Summary

Overall Profitability: As of 11 AM on August 30, A-share listed companies have essentially completed their 2025 interim report disclosures. In Q2 2025, All A-shares (excluding financial, oil & petrochemical sectors) showed modest revenue growth year-over-year while net profit growth decelerated, reaching +0.99% and +0.88% respectively, with quarter-over-quarter changes of +0.56pct and -5.42pct compared to Q1 2025. Despite emerging tariff impacts and persistent supply-demand imbalances in manufacturing sectors, along with lower-than-expected PPI disrupting the recovery rhythm of All A-shares (excluding financial, oil & petrochemical), Q2 single-quarter net profit maintained positive growth supported by new productive forces resilience and "trade-in for new" policies. Looking ahead, while Q3 may still face pressure from weakening profit growth as current tariff policies and trade-in effects marginally diminish, we believe the earnings inflection point in the second half is promising given the gradual strengthening of "anti-involution" measures, likely PPI bottoming, and demand-side policy effects.

Structural Performance: ChiNext board achieved significantly positive Q2 single-quarter profit growth, outperforming main board/STAR Market. With cost reductions and weak demand recovery, mid-stream profit share continued to expand on a quarterly basis. Among major sectors, information technology maintained high cumulative profit growth, while mid-stream materials also showed relatively strong cumulative profit growth. TMT sectors were among the biggest highlights, with computer and media achieving 20%+ Q2 single-quarter net profit growth, electronics continuing high growth, and telecommunications showing improved year-over-year growth rates. Overseas computing power chain demand surged significantly, with domestic computing chips showing notably higher profit growth rates, while computing power leasing, PCB Bancorp, and optical modules performed exceptionally well. Mid-stream manufacturing was driven by "two new" policies but showed divergence - machinery maintained positive Q2 single-quarter profit growth, while automotive growth turned significantly negative due to "involution" effects. Defense and power equipment growth turned positive, showing distressed reversal.

ROE (TTM): Q2 2025 All A-shares/All A-shares (excluding financial, oil & petrochemical) ROE (TTM) increased by 0.01pct and 0.09pct quarter-over-quarter to 7.83% and 6.35% respectively, both at extremely low percentiles over the past decade. Total asset turnover continued declining, potentially confirming some supply-demand imbalances in mid-stream manufacturing. However, sales profit margins increased, mainly benefiting from profit improvements due to declining upstream resource costs, while leverage willingness increased slightly.

High-Growth Sub-sectors: Based on Q2 2025 single-quarter net profit year-over-year and quarter-over-quarter growth plus revenue year-over-year growth, combined with our fundamental assessments: High-growth sectors (Q2 2025 single-quarter net profit year-over-year >30% without significant quarter-over-quarter decline, positive single-quarter revenue growth): Semiconductors/Components (PCB Bancorp), Communication Network Equipment and Devices (Optical Modules), Gaming, CXO, Rare Earths/Precious Metals, Rail Transit Equipment, Marine Equipment, Motorcycles, Wind Power Components, Securities.

Areas Worth Monitoring: 1) Sub-sectors likely to maintain high growth among high-growth and improving sectors: Defense, Pharmaceuticals, Semiconductors (including domestic computing chips)/Optical Modules/PCB Bancorp, Rare Earths/Precious Metals, Gaming, Wind Power Equipment; 2) Directions likely to recover first among stable and distressed sectors: Industrial Metals/Minor Metals, Agrochemical Products/Chemical Raw Materials/Chemical Products, Power Grid Equipment/Batteries, Infrastructure, Medical Devices, Telecom Operators, etc.

Risk Warnings: Data lag exists, domestic and overseas economic recession, tariff increases significantly exceeding expectations.

1. A-Share 2025 Interim Earnings Overview

1.1 Q2 2025 Single-Quarter All A-shares (Excluding Financial, Oil & Petrochemical) Profit Growth Declined, STAR Market Turned Positive

As of 11 AM on August 30, A-share listed companies have essentially completed their 2025 interim report disclosures. In Q2 2025, All A-shares (excluding financial, oil & petrochemical sectors) showed modest revenue recovery year-over-year while net profit growth decelerated, reaching +0.99% and +0.88% respectively, with quarter-over-quarter changes of +0.56pct and -5.42pct compared to Q1 2025. All A-shares net profit maintained slight positive growth at +1.43%, with growth rates declining 2.20pct quarter-over-quarter compared to Q1 2025.

Despite emerging tariff impacts and persistent manufacturing supply-demand imbalances, along with lower-than-expected PPI disrupting the All A-shares (excluding financial, oil & petrochemical) recovery rhythm, Q2 single-quarter net profit maintained positive year-over-year growth supported by new productive forces resilience and "trade-in for new" policies. Looking ahead, while Q3 may still face pressure from weakening profit growth as current tariff policies and trade-in effects marginally diminish, we believe the earnings inflection point in the second half is promising given gradual strengthening of "anti-involution" measures, likely PPI bottoming, and demand-side policy effects.

