Shen Wan Hongyuan: The proportion of A-shares in Q2 profit increased markedly, mainly focused on cycle and manufacturing
The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that in the second quarter of 2025, the overseas environment was complex and changing, global trade and tariff conflicts intensified, and geopolitical risks rose again. At the same time, new domestic productivity, represented by artificial intelligence, is driving the continuous progress of the technology industry, while the domestic demand sector is still in the process of refining. Some industries have gradually broken out of their trough and are showing a momentum of improvement. It is particularly noteworthy that the manufacturing sector, which represents China's global competitive advantage, is beginning to recover. Looking at the dynamics, compared with ten years ago (2015), industries with a clear increase in the share of profit in 2025Q2 are mainly concentrated in the cycle and manufacturing industries. These are also areas where China has an advantage in global competition.
Shen Wan Hongyuan's main views are as follows:
In the second quarter of 2025, the overseas environment was complex and changing, global trade and tariff conflicts intensified, and geopolitical risks rose again. At the same time, new domestic productivity, represented by artificial intelligence, is driving the continuous progress of the technology industry, while the domestic demand sector is still in the process of refining. Some industries have gradually broken out of their trough and are showing a momentum of improvement. It is particularly noteworthy that the manufacturing sector, which represents China's global competitive advantage, is beginning to recover.
Specifically: 1) In the process of building the foundation of advanced manufacturing fundamentals. The cumulative capital expenditure of the 25Q2 sector had six consecutive quarters of negative year-on-year growth, but fundamentals began to show signs of improvement month-on-month, and profitability began to recover from the bottom. It is expected that by 2026, as supply continues to clear, the sector is expected to usher in a more clear inflection point.
2) Technology TMT fundamentals continue to be booming, and industry trends and policy support resonate. Overseas computing power demand is reflected domestically, driving the electronics industry's performance to continue to rise, and communication equipment ROE has maintained a historically high level for three consecutive years. The performance of the media and computer sector on the AI application side has also begun to gradually improve after seven years of basic bottlenecks.
3) The internal performance of the cycle board is clearly divided, and the industry as a whole is at a stage of refinement under the promotion of “anti-internal volume”. Non-ferrous metals ROE is at a high 85% position in history, and fields such as precious metals, industrial metals, and small metals all have sustainable logical support. Cyclical products, such as steel, building materials, and some chemicals, improved markedly in the 25Q2 fundamentals from the bottom; however, revenue and profits in industries such as coal, construction, petroleum and petrochemicals continued to grow negatively.
4) Pharmaceutical fundamentals may have bottomed out, and the difficult profit decline period is expected to end. The year-on-year decline in revenue and net profit of the 25Q2 industry narrowed, and ROE rebounded from a low level.
5) The financial real estate structure is divided, non-banks continue to recover, banks remain stable, and real estate continues to decline. Non-bank finance continued its recovery trend with the recovery of the capital market; the banking sector maintained stable revenue and profits against the backdrop of declining interest rates and stable interest spreads in the bond market; the real estate industry is still in a downward channel. Second-hand housing prices in major cities continue to fall, and industry performance is still bottoming out.
6) Overall consumption performance is weak, but new consumption and service consumption have become highlights. Under the restrictions of the “alcohol ban” from July to August 2025, food and drink (especially liquor) dragged down the sector significantly, yet demand for service consumption and emotional value consumption, such as trendy games, pets, beauty, and concerts, was intense. Starting from a top-down investment perspective, cross-industry comparisons are carried out in terms of value, and combined with future macro trends, the following analysis focuses on the following six issues:
1. Starting from the comparison of financial indicators, what is the current absolute and relative sentiment among different industries, and where are they in the cycle? Industries with 4 or more improvements in key financial indicators in 25Q2 are mainly concentrated in the booming electronics sector and industries in the bottom reversal range, such as national defense and military, agriculture, forestry, animal husbandry and fishing, steel, power equipment, and media. In contrast, the six key financial indicators of the food and beverage, coal, basic chemicals, and environmental protection industries all deteriorated. Cyclical industries and related sectors of the real estate chain — such as petroleum and petrochemicals, construction, light industry, and real estate — showed weak performance in both absolute and relative terms.
Subindustries with a non-net profit growth rate of more than 15% in 2025Q2 and not affected by the low base effect are mainly: aquaculture, feed, agricultural product processing, planting, beverage and dairy, agrochemicals, white goods, film and television, gaming, components, communication equipment, semiconductors, other electronics, electronic chemicals, rail transit equipment, motorcycles and others, construction machinery, batteries, other power supply equipment, precious metals, industrial metals, small metals, plastics, glass and fiberglass, and securities.
2. What is the current profit structure and evolution trend of A-shares in various industries? The A-share profit structure is gradually being concentrated in manufacturing and cyclical industries where China has a global competitive advantage. Based on 2025Q2 net profit (TTM caliber), A-shares achieved a total profit of 4.83 trillion yuan, of which financial real estate (mainly banks) accounted for more than 50%, and the cyclical industry contributed about a quarter. Consumption, technology TMT, advanced manufacturing, and pharmaceuticals accounted for 8.9%, 7.2%, 5.7%, and 2.3%, respectively. Looking at the dynamics, compared with ten years ago (2015), industries with a clear increase in the share of profit in 2025Q2 are mainly concentrated in the cycle and manufacturing industries. These are also areas where China has an advantage in global competition. The declining share of profits is mostly concentrated in banks, real estate chains, and the downstream consumer sector, reflecting the main direction of China's economic structural transformation.
3. What is the degree of supply clearance in the industry in the context of “anti-internal circulation”? 1) Judging from changes in the number of employees in listed companies, the scale of employment in most industries showed negative growth, indicating that industry supply is in the process of being cleared continuously.
2) From the perspective of capital expenditure, the industry's new production capacity and inventory digestion level. After 22-23 years of supply digestion, the supply cycle of most manufacturing industries is below 50% in history. Currently, industries with “high inventory cycles and low new production capacity” include military electronics, computer equipment, wind power equipment, etc. However, the growth rate of orders in these industries is high, and demand is clearly rising, so the impact of inventory pressure on them is limited. More industries are in the “low inventory cycle and low new production capacity” range, but most distribution is not extreme, which means either inventory has not been fully removed, or the new production capacity still needs to be digested. Typical examples include photovoltaic equipment, aquaculture, and real estate development. The supply cycle for new production capacity is lower than the historical 10% fraction, but the inventory cycle is still around 30% or more. The inventory cycle of coke and other industries is close to the 10% quartile, but the new production capacity is still higher than the 30% quartile. As the “anti-internal volume” continues to advance, the cycle and manufacturing supply clearance are expected to continue, and it is expected that it will reach its extreme state from the second half of 2025 to 2026. Overall, supply in the fields of building materials, chemicals, real estate, photovoltaics