China's Industrial Profits and Revenue Improved in Tandem in June
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China's Industrial Profits and Revenue Improved in Tandem in June
Goldman Sachs noted that China's industrial profits rose 18.3% year over year in June and industrial revenue rose 11.4% year over year, while seasonally adjusted month-over-month figures also turned positive or accelerated, indicating improved operating momentum in the industrial sector versus May.
- Industrial profits rose 18.3% year over year in June, below May's 21.0%, but increased 1.5% month over month after seasonal adjustment, a marked improvement from May's -8.4%.
- Industrial revenue rose 11.4% year over year in June, above May's 6.7%; seasonally adjusted month-over-month growth was 3.1%, accelerating from May's 0.6%.
- Downstream profit growth rose from 10.2% year over year in May to 16.2% in June; upstream profit growth slowed from 58.3% to 24.5%, with the drag mainly coming from chemical materials, oil, and natural gas extraction.
- Overall margins continued to edge up in June on a 12-month average basis, with both upstream and downstream margins improving.
Report interpretation
Overview
This report tracks China's June data on industrial enterprise profits and revenue. The core conclusion is that both industrial profits and industrial revenue increased on both a year-over-year and seasonally adjusted month-over-month basis, with revenue growth clearly accelerating and margins continuing a mild recovery. The report also notes a divergence in profit performance between upstream and downstream sectors: downstream profit growth accelerated, while upstream profit growth slowed markedly.
Core views
Operating data for China's industrial sector improved in June versus May. Industrial profits rose 18.3% year over year; although this was slower than May's 21.0% year-over-year growth, seasonally adjusted month-over-month growth turned to +1.5% from -8.4% in May. Industrial revenue rose 11.4% year over year, accelerating from May's 6.7%, with seasonally adjusted month-over-month growth of 3.1%. Structurally, downstream profits rose 16.2% year over year, accelerating from May's 10.2%; upstream profits rose 24.5% year over year, slowing significantly from May's 58.3%. The National Bureau of Statistics said raw materials manufacturing contributed 8.8 percentage points to the 18.7% growth in industrial profits in the first half, while the electronics industry contributed 8.5 percentage points.
Analysis framework
Based on officially reported industrial enterprise profits and revenue, the report compares year-over-year growth with Goldman Sachs' seasonally adjusted non-annualized month-over-month growth rates, and examines the sources of profit growth and drags through a breakdown of upstream and downstream industries. It also uses the profit margin metric of profits divided by revenue, and tracks trend changes on a 12-month average basis.
Methodology notes
Year-over-year growth measures changes relative to the same period last year, while seasonally adjusted non-annualized month-over-month growth is used to observe monthly momentum changes.
The report provides both June and May year-over-year and seasonally adjusted month-over-month data to distinguish base effects from current-month operating momentum.
Industrial profits are split into upstream and downstream industries to identify the structural sources of profit growth.
In June, downstream profit growth accelerated, while upstream profit growth slowed significantly, with the main drag coming from chemical materials, oil, and natural gas extraction.
Profit margin is measured as total profits divided by revenue, and a 12-month average basis is used to smooth short-term volatility.
The report notes that overall profit margins continued to edge up in June, with both upstream and downstream margins improving.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China MacroeconomyDirectly Related
- Strengths
- Improvement in industrial revenue and profits indicates recovering momentum in production and corporate earnings.
- Weaknesses
- Single-month data may still be affected by base effects, prices, and industry structure.
- Comparison
- In June, both year-over-year and seasonally adjusted month-over-month revenue were stronger than in May, while profits also turned positive month over month from negative.
- Risks
- If upstream profit growth continues to slow or end demand weakens, the recovery in industrial earnings may be constrained.
- China Industrial and Manufacturing-Related EquitiesIndirectly Related
- Strengths
- Margin improvement and faster revenue growth may improve market expectations for industrial company earnings.
- Weaknesses
- This report is macro-themed research, does not differentiate individual stock prospects, and does not provide stock ratings.
- Comparison
- Downstream profit growth accelerated versus May, while upstream profit growth fell back markedly versus May, so industry performance may diverge.
- Risks
- Sector rotation, cost changes, the strength of demand recovery, and the policy environment may all affect asset performance.
Key data
- June Industrial Profit YoY+18.3% yoyMay was +21.0% yoy.
- June Industrial Profit Seasonally Adjusted MoM+1.5% non-annualizedSeasonally adjusted by Goldman Sachs; May was -8.4%.
- June Industrial Revenue YoY+11.4% yoyMay was +6.7% yoy.
- June Industrial Revenue Seasonally Adjusted MoM+3.1% non-annualizedSeasonally adjusted by Goldman Sachs; May was +0.6%.
- June Downstream Profit YoY+16.2% yoyMay was +10.2%, with faster growth.
- June Upstream Profit YoY+24.5% yoyMay was +58.3%, with growth slowing significantly.
- First-Half Raw Materials Manufacturing Contribution+8.8 percentage pointsThe National Bureau of Statistics said it contributed 8.8 percentage points to the 18.7% growth in industrial profits in the first half.
- First-Half Electronics Industry Contribution+8.5 percentage pointsThe National Bureau of Statistics said the electronics industry was another major source of contribution.
Impact & implications
The simultaneous improvement in industrial profits and revenue indicates some recovery in short-term operating momentum in China's industrial sector; faster revenue growth and a mild rise in margins support earnings expectations for industrial enterprises. However, the marked slowdown in upstream profit growth suggests that the contribution from pricing, resource products, or some raw materials industries may weaken at the margin. It will be important to watch whether the profit improvement can broaden from a few industries to the wider manufacturing sector.
Risks
- The report is based on current public data, which may later be revised or affected by statistical methodology.
- A single-month improvement in industrial profits does not necessarily mean the trend is firmly established and needs to be validated with subsequent revenue, margin, and price data.
- Upstream profit growth slowed significantly, and industries such as chemical materials, oil, and natural gas extraction may continue to drag on overall earnings.
- Macro research does not constitute stock recommendations, and the performance of related industries or securities may diverge from the macro theme.
What to watch
- Whether year-over-year and seasonally adjusted month-over-month industrial profit growth continues to improve in subsequent months.
- Whether industrial revenue growth can maintain the improving trend above May levels.
- Whether the overall 12-month average profit margin continues to rise.
- Whether the slowdown in upstream profits broadens, and whether the drag from chemical materials, oil, and natural gas extraction eases.
- Whether the improvement in downstream profits spreads to more manufacturing subsectors.