enterprise market value management and state-owned enterprise reform, in order to better complete the process of value realization.
In this process, we will participate more or learn from overseas experience, constantly deepen the market capitalization management culture of our central state-owned enterprises and obtain better investment returns from the perspective of dividends, buybacks and mergers and acquisitions.
The Politburo meeting pointed out the overall study of real estate policies and measures and how to treat the real estate issue.
Real estate, as a pillar industry of China's economy, has played a huge role in pulling and promoting the upstream and downstream enterprises or industries, which has played a very important role in the relatively high growth rate of China's economy since 2000. But we also see that, because the price of real estate, as a capital product, has risen continuously for a long time, there has been a significant increase in resident leverage.
In real estate, we have observed that the cycle is at its peak, and in the environment of 2021 and 2022, the real estate market has begun to adjust.
Different places, because of their own actual situation, including economic development, population, endowment situation, different. There have also been some adjustments to varying degrees. Now, we have also seen that all regions and localities have issued corresponding policies to boost their real estate market.
What can be clear is that this obvious, rapid and continuous rise in the real estate market should be said to be very difficult for us to see in a short period of time. We are more concerned with observing this industry and how to slowly clear out without causing great drag on the economy.
In fact, we have also felt some corresponding in our daily life, for example, some star real estate enterprises have gradually faded out of everyone's sight. We can now hear that the number of real estate enterprises that are still carrying out land acquisition, investment, development and operation has obviously narrowed compared with the great development of the real estate market industry in the past. For such changes, we tend to be approaching the bottom of real estate supply-side reform.
For the real estate industry, any cyclical industry, the bottom of the supply side should be a better time.
Of course, it does not mean that the whole adjustment of the real estate market has been completed by now. It is already close to the bottom, and we will pay more attention to the real estate market, the industry, the real estate market industry itself, as well as upstream and downstream, related household appliances, building materials, automobiles and other related industries, in order to get better investment results.
Note: the point of view is for reference only and does not constitute investment advice or commitment. There are risks in the market, so you need to be careful when investing.
