Shen Wan Hongyuan: The gross margin of A-shares rose for three consecutive quarters, verified price-side restoration, double innovation, growth, and ROE surpassed the motherboard
The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that the 26Q2 A-share profit growth rate rebounded to 20%, and revenue only increased 6.8%. Profit elasticity mainly comes from non-recurring profits and losses such as investment income. Exchange rate fluctuations drive up financial expenses, but gross margin and ROE continue to improve, and prices are better than volume. The profit and ROE of the GEM and the Science and Technology Innovation Board increased significantly, which is superior to the main board. Demand for inventory replenishment is beginning to emerge, capital expenditure is operating at a low level, the cash flow structure has improved, and dividend repurchases have increased. We need to be wary of global economic, trade and geographical risks.
Shen Wan Hongyuan's main views are as follows:
Exchange losses increased but investment returns were impressive. The 26Q2 growth rate of A-shares was stable and profitability improved
1) In terms of total volume, the improvement in the overall price of A shares was better than the increase in volume: the cumulative growth rate of net profit after deducting non-net profit continued to rise to 20.0%, the cumulative growth rate of net profit to mother increased 4.7 percentage points to 22.0% compared to Q1, and the cumulative revenue growth rate only increased 0.1 percentage points to 6.8% compared to Q1. The profit growth rate is more flexible than on the revenue side, and non-recurring profit and loss contributes more to profit restoration, resulting in a better growth rate of return than deduction of errors. The reason for this is that investment income contributes significantly to non-recurring profit and loss. The sum of net income from investment and net income from changes in fair value under the cumulative scale, 26Q2 accounted for 1.1% and 19.0% of revenue and net profit attributable to mother, respectively, which are the highest in the mid-term report since 2022. Therefore, if samples such as new technology stocks that reversed losses and the non-recurring profit and loss portion were excluded at the same time, the growth rates of A-share 26Q2 net profit and revenue were 13.1% and 6.3% respectively, which is basically the same as Q1.
2) On the cost and expense side, the expansion of corporate exchange losses led to a high increase in financial expenses. The 26Q2 fee rate was 10.64%, which rebounded for three consecutive quarters. The growth rate of financial expenses in 26Q1-Q2 reached more than 60%. Exchange losses increased mainly due to exchange rate fluctuations, and A has held above 10% since mid-2022. The growth rate of domestic demand companies is definitely weak, but they are returning to positive growth.
3) In terms of profitability, improvements in A-share gross margin and ROE have verified sustainability. The gross margin TTM of 26Q2A shares increased for 3 consecutive quarters to 18.0%. Even after excluding the sample of IPOs and delisting such as Changxin, there was little difference and did not change the trend. The gross margin of the overseas business remained dominant and improved simultaneously. The gross margin of the Main Board and GEM rebounded slightly, and the gross margin of the Science and Technology Innovation Board 26Q2 increased 3.4 percentage points to 35.0%. In the ROE DuPont Three Factors, improvements in net sales interest rate and asset turnover ratio contributed greatly, and price improvements were also more obvious in improving profitability.
Comparison of profit conditions in different sectors:
Market growth represented by 26Q2 Double Innovation has improved markedly in profitability. The profit, revenue growth rate, and ROE of all major sectors increased sequentially in 26Q2, and the GEM and Science and Technology Innovation Board improvements were even more obvious. Mainboard (non-financial and “three barrels of oil”) 26Q2 net profit growth rate of 9.5% was basically the same as Q1, and revenue growth fell 0.1 percentage points to 4.5%. The 26Q2 GEM profit and revenue growth rate increased by 5.7 and 0.5 percentage points to 31.5% and 22.3%, respectively. The profit and revenue of the Science and Technology Innovation Board (excluding photovoltaic companies) increased by 524.5% and 47.4%, respectively, on a low base.