1.2 STAR Market Outperformed, Mid-stream Profit Share Continued Expansion, Information Technology Remained Outstanding

Structurally, STAR Market Q2 single-quarter profit growth turned significantly positive, outperforming main board/ChiNext. With cost declines and weak demand recovery, mid-stream profit share continued expanding quarterly. Among major sectors, information technology maintained high cumulative profit growth, while mid-stream materials also showed relatively strong cumulative profit growth.

By board segments (industries within sectors refer to CITIC industries unless otherwise specified):

1) Main board Q2 2025 performance growth somewhat declined, with single-quarter net profit year-over-year growth at +1.0%, down 2.8pct from Q1 2025, mainly dragged by oil & petrochemicals (7.8% of Q2 2024 single-quarter profit share, -23.1% Q2 2025 single-quarter net profit year-over-year) and coal (2.8% of Q2 2024 single-quarter profit share, -36.6% Q2 2025 single-quarter net profit year-over-year);

2) ChiNext Q2 2025 net profit achieved positive year-over-year growth but narrowed 9.8pct from Q1 2025, with significant internal divergence. Battery sector (20.5% of Q2 2024 profit share, +24.5% Q2 2025 year-over-year) achieved high profit growth. Additionally, relatively high-weight industries like electronics and telecommunications continued high year-over-year performance growth, while pharmaceuticals & biotechnology (17.9% of Q2 2024 profit share, -39.9% Q1 2025 year-over-year) provided some drag.

3) STAR Market Q2 net profit year-over-year reached +21.9%, achieving significant positive turnaround, mainly due to outstanding performance in semiconductors (25.2% of Q2 2024 profit share, +64.1% Q2 2025 profit year-over-year), with medical devices (14.6% of Q2 2024 profit share, +0.3% Q2 2025 profit year-over-year) turning positive.

Mid-stream profit share continued expansion. Among major sectors, information technology maintained high cumulative profit growth while mid-stream materials also showed relatively strong cumulative profit growth. Upstream/mid-stream/downstream sectors' Q2 2025 single-quarter net profit shares reached 30.6%/30.9%/38.5% respectively, with mid-stream share rising 7.9pct from Q1 2025, at the 86.4% percentile since 2005.

Corresponding major sector performance:

1) Cyclicals: Q2 PPI year-over-year decline expanded, cyclical performance continued diverging. Coal and oil & petrochemicals Q2 single-quarter net profit year-over-year declines continued expanding, non-ferrous metals growth somewhat declined, chemicals turned negative quarterly. Building materials, steel and other mid-stream materials benefited from cost declines, achieving positive profit growth both year-over-year and quarter-over-quarter, though growth rates narrowed.

2) Consumer: Tariff impacts emerged, domestic demand recovery remained weak. After base effects faded, agriculture, forestry, animal husbandry & fishery year-over-year growth significantly declined. Textiles & apparel and light industry, with high foreign demand correlation, saw expanded negative growth. Restaurants and travel chains performed poorly, food & beverage growth turned negative.

3) TMT was among the biggest highlights, with computer and media achieving 20%+ Q2 single-quarter net profit year-over-year growth, electronics continuing high growth, and telecommunications year-over-year growth improving. Overseas computing power chain demand surged significantly, domestic computing chip performance year-over-year growth notably increased, with servers/PCB Bancorp/optical modules segments performing exceptionally.

4) Mid-stream manufacturing was driven by "two new" policies but showed divergence. Machinery Q2 single-quarter profit maintained positive year-over-year growth, while automotive growth turned significantly negative due to "involution" effects. Defense and power equipment growth turned positive, showing distressed reversal.

5) Financial & real estate: Property chains remained sluggish. Among financials, securities continued high growth while banking and insurance showed slight positive year-over-year growth.

2. ROE (TTM): Total Asset Turnover Declined, Profit Margins Improved

Q2 2025 All A-shares/All A-shares (excluding financial, oil & petrochemical) ROE (TTM) increased 0.01pct and 0.09pct quarter-over-quarter to 7.83% and 6.35% respectively, both at extremely low percentiles over the past decade. Total asset turnover continued declining, potentially confirming some supply-demand imbalances in mid-stream manufacturing. However, sales profit margins rose more significantly, mainly benefiting from profit improvements due to declining upstream resource costs, while leverage willingness increased slightly.

By board segments, ChiNext rose slightly while STAR Market may be entering an upward trajectory. Their Q2 2025 ROE (TTM) reached 5.77%/1.96% respectively, changing +0.15pct/+0.19pct quarter-over-quarter from Q1 2025, at 25.6%/4.3% percentiles over the past decade.

Capacity year-over-year growth remained at historical lows through H1 2025. Through Q2 2025, capital expenditure cumulative year-over-year has been negative for five consecutive quarters. As "anti-involution" measures deepen and more growth-stabilizing policies potentially offset foreign demand declines, capacity utilization is expected to successfully bottom in the second half. Through Q2 2025, All A-shares (excluding financial, oil & petrochemical) capital expenditure cumulative year-over-year growth recovered 2.8pct from Q1 2025 to -2.4%, negative for five consecutive quarters. H1 2025 capacity growth somewhat increased but remained at historical lows. As "anti-involution" measures deepen and more growth-stabilizing policies potentially offset foreign demand declines, All A-shares (excluding financial, oil & petrochemical) capacity utilization (measured by fixed asset turnover or total asset turnover) is expected to successfully bottom in the second half.

At the meso level, Q2 2025 CITIC Level-1 industry ROE (TTM) quarter-over-quarter changes diverged. Under DuPont analysis, selecting total asset turnover (capacity utilization) and sales profit margin (TTM) dimensions, we categorize CITIC Level-1 industries into four quadrants:

1) Rising asset turnover, improving profit margins: TMT, high-end manufacturing directions - Electronics, Computer, Media, Telecommunications, Machinery, Defense, Agriculture/Forestry/Animal Husbandry/Fishery, Power Equipment

2) Rising asset turnover, declining profit margins: Consumer - Beauty Care, Food & Beverage, Textiles & Apparel, Social Services, Home Appliances, Banking

3) Declining asset turnover, improving profit margins: Mid-stream materials etc. - Non-ferrous Metals, Steel, Building Materials, Transportation, Pharmaceuticals, Non-bank Financials, Construction & Decoration

4) Declining asset turnover, declining profit margins: Real Estate, Coal, Light Manufacturing, Oil & Petrochemicals, Commercial Trade, Automotive, Basic Chemicals, Utilities

3. Industries: TMT Outperformed, High-end Manufacturing Distressed Reversal

From structural prosperity perspective, based on Q2 2025 single-quarter net profit year-over-year and quarter-over-quarter growth plus revenue year-over-year growth, combined with our fundamental assessments, we categorize major industry chains and sectors into three major classifications:

High-growth (Q2 2025 single-quarter net profit year-over-year >30% without significant quarter-over-quarter decline from Q1 2025, positive single-quarter revenue year-over-year): Semiconductors/Components (PCB Bancorp), Communication Network Equipment & Devices (Optical Modules), Gaming, CXO, Rare Earths/Precious Metals, Rail Transit Equipment, Marine Equipment, Motorcycles, Wind Power Components, Securities.

Stable Demand and Low-level Improvement Categories:

1) Improvement category (Q1 2025 revenue or net profit year-over-year <0% or marginal positive growth, but Q2 2025 significantly improved): Defense (Military Electronics/Ground Equipment), Pharmaceuticals (Chemical Pharmaceuticals/Traditional Chinese Medicine/Pharmaceutical Commerce), Software Development, Beverages & Dairy, Aviation & Airports, Education, Solar Equipment/Wind Power OEMs, Coke, State-owned Major Banks.

2) Stable category (Q2 2025 single-quarter net profit year-over-year approximately 0%-30% range, net profit absolute value or year-over-year growth not significantly declining from Q1 2025): Industrial Metals/Minor Metals, Non-metallic Materials, Agrochemical Products, Consumer Electronics, Auto Components, Construction Machinery, Power Grid Equipment/Motors, Batteries/Inverters, White Goods/Home Appliance Components, Breeding, Personal Care Products, Non-liquor, City & Rural Commercial Banks, Telecom Operators.

Distressed Categories (Q2 2025 single-quarter revenue or net profit year-over-year <0%, or net profit significantly declining quarter-over-quarter from Q1 2025):

1) Declining category: Oil & Petrochemicals (Oil & Gas Extraction/Refining & Trading), Specialty Steel/Steelmaking Raw Materials, Transportation (Shipping & Ports/Railway & Highway), Chemical Raw Materials/Chemical Products/Chemical Fibers, Passenger Vehicles/Commercial Vehicles, Medical Devices/Biological Products, Liquor, Small Home Appliances, Cinema Chains.

2) Continued sluggish category: Coal, Paper, Medical Aesthetics/Cosmetics/Apparel, Hotels & Restaurants/Retail/Leisure Food/Specialized Chains, Real Estate/Infrastructure/Building Materials, Tourism Retail (Duty-free).

For industry selection, areas worth monitoring include: 1) Sub-sectors likely to maintain high growth among high-growth and improving sectors: Defense, Pharmaceuticals, Semiconductors (including domestic computing chips)/Optical Modules/PCB Bancorp, Rare Earths/Precious Metals, Gaming, Wind Power Equipment; 2) Directions likely to recover first among stable and distressed sectors: Industrial Metals/Minor Metals, Agrochemical Products/Chemical Raw Materials/Chemical Products, Power Grid Equipment/Batteries, Infrastructure, Medical Devices, Telecom Operators, etc.

Risk Analysis

1) Data lag exists: Different data calibers may vary. Due to data lag, such as Q1 2025 reports disclosed on April 30 only reflecting January-March industry conditions, conclusions based on historical data analysis have relatively limited guidance value.

2) Domestic and overseas economic recession: Current overseas economic uncertainties and poor domestic and international economic environments will affect demand performance in some industries.

3) Tariff increases significantly exceeding expectations: If the US continues imposing tariffs on China beyond market expectations, while using various sanctions and threats to prevent Chinese products from entering the US through re-export channels, and if further financial warfare or forced delisting of Chinese concept stocks occurs, this could bring significant negative impacts to Chinese exports, economic growth, and financial markets, affecting A-share fundamentals.