Industry Multiples in China Report 2022 - Fifth Edition

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.