ROE continues to improve in all major sectors. The GEM board and the Science and Technology Innovation board both surpass the main board (non-financial and “three barrels of oil”)
The ROE of 26Q2 motherboards (non-financial and “three barrels of oil”) increased by 0.2 percentage points to 6.5% compared to 26Q1, while the ROE of the GEM board and the science and technology innovation board (excluding photovoltaic companies) increased by 0.7 and 3.4 percentage points to 7.4% and 9.0%, respectively. From an index perspective, the profit and revenue growth rates of most of the major broad-based indices continued to rise. The profit of the National Securities 2000, which only represents a small market, still declined by a small single digit, but the revenue growth rate is increasing. In terms of profitability, gross margin and ROE have generally improved. In terms of gross margin, the China Securities 1000 bottomed out and rebounded, and the National Securities 2000 fell back to the lowest level in history. The improvement in the ROE small market and dividend index was weak, and both innovation and the broad market base were strong.
Moderate inflation drives companies to continue to replenish their reserves, and capital expenditure is running at a slow pace
1) Inventory cycle: PPI and the corporate inventory growth rate resonated and rebounded. Judging from historical experience, during the price recovery phase, companies will also enter the inventory replenishment cycle. After three years of negative nominal inventory growth for A-share companies, demand for inventory replenishment began to show. 26Q2A stock inventory rose 2.4% year on year, the first correction since 2023. PPI may fall in the next three quarters as the price increase of upstream resource products slows down, but throughout the year and 2027, PPI and corporate inventories are expected to maintain a small single-digit moderate recovery trend as production capacity is absorbed and supply pressure decreases.
2) Capital expenditure and ongoing construction have maintained a slight positive increase, and the expansion of enterprise personnel and the low willingness to invest in expenses have stabilized. The growth rate of 26Q2A shares capital expenditure and ongoing construction continues to increase moderately and positively. The growth rate of fixed assets is still declining and being digested. The absolute growth rates of all three are at historically low levels.
3) Against the backdrop of low capital expenditure and expenses, the trend of listed companies enhancing investor returns has not changed, and dividend repurchases have increased. As of August 31, 2026, more than 1,000 companies issued interim dividend plans in 2026, totaling more than 700 billion yuan. The number and amount of companies exceeded the same period in the past two years. Under the regulatory policy of stabilizing the capital market, looking at the share repurchase plans of listed companies, the total amount of A-share repurchase announcements from January to August 2026 exceeded 240 billion yuan, exceeding the same period in the past two years.
Cash flow: The net cash flow and return ratio of A-share investment and financing continued to improve
1) Looking at the TTM growth rate of the three major cash flows, the increase in upstream prices led to an increase in procurement costs, a slight negative increase in net operating cash flow for A-shares, and a positive increase in net cash flow from investment and financing. The net operating cash flow of A-shares increased slightly in the first two quarters of 2026, mainly due to upstream price increases and increased procurement efforts in the technology growth industry. The cumulative year-on-year decline in 26Q2 contract liabilities and accounts receivable was 5.1%, an increase of 0.1 percentage points over 26Q1. Subsequent improvements in on-hand orders will provide additional support for operating cash flow. The net cash flow of 26Q2 investment has been growing for 5 consecutive quarters. Early capital expenditure has shrunk sharply, enterprises have reduced expansionary investments and increased cash reserves. The net cash flow from financing in 26Q2 increased for 3 consecutive quarters, indicating that the market financing function has been restored, and enterprises have replenished capital through equity financing, bringing long-term patient capital.
2) The A-share payout ratio and payout ratio returned to the historical center. Cash and cash equivalents continued to improve year-on-year, and the 26Q2 payout ratio and payout ratio rebounded to 102.0% and 93.5%, respectively.
3) In addition to current cash income, from the perspective of future repayment of corporate receivables, the TTM turnover ratio of A-share notes and accounts receivable has been declining for nearly 5 years since the 21Q3 high. However, the turnover ratio of private enterprise bills receivable and accounts receivable TTM took the lead in recovering continuously for 3 quarters to 555.7%, and the gap with central state-owned enterprises narrowed.
Risk warning: Global economic and trade patterns are uncertain, and world economic growth may fall short of expectations; global political cycles and geopolitical risks disrupt industry fundamentals, especially the operations of overseas enterprises; financial data is lagging behind, and does not represent future trends.