In the traditional valuation system, the central enterprises with controllable risk but relatively limited growth are often in the valuation depression and fall into the dilemma of "better performance" matching "worse valuation". However, under the concept of "valuation system with Chinese characteristics", the intrinsic value of central enterprises may be re-recognized.

Affected by the good news, the concept of state-owned enterprise reform has risen and stopped today.$Lonkey Industrial (000523.SZ)$、$Daqing Huake (000985.SZ)$、$China National Complete Plant Import And Export Corporation (000151.SZ)$Wait for more than 10 stocks to rise by the daily limit. As of today's close$China Communications Construction (601800.SH)$、$China United Network Communications (600050.SH)$The limit goes up.

In terms of Hong Kong stocks, the concept stocks of central enterprises collectively rose at noon.By the close of trading$MCC (01618.HK)$Up nearly 13%$CHINA COMM CONS (01800.HK)$Increase by more than 8%$CHINA RAILWAY (00390.HK)$、$CHINA UNICOM (00762.HK)$Up nearly 7%$CHINA RAIL CONS (01186.HK)$Up nearly 6%.

On the news, according to Xinhua News Agency, Yi Huiman, chairman of the Securities Regulatory Commission, made a speech on the construction and development of China's capital market at the annual meeting of the 2022 Financial Street Forum on the 21st.In particular, it is pointed out that "explore the establishment of a valuation system with Chinese characteristics, and promote the function of market resource allocation to give better play".

According to an article published by the China Securities News, the valuation of state-owned enterprises is on the low side, and the current price-to-earnings ratio of listed companies of central enterprises is less than 8 times earnings, the lowest level in nearly a decade, and there is an urgent need to improve valuation methods that meet the characteristics of state-owned enterprises.

China International Capital Corporation also said in a research report on November 22nd that there is room for improvement in the valuation structure of the A-share market, especially for some banks and state-owned listed enterprises.

The price-to-earnings ratio of state-owned enterprises has fallen to its lowest level in nearly a decade.

In recent years, although the state-owned enterprises are on the track of rapid development, they are in contrast to the market performance of the relevant listed companies.

Citing statistical data, the China Securities News said that from the valuation level, the valuation level of state-owned listed companies has declined significantly since 2020. At present, the price-to-earnings ratio of listed companies of central enterprises is less than 8 times, the lowest level in nearly a decade. Significantly lower than the overall level of A shares 14 times.

Listed companies in the financial sector are relatively undervalued. At the end of October 2022, the overall price-to-book ratio of listed companies in the financial industry was 0.5 times, especially the price-to-book ratio of listed banks was 0.4 times, the lowest in history. At present, more than 90% of listed banks are "clean", and their valuation ranks at the bottom of 31 industries.

GF Securities Co., LTD. analyst Dai Kang also said in the September research report that the valuation of central enterprises is mostly lower than that of A-shares, and the current overall PE (TTM) of central enterprises is only 9.0 times, while the overall PE (TTM) of A-shares is 16.7 times.

Xu Chi and Zhang Wenyu of Zhongtai Securities analyzed the root cause of this phenomenon in a research report on October 10.It mainly lies in the imperfect system and mechanism faced by the development of China's capital market and the weakening of investors' expectations.

1) under the guidance of "value discovery", the role of resource allocation in the capital market needs to be highlighted. Compared with international countries, the cost of institutional punishment for short-term behavior such as short-term speculation is too low. However, due to the lack of guidance to the concept of long-term value investment, China's high-quality enterprises do not get the value recognition of long-term funds.

2) the financial innovation mechanism of the capital market is relatively scarce, and it is not attractive to foreign investment in the medium and long term. Compared with the international, China lacks a "differentiated incentive mechanism" for medium-and long-term funds, and the available financial innovation tools are relatively scarce, and the coverage of only a few derivatives such as stock index futures and options is also very narrow. it is not attractive to international funds.

3) the capital market still needs to guide listed companies to strengthen and improve the governance system and governance modernization. For example, build an ESG investment and evaluation system suitable for Chinese enterprises, and strengthen the concept of high-quality development of listed state-owned enterprises.

Central enterprises have their own key advantages: low valuation, high dividends, abundant cash flow and profit stability.

First of all, GF Securities Co., LTD. Dai Kang concluded in the research newspaper thatLow valuation, high dividend, abundant cash flow and profit stability are all significant advantages of central enterprises.

(1) low valuation: valuation and equity risk premium have a safer margin than A shares as a whole.

In terms of valuation, the central enterprise PE (TTM) is lower than the overall level of A shares, and the current PE valuation of central enterprises is about 9 times, which is significantly more secure than the PE valuation of 17 times of A shares as a whole. If the risk-free interest rate is further considered, the equity risk premium (ERP) of central enterprises has a significant advantage over A-shares, which is close to the highest level since 2010.

(2) Stability: high dividend and high dividend support stable rate of return.

Under the A-share shock environment, the characteristics of high dividends and high dividends of central enterprises make them have a relatively stable rate of return on investment, and the safety pad can better resist the impact of the market. From the structural point of view, the central enterprises with dominant dividend ratio are concentrated in cycle and technology manufacturing.

(3) profitability: the profit growth of China report is outstanding, and the profit margin drives high ROE.

Judging from this year's A-share report, the revenue and profit growth rate of central enterprises is higher, and stronger operational stability has been achieved under the impact of the epidemic in the second quarter. Secondly, the ROE of central enterprises is significantly higher than that of A shares as a whole, and the month-on-month improvement of ROE has been achieved in the second quarter, which is more advantageous than the overall profitability of A shares.

