CICC and Shen Wan successively issued articles to discuss the "valuation system with Chinese characteristics", and Citic said bluntly: configure SASAC central enterprises and seize new opportunities.

The central enterprises of SASAC play an important role in China's economy, which is not only the main object of marketization, but also the vanguard of a series of reforms.

SASAC central enterprises are mainly involved in petroleum and petrochemical, electric power, transportation, iron and steel, coal, communications, military industry, real estate industry chain and other major strategic status entity industries related to international people's livelihood. Since the reform and opening up, the market-oriented reform of central enterprises has been a top priority. In 2020, the state issued a "three-year action plan for the reform of state-owned enterprises", which will continue to guide and help the market-oriented reform of central enterprises. In addition, central enterprises also need to give full play to their social responsibility, assume the function of stabilizing growth in aggregate policy, and be in the vanguard of structural reform, which will benefit in the long run.

Historically, the fundamentals of traditional central enterprises are high quality, but the investment value seems to be relatively limited:

Judging from the market trend, the central enterprises are more resilient in the bear market in history, while the valuation flexibility is weak in the bull market.According to the Guoxin Central Enterprise Composite Index, the rising market of central enterprises in 2020 after the COVID-19 epidemic is limited, but it shows resilience in this year's market. Although the industry distribution of the dismantling index may be the reason for the differentiation of the performance of the central enterprises, even if we examine the sectors, we can find that the leaders of the central enterprises are more resilient in the bear market and the valuation flexibility is weak in the bull market.

From the perspective of driving factors, the performance of central enterprises is stable and growing, but the market is reluctant to give high valuations.The average growth of the overall performance of listed central enterprises in the past 3-5 years is much higher than that of listed companies, while the performance growth of the central enterprises 100 index has outperformed the CSI 300 index in the past year. Although the qualifications and performance of the central enterprises are very high, the market valuation of the central enterprises has always been on the low side.

The future development of SASAC central enterprises will embrace the two main lines of double carbon and innovation.

Carefully screening the high-growth investment main lines within the central enterprises, we think that mainly in the central enterprises under the SASAC which focuses on the real economy, one main line is carbon neutrality, the other is scientific and technological innovation. The dual-carbon transformation will bring business transformation and asset injection, and the valuation of SASAC central enterprises is expected to be reshaped. Under the national system, the state-owned enterprises are expected to focus on scientific and technological innovation, and the high valuation industry is expected to give birth to the leaders of central enterprises.

Looking to the future, the market environment is superimposed with continuous reform, and the central enterprises may meet the continuous market opportunities:

Market environment: central enterprises have good performance and high dividends, and good certainty under uncertainty shows value.Looking at the market so far this year from the perspective of the broad base index, the dividend index has greatly outperformed other indexes since the beginning of the year, and the stocks with high dividends in the bear market have been significantly favored by investors. The dividend yield of central enterprises is high and the valuation is at the lowest level in history, so it has long-term allocation value at present. The good certainty of central companies' performance under downward pressure on economic growth is expected to help them gain a premium.

Continuous reform: the main business reform of state-owned enterprises to improve efficiency, extension investment to expand new areas.In history, it is difficult for central enterprises to get a reasonable valuation. we think the main reasons are that there is still a distance between the marketization of central enterprises and private enterprises, the lack of communication between central enterprises and the capital market, and the industry factors of central enterprises themselves. However, we believe that the above three points are gradually improving. First of all, at the meeting of the political Bureau in July, it was decided that the reform of state-owned enterprises is a long-term reform, in which capital operation is the key. Secondly, driven by double carbon, more than 60% of the listed companies of central enterprises have disclosed ESG special reports. In the future, under the guidance of the three-year action plan for the reform of state-owned enterprises, central enterprises are expected to pay more attention to strengthening communication with investors. Finally, after the transformation of central enterprises from "management" to "management of capital", it is expected that there will be more epitaxial investment to bring about valuation reshaping.

It is an important and realistic problem in China's capital market to explore the establishment of a valuation system with Chinese characteristics and promote the function of market resource allocation to be brought into better play.On the issue of the structure and valuation of listed companies, the speech mentioned the characteristics of the listed company structure of China's capital market with the coexistence of various forms of ownership, covering all industries and the common development of large, small and medium-sized enterprises. it is also pointed out that we should "have a deep understanding of the distinct Chinese elements and development stage characteristics embodied in our market system mechanism, industry industrial structure and main body's sustainable development ability." Deeply study the applicable scenarios of mature market valuation theory, and grasp the valuation logic of different types of listed companies. We believe that from the perspective of the valuation system of the overall market, especially the A-share market, although the degree of internationalization of A-shares has increased in recent years, domestic funds still dominate market pricing, and the valuation of A-shares is more determined by internal fundamental expectations, liquidity and risk premium.

There is room for improvement in the valuation structure, especially for some banks and state-owned listed enterprises.

Structurally, the valuation of A-shares is not balanced. The valuation trend of banks and state-owned listed companies has declined in the past decade, and is now at a low level in the historical range, which contrasts with the relatively resilient fundamentals of China's banking industry and state-owned enterprises in recent years. As of November 21, 2022, the TTM valuation of listed state-owned enterprises and non-state-owned enterprises is 11.0 times and 34.3times respectively; among them, the valuation of the financial sector is even lower, with the current price-to-earnings ratio and price-to-book ratio of 5.9 times and 0.58 times respectively, the valuation of price-to-book ratio is already at an all-time low.

The price-to-earnings ratio and price-to-book ratio of listed banks are 4.3 and 0.51 times, and the dividend yield is as high as 6.1%. Compared horizontally with global companies, the valuations of Chinese banks and state-owned listed companies are generally lower than those of overseas comparable companies. The reasons for the low valuations of banks and state-owned listed companies may be various:

1) the marketization of interest rate and other factors affect the market expectation of bank performance, and the performance of banks as a cyclical industry is greatly affected by macroeconomic fluctuations.

2) in the process of the transformation of China's new and old economy, the basic understanding of banking belongs to the traditional field, and the proportion of traditional and old economic industries in listed state-owned enterprises is also high. under this background, the overall performance of new economy of listed companies is better than that of traditional economy in the past ten years. And there are also some differences among investors on the book value of banks and state-owned listed companies.

3) there are some phenomena in the banking industry, such as homogenization, low degree of marketization in operation and management, etc., which are also the main reasons for investors' low pricing on banks at present. In fact, from the operational level, the profit growth and profitability of state-owned listed companies have improved significantly compared with non-state-owned enterprises since 2016, and the debt pressure has been basically resolved after many years of state-owned enterprise reform. The profit growth of listed banks is relatively steady and their ROE is higher than that of non-financial enterprises as a whole. In the future, in the process of active construction of "modern capital market with Chinese characteristics". Investors are expected to gradually improve their understanding of the value of listed state-owned enterprises and the financial sector. On the whole, we think that there is room for improvement in the valuation center of banks and state-owned listed enterprises.