Editor's note
On January 24, 2024, at a press conference held by the Information Office of the State Council, the relevant person in charge of the State-owned Assets Supervision and Administration Commission of the State Council said that it will further study the inclusion of market value management in the performance appraisal of the heads of central enterprises, guide the heads of central enterprises to pay more attention to the market performance of the listed companies they hold, timely convey confidence and stabilize expectations through the application of market-oriented means such as increasing holdings and repurchases, increase cash dividends, and better return investors.
This news has aroused great concern from all walks of life, the capital market has responded positively, and market value management has suddenly become a hot word. The State-owned Assets Report published on April 1, 2024 conducted in-depth interviews with a number of experts and scholars from industry associations, securities companies, universities, as well as representatives of some central enterprises, and launched a special plan "Exploring Market Value Management". In the current economic situation and market environment, how to fully understand market value management, and how to make market value management play a better role?
Today, we share with you "Case 1: China Shenhua's Market Value Management Road - Interview with Song Jinggang, Secretary of the Board of Directors of China Shenhua"——
China Shenhua's Market Value Management Road Interview with Song Jinggangwen, Secretary of the Board of Directors of China Shenhua · Liu Qingshan
State-owned Assets Report Magazine Issue 4, 2024
On March 15, 2024, the China Securities Regulatory Commission (CSRC) formulated and promulgated the Opinions on Strengthening the Supervision of Listed Companies (for Trial Implementation) (hereinafter referred to as the "Opinions"). The "Opinions" pointed out that it is necessary to insist on putting the interests of investors in a more prominent position. Respond to investors' concerns in a timely manner and enhance investors' sense of gain. Cash dividends are an important way to enhance investors' sense of gain. The "Opinions" make it clear that listed companies are required to formulate a positive and stable cash dividend policy, guide high-quality large-capitalization listed companies to pay dividends in the medium term, and play a leading role. Since its listing in 2005, China Shenhua has focused on its main business, sought progress while maintaining stability, increased its dividend payout ratio, actively rewarded shareholders, and accumulated cash dividends of more than RMB402.1 billion since its listing. It has achieved effective corporate governance, efficient business operation and sound operation and management, continuously improved fundamentals, steadily increased market value, and made Shenhua's contributions in terms of energy supply and market support, and has been widely praised among listed companies controlled by central enterprises. Focusing on China Shenhua's understanding and exploration of market value management, the reporter of "State-owned Assets Report" interviewed Song Jinggang, secretary of the board of directors of China Shenhua.
State-owned Assets Report: Not long ago, the State-owned Assets Supervision and Administration Commission of the State Council proposed to incorporate the market value management of central enterprises into the assessment system, which aroused great concern from all walks of life. Song Jinggang: In recent years, the State-owned Assets Supervision and Administration Commission of the State Council has paid more attention to the assessment orientation of value creation. In 2023, the operating index system of central enterprises will be further revised to "one profit and five rates". In terms of assessment indicators, the return on net assets is used to replace net profit, and the operating cash ratio is used to replace the operating profit margin, which reduces the scale index and increases the efficiency index. The changes in the assessment indicators are more from the perspective of all shareholders of the company, which can better reflect the assessment of the value creation ability of central enterprises, and promote the development quality and foundation of central enterprises. The market value is the degree to which the value created by the listed company of the central enterprise is realized in the capital market, not the self-assessment of the listed company, nor the inspection and evaluation of the State-owned Assets Supervision and Administration Commission of the State Council, but the public evaluation of the capital market. Strengthening the market value management assessment will promote the full realization of the value created by the listed companies of central enterprises in the capital market, help to implement the strategy of "financial power", promote the continuous improvement of the quality of central enterprises and their holding listed companies, and better serve the national strategy, and also help to implement the closed-loop management assessment of the value creation chain of state-owned assets.
State-owned Assets Report: In your opinion, how is the current stock price performance of China Shenhua? Does it truly reflect the value creation ability of the company? Song Jinggang: Since 2019, China Shenhua's A-share share price has achieved positive growth for six consecutive years. At the end of 2023, China Shenhua's market capitalization accounted for 4.6% of the total market capitalization of 13.5 trillion yuan of listed companies controlled by central enterprises. In late February 2024, the share prices of China Shenhua's A-shares and H-shares after the resumption of ownership both hit new highs since listing, with a combined market capitalization of about RMB790 billion, ranking fourth among A-share non-financial enterprises and state-owned listed companies. China Shenhua has won the "love" of the capital market, and we have been actively rewarding shareholders, which is a win-win situation of "two-way running". Stock price performance is the result of a combination of two factors: a company's fundamentals and market valuation. On the one hand, China Shenhua's management has confidence and confidence in the company's asset quality and profitability. The company's core business based on the integrated operation model of "coal, electricity, chemical transportation" has been operating steadily and sustainably. On the other hand, market valuations are dynamic and may vary greatly depending on a combination of factors such as capital preference, market sentiment, monetary policy, and company prospects. For the $1 profit and $1 asset on the books of different listed companies, the valuation of such value creation ability in the stock market may vary greatly. For example, for the assets of listed companies that also have a cash dividend of about 2.5 yuan per share in 2022, the market gives China Shenhua a PB valuation of 1.98 times and a listed company a PB valuation of 3.85 times. As the management of listed companies, we tend not to evaluate the judgment of the market, but to do our best first, and then leave the choice and decision to the market.