Structurally, the dominant industry of 22Q2 central enterprises ROE is mainly focused on cycle and consumption; from the perspective of DuPont dismantling, the "Matthew effect" of central enterprises as the industry leader is reflected, and the core driving force of high ROE comes from sustained high profit margins.

(4) Cash flow: the net cash flow of central enterprises is dominant, and there is still room for investment cash flow expansion.

On the whole, central enterprises have a significant advantage over A-shares as a whole, and their advantages are expanding in the past three years; from the perspective of cash flow structure, the investment cash flow of central enterprises is still inflow in 22Q2, corresponding to investment contraction. Compared with private enterprises, there is still room for expansion after the investment of central enterprises.

(5) Capital expenditure: rising R & D expenditure, prudent production expansion support plus leverage space

From the perspective of R & D expenditure, although there is still a gap between the proportion of R & D expenditure of central enterprises and A shares as a whole, the gap has narrowed significantly in recent years; in terms of production cycle, central enterprises are also superior to private enterprises. 22 China report shows that the private enterprise production cycle has entered the "second half", the follow-up enterprises to take the initiative to add leverage momentum may not be enough. At the same time, the central enterprise capacity cycle expansion prudent, the current has against the trend wide credit "plus leverage" space.

Secondly, Lu Haochuan, an analyst at Shenwan Hongyuan, also made a research report on October 10 from the perspective of the importance of the industry.Emphasize the systematic importance of central enterprises in many industries related to national security.

The market capitalization of listed companies of central enterprises is generally large, and the market capitalization is concentrated in "systematic important industries" related to national security, such as large finance, communications, petroleum and petrochemical, public utilities and so on.

On the whole, the listed companies of central enterprises are mainly industry leaders, and their market capitalization is generally on the high side. The total market capitalization of 429 listed companies of central enterprises reached 23.76 trillion yuan, accounting for 28.2% of the total market value of A shares.

Among them, there are 11 "super-large" companies with a market value of more than 500 billion yuan. Among the industries in case of application, the top five industries in terms of market capitalization of central enterprises are banking, petroleum and petrochemical, public utilities, non-bank finance and communications. There are six industries with more than half of the market capitalization of central enterprises, namely, petroleum and petrochemical (79.0%), communications (72.5%), public utilities (67.3%), banks (66.2%), national defense industry (62.5%) and architectural decoration (59.0%).

Under the tide of "anti-globalization", the advantages of central enterprises are highlighted.

GF Securities Co., LTD. Dai Kang said that in the past era of globalization, the advantages of "high profit margin" and "high leverage ratio" supported the 20-year bull of US stock FAANG.Under the current trend of "anti-globalization", "safety" takes precedence over "efficiency", and the advantage of "high profit margin" of central enterprises also has a lot of room for improvement, which is expected to give birth to China's FAANG:

(1) Central enterprises that maintain the advantage of "high profit margin": transportation, automobile, communications, etc.

(2) the central enterprises with the advantage of "high profit margin": non-ferrous metals, basic chemical industry and power equipment.

In the face of high-end manufacturing transformation and low-carbon transformation, central enterprises show their position as a "bellwether"

In terms of the transformation and upgrading of high-end manufacturing, GF Securities Co., LTD. Daikang believes that central enterprises are "unyielding":

China's manufacturing industry is "big but not strong" and is still in the low position of the global "value chain". According to the law of global manufacturing transformation and upgrading, there are two major directions for the upgrading of China's manufacturing industry at present:

1. Upgrade of high-end manufacturing in the United States and Germany

2. Upgrade Volkswagen manufacturing to bid Japan and South Korea. Take Japan and South Korea as an example, chaebol / consortia (quasi-central enterprises) are mainly responsible for the transformation and upgrading of heavy industry (turnover), while private funds are mainly responsible for the transformation and upgrading of light industry (profit margins).

We judge: China's central enterprises will lead the "high turnover" direction of mass manufacturing upgrading: domestic consumer goods "import substitution" + "Belt and Road Initiative" infrastructure chain capacity expansion.

At the same time, Dai Kang also believesCentral enterprises have the momentum of "plus leverage" for low-carbon transformation, and are expected to make significant excess returns by taking advantage of the trend of low-carbon transformation:

A shares have entered the "production" stage of the current round of capacity expansion cycle, but the macro demand is weak and the momentum of enterprises "plus leverage" is insufficient.

However, thanks to the "supply-side reform" of 16-17 years and the "normalization of supply contraction" policy over the past 18 years, the profitability of the traditional cycle industry of state-owned enterprises / central enterprises has declined significantly, with the momentum of "plus leverage" for low-carbon transformation.

At the same time, at the end of the three-year action plan for state-owned enterprise reform, state-owned enterprise reform can help the logic of "low-carbon transformation". Over the past 21 years, the state-owned enterprise reform index has achieved significant excess returns, while the excess return of low-carbon transformation + state-owned enterprise reform index is even more significant.

The layout of central enterprises in the fourth quarter is "just in time".

Zhang Xia and Guo Yanan, analysts of China Merchants, said in a report on Oct. 12 that the fourth quarter of this year was a good time to focus on the performance of central enterprises.

In the long run, after this round of comprehensively deepening the reform of state-owned enterprises, the profitability of listed central enterprises has been significantly improved, the leverage ratio has decreased significantly, the incentive mechanism has been more sound, the ability of scientific and technological innovation has been continuously enhanced, and the value of long-term investment has been highlighted.

In the short term, in the context of the current economic downturn, the central enterprises have obvious counter-cyclical attributes, high valuation performance-to-price ratio and significant advantages in high dividends, and the short-term allocation significance is also high in the context of the increase in the probability of style switching in the fourth quarter.