We are pleased to launch the fifth edition of our report, Industry Multiples in China. The report provides trading multiples for key industrial sectors in China as of 30 September 2022.

Key Highlights

  • In the first nine months of 2022, China’s GDP rose by 3% year on year.
  • The Asian Development Bank projects growth of 3.3% for the full year, which places China above other major economic areas—with an increase of 2.7% forecast for the European Union, 1.92% in Japan and 1.6% in the United States.
  • As of September 30, 2022 , the China Shanghai Composite Stock Market Index had increased 17% so far this year to 3,024. In the same period, Hong Kong’s benchmark Hang Seng Index fell 26% to 17,223 while the MSCI China Index plummeted 32% to 56.4.
  • In the domestic market, aggregate revenue has increased in all industries, and yet, most sectors suffered a drop in aggregate net profit, with the exception of energy, materials and financials. This suggests that businesses are sacrificing profitability in order to maintain activity levels.
  • In Real Estate, the Chinese Government has introduced a series of policies to bolster the industry, such as tax refunds, lower interest rates and the easing of restrictions on mortgages. These measures seem to have had the desired effect with 2022’s trading P/E multiple surprisingly higher than the pre-pandemic level, considering the issues that have buffeted the sector and aggregate profit in the sector falling by around 27%. Companies are still trading at a discount of 30% on average to their book (or a 0.7 P/B ratio).
  • Industrials remained stable reflecting the appeal of a sector that enjoyed a resurgence in production after the pandemic, and that is less exposed to consumer confidence.
  • With price increases in the sector slowing, Utilities is another sector that has remained relatively stable and stands on a neutral to positive footing.
  • The trading P/E multiple for Energy fell this year to 5.9 from 10 prior to the pandemic. Share prices in the sector have not followed the jump in aggregate profit of 56% which indicates that the sector could be undervalued based on the historical average and comparison with global peers.
  • Health care saw a big drop in its P/E multiple from 58.3 in the first year of the pandemic down to 24.5. It’s understandable that the sector would be overpriced and over-invested amid the global health crisis.
  • A cooling construction market, supply chain disruptions and challenges in the steel industry combined to reduce multiples in the materials sector.
  • P/E multiples in consumer discretionary and consumer staples have both been impacted by constrained consumer spending power and a significant drop in aggregate profit in the sectors although both figures held their own against pre-pandemic levels. The expected ease of China’s zero-Covid policy may reverse the downtrend on valuation.
  • In the financial sector, exposure to bad loans and distressed assets in the property sector continued to have an adverse impact on multiples—a situation exacerbated by weakening demand for loans from corporate clients as the wider economy slows.
  • A tighter domestic regulatory landscape and international trade restrictions on certain key components and technologies were the main factors weighing on lower multiples in the information technology and communications sectors.
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