State-owned Assets Report: The comparison found that those listed companies controlled by central enterprises in traditional industries with large scale are more common in discounting or even breaking the net. But China's Shenhua is clearly an exception. In your opinion, what is the main reason why China Shenhua can clearly distinguish itself from listed companies in other traditional industries? Song Jinggang: Discount is a common phenomenon at the current low level of the stock market, and it is not limited to listed companies of central enterprises. Generally, the market value is lower than the net book assets (PB ratio is less than 1 times). There are two reasons why the intrinsic value of the company has not been fully transmitted to the market, and the other is that the intrinsic value of the company has been fully transmitted to the market. The former requires listed companies to increase their efforts in information disclosure and investor relations to enhance investors' understanding of the intrinsic value of listed companies. The latter may be that the company's assets have defects or deficiencies in terms of quality, efficiency, return ability, etc., and investors have made impairment or discounts on the stock price before the company's accounting. There are many excellent listed companies with high price-to-book ratios, and China Shenhua is not an exception, nor is it the highest price-to-book ratio. China Shenhua's price-to-book ratio is also in the process of change, and it has not always been at a good level. During the industry loss period from 2015 to 2016 and the new energy development period from 2019 to 2021, the share price of China Shenhua's H shares was below 1 times PB. In 2017, the company issued special dividends, repurchased shares in 2020, and released two consecutive three-year shareholder return plans in 2020 and 2022 to alleviate the fluctuation rhythm of the secondary market, strengthen the development and operation management of the enterprise, and take active measures to improve the return on net assets, which achieved relatively positive results and the market valuation recovered.
In recent years, the market value of China Shenhua has continued to grow and has been widely recognized by the capital market. Since 2021, the company has achieved positive results in terms of continuous optimization of fundamentals and improvement of market valuation under the background of the continuous decline in the market risk-free interest rate, the reduction of fixed high-yield assets such as bank wealth management and urban investment bonds, the increase in long-term incremental funds for insurance and pension, and the transformation of market funds from "fanatical pursuit of new energy growth" to "rediscovering the value of traditional energy" since 2020. First, the company's profitability and asset quality have reached a new level. With the support of national ministries and local governments, the company has actively fulfilled its responsibility for energy supply, maintained a high level of production, transportation and sales, and obtained positive feedback on the integration advantages in market-oriented transactions, while the value of the company's stock resources has been revalued. Second, China Energy Group Corporation has firmly supported China Shenhua, and the shareholding increase plan has released a signal of high recognition of the company's value to the capital market, steadily promoted asset injection to support the rapid development of China Shenhua, and in-depth guidance to improve the quality of listed companies to achieve positive results. Third, the board of directors and management of the company adhere to the concept of "governance, trustworthiness and win-win", optimize corporate governance, attach importance to ESG construction, strengthen value creation capabilities, improve the quality of core assets, optimize lean management of funds, enhance market trust with compliant and proactive information disclosure, win shareholder confidence with sincere communication with investors, and attract the trust of investors with sustained high-level returns. With the support of regulators, associations of listed companies, stock exchanges, market analysts, financial media and other relevant parties, the company has established a good market image and provided investment targets for incremental long-term equity funds.
State-owned Assets Report: Dividends are an important way for listed companies to enhance their value recognition. China Shenhua's performance in this regard has been widely praised. In your opinion, what are the reasons why some listed companies are not strong enough in terms of dividends? Is the higher the dividend, the better? For China Shenhua, what are the main factors that affect the proportion of dividends? Song Jinggang: The direction of the company's capital investment and use should match the company's development stage. If the company is in the growth stage and there is a high demand for effective investment, then from a long-term perspective, the company should use the funds to invest in the future, and even further raise funds from the market, which is also one of the meanings of the existence of the stock market. In order to solve the problems of high debt ratio and limited production capacity growth, China Shenhua raised about 90 billion yuan in Hong Kong and Shanghai in 2005 and 2007 for the construction of endogenous integrated industrial chain and the merger and acquisition of extended assets. With the support of the raised funds, China Shenhua has achieved an annual growth of more than 10 million tons of coal production capacity for 10 consecutive years since 2007, completed the leapfrog development from 100 million tons to 300 million tons, built a circular radial railway transportation network around the main coal bases of "western Shanxi, northern Shaanxi and southern Mongolia", and actively invested in the mergers and acquisitions of large-scale, high-parameter clean coal-fired units along the coast along the mine, which basically laid the foundation for the integrated business model of China Shenhua coal circuit port and shipping, and achieved a virtuous cycle and rapid growth. During this period, China Shenhua was in a stage of rapid growth, with large capital expenditures, and cash dividends were distributed at least 35%-40% of the net profit attributable to the parent company in accordance with market practice. Since 2018, the growth rate of China's Shenhua industry has decreased, and capital expenditure has remained low. The company actively responded to the demands of shareholders, formulated investor return plans for two consecutive times and steadily increased the proportion of cash dividends. The cash dividend ratio for 2019-2021 shall not be less than 50% of the company's net profit attributable to shareholders in that year, and the cash dividend ratio for 2022-2024 will be increased to no less than 60%. From 2020 to 2022, the company's actual cash dividend ratio exceeded the commitment. Since its listing, the cumulative cash dividend amount has exceeded RMB 402.1 billion. China Shenhua will adhere to the consistent policy of actively rewarding shareholders, and fully consider factors such as development stage, operating efficiency, capital expenditure plan, cash flow situation, etc., balance short-term and long-term interests, and insist on providing investors with sustainable and relatively stable cash dividends, so as to bring long-term investment returns to investors.
State-owned Assets Report: On the whole, optimizing the industrial layout, especially increasing investment in strategic emerging industries and future industries, is conducive to improving the valuation level of listed companies. In the context of the accelerating development of the new energy industry, how can China Shenhua enhance its sustainable development capabilities? Song Jinggang: For the country, it is the right strategic choice to continuously optimize the industrial layout and increase investment in new and future industries. For an enterprise, fighting for new industries and future industries is not only a process of choice, but also a process of trial and error, most of which may have high risks and a small number of high returns. Listed companies must combine their own resources and conditions, select the main business, and invest scientifically, which is the performance of being responsible for shareholders. "There are Three Gorges in the south and Shenhua in the north." Back at the beginning of China's Shenhua, its fundamental mission was to provide energy security for the country's economic growth. As a listed company controlled by a central enterprise, China Shenhua's mission is to continue to be a "ballast stone of energy supply and a vanguard of the energy revolution", give full play to its advantages in coal resource endowment and industrial chain integration, and provide inexhaustible impetus for China's economic growth. The essence of China Shenhua's business lies mainly in its integrated model, which solves the problem of "efficiently connecting the supply of resources in western China and the energy demand in eastern China". Whether China Shenhua is a coal company, a railway company with an operating mileage of more than 2,400 kilometers, a terminal company with a loading capacity of 270 million tons, a shipping company with its own ships of one million dwt, a power generation company with an installed capacity of more than 40,000 megawatts, and an annual operating cash flow of about 100 billion yuan and an asset-liability ratio of 25%, these are the confidence of China Shenhua to face the sustainable development of the future. The facts of the past few years and the current business environment have proved that China's energy system and new power system must be diversified and comprehensive in the future. Coal, wind and solar, and water cores all have their own positions, and in this process, we must adhere to the principle of "seeking progress while maintaining stability, establishing first and then breaking". The company is also actively making good use of the listing platform, financial advantages, self-owned land and existing unit regulation and grid access channel resources, participating in renewable energy investment through independent development and fund investment, and making good use of the policy conditions under the "3060" dual carbon goal, during the "14th Five-Year Plan" period, the company plans to invest about 5 million kilowatts of new energy installation, which is currently actively being promoted, and has achieved good phased results.
State-owned Assets Report: In the context of the State-owned Assets Supervision and Administration Commission of the State Council's promotion of the market value management of central enterprises into the assessment system, what are your expectations for the specific assessment path and method?Song Jinggang: On January 29, 2024, China Shenhua publicly stated that it will actively implement the requirements of the State-owned Assets Supervision and Administration Commission of the State Council on strengthening the market value management and assessment of listed companies. China Shenhua's experience in market value management includes: adhering to the concept of "governance, honesty and win-win", following the principle of "promoting the unity of intrinsic value and market value", doing a good job in the three important links of "value creation, value management, and value delivery", implementing the management strategy of "compliance bottom line, positive return, quality improvement, and long-term win-win", and organizing safeguard measures through five special working groups, etc., and has initially established and improved the "11257" with Chinese Shenhua characteristics The market value management system helps the company's value and shareholders' interests to be fully realized in the capital market. There are many influencing factors of market value management, both internal and external, subjective and objective. It is suggested that the combination of short-term and long-term should be fully considered in the assessment to avoid encouraging short-term speculation; the role of each link in the value creation, operation and transmission chain should be considered at the same time when evaluating the realization of value; the market system, mechanism and atmosphere of value creation should be guided and maintained; it is recommended to continue to promote the securitization rate of central enterprise groups, continue to support the quality of listed companies controlled by central enterprises, and encourage listed companies to pay attention to strengthening shareholder returns, so that market value management can benefit more stakeholders, gather more strength, and realize greater value.
Swipe left and right to view the table of contents for Issue 4, 2024
Set the "State-owned Assets Report" to "Star"
Scan the code to enter the Mini Program
Read the electronic edition of the State-owned Assets Report