China’s economy development has entered into the phase of “New Normal”, and steady growth, mode transferring, structure adjustment have become the main vocal of economic work. As the outstanding representatives of small and medium-sized enterprises in our country, companies listed on the SME board play a pivotal role in the promotion of real economy development, independent innovation and transition and upgrading, solving employment problems and safeguarding and improving people’s livelihood. How’s their performance under the situation of “New Normal”? The preliminary earnings estimate and annual reports disclosed before February 28, 2015 have given us answers. Statistics show that remarkable effects have been made by companies listed on the SME board in transition and upgrading. In spite of the slowing growth rate in operating income, the net profit growth rate increases significantly. Rapid development has been seen in high and new technology enterprises, strategic emerging industry enterprises and productive service enterprises under national policy support, reflecting the strong internal vigor of small and medium-sized enterprises.
In 2014, all the 739 companies listed on the SME board made an average operating income of RMB 2.782 billion, an increase of 12.22% over the previous year. The growth rate was lower than the 17.63% of 2013, reflecting the actual difficulties confronting SMEs in the complex and volatile economic environment at home and abroad. The average net profit was RMB 175 million, an increase of 13.10% over the previous year. The growth rate was much stronger than the 8.37% of 2013 and was the highest figure in the last three years. The average ROE hit 8.48%, reflecting sound profitability. The 39 IPO and sub-IPO stocks getting listed during 2014 and the first two months of 2015 were doing quite well with an average growth rate for operating income of 27.24% and that for net profit of 42.30%. In the 15 industries involving the SME board companies, 10 industries such as finance, culture, and software and information technology services witnessed a YOY net profit growth in 2014, among which the predominating manufacturing companies made a net profit growth of 12.94% on average; while 5 industries such as agriculture, mining, real estate, retail, and food and beverage saw decline in performance to different degrees. The polarization phenomenon still exists.
Most of the companies performed quite well in 2014. In all the 739 companies listed on the SME board, 540 companies and 471 companies achieved growth in operating income and net profit in 2014 respectively, accounting for 73.07% and 63.73% respectively. The number of companies reporting high growth was increasing in 2014. 241 companies made a net profit growth rate of more than 30% or turned losses into gains, accounting for 32.61%, while the figures of 2013 was 222 companies and 30.04%.
The SME board has gathered a large number of leading companies in sub-industries. 286 companies have fist products or services ranking top one in the domestic market, and 108 companies rank top three in the global markets. These sub-industrial leaders achieved an average grow in operating income of 16.53% and an average grow in net profit of 17.50%, obviously higher than the average level of the SME board. They played a good demonstration role in the economic development. Some companies edged themselves into high-quality blue-chips by taking advantage of the capital markets. In 2014, 34 companies listed on the SME board made an operating income of over RMB 10 billion, and 17 companies’ net profit exceeded RMB 1 billion. The top 30 companies in net profit mainly concentrated in the fields of finance, equipment manufacturing, pharmaceuticals, electronics, and information technology. These companies made an average operating income of RMB 13.066 billion or 14.89% growth and an average net profit of RMB 1.624 billion or 25.45% growth, among which 18 companies, including Guosen Securities, Suning Commerce, Goldwind Science and Technology, Kangde Xin, DHC Software, Wanda, Han’s Laser, Kingenta, Goertek, and Salubris, achieved a net profit growth of more than 20%.
Companies listed on the SME board are closely related to people’s livelihood. Roughly 175 companies involved in the fields with direct relation to people’s livelihood, making growths in operating income and net profit in 2014 of 8.48% and 2.49% on average respectively, lower than the average level of the board. Industries which contain certain technologies in nature or higher value-added products and services, such as culture media, pharmaceuticals, small household appliances, jewelries, chemical fertilizers, and decoration, achieved a net profit growth of more than 10% on average; while traditional industries, such as aquatic livestock farming, food, retail, textile and clothing, showed poor performance due to the declining agricultural prices and consumer recession.
Companies listed on the SME board are not only closely related to people’s livelihood, but also represent an important force which propels independent innovation and industrial upgrading. In all the 739 companies listed on the SME board, there are 590 high and new technology enterprises and 238 strategic emerging industry enterprises. In 2014, the high and new technology enterprises made growths in operating income and net profit of 14.49% and 15.79% on average respectively, and the strategic emerging industry enterprises made growths in operating income and net profit of 18.09% and 26.39% on average respectively. In addition, there are 60 productive service enterprises on the SME board, distributing in the fields of information technology services, third party logistics, energy conservation and environment protection, electronic commerce, and brand building. In 2014, these companies achieved growths in operating income and net profit of 25.87% and 38.80% on average respectively. Good development prospects for high and new technology enterprises, strategic emerging industry enterprises and productive service enterprises can be seen from their obviously higher growth rate in operating income and net profit.
From the preliminary earnings estimate and public disclosure, the main reason that SME board-listed companies realized rapid development lies in the vigorous promotion of transition and upgrading. Main measures for transition and upgrading include the followings:
- first, continuously increasing investment in R&D and strengthening the independent innovation. Taking Dahua Technology in the security and protection industry for example, it invests nearly 10% of the sales revenue in R&D each year, making a large number of patents.
- second, innovating management modes and strengthening cost control. Taking Goldwind Science and Technology and Yasha Decoration for example, they effectively save costs through the implementation of delicacy management.
- third, innovating business models. Taking ORG in the metal packaging industry for example, through its continuous innovation of technology, service and mode, it can provide customers with integrated packaging solutions including product planning, packaging design and manufacturing, food and beverage filling and informatization and network marketing services. Taking Haid Group in the fodder industry for another example, by implementing the trinity strategy of “R&D, procurement and service”, it realized increases in both revenue and profit against the poor market in the overall industry.
- fourth, relying on the Internet and cultural creativity to realize the transition and upgrading of traditional industries. Taking Alpha Animation in the toy industry for example, it establishes an entire industrial chain of Internet culture entertainment by means of combining toys with animations, films, TVs and games.
- fifth, implementing brand strategy and intensifying market development force. Taking Semir Garment in the clothing industry for example, it realized a profit increase of more than 20% by positively operating a new brand, developing creative designs, setting up an efficient logistics distribution system, and developing new channels like e-commerce. and
- sixth, perfecting the industrial chains and expanding industrial layout. Taking Haige Communications in the military industry for example, it actively expands high-end manufacturing and modern service industry, and realizes the transition and upgrading from traditional communication, navigation equipment R&D into integrated electronic information industry, including system integration, advanced manufacturing and high-end information services.
Besides, the rapid development for SME board-listed companies also thanks to the policy preference resulting from the deepening of capital market reform. Taking M&A for example, there were 80 companies which concluded 87 transactions concerning material assets restructuring or assets purchase via share offering in the last three years. The transaction amount valued RMB 96.082 billion. In 2014, the 80 companies made operating income and net profit growths of 22.57% and 35.56% on average respectively. According to the annual report of Shanghai RAAS, the company completed two horizontal M&As, which greatly contributed to the increase of product varieties and raw materials supply, making it the leading enterprise in the industry. Active M&A and restructuring optimizes the allocation of resources, improves the efficiency of resource use, and plays a positive role in promoting performance development for companies listed on the SME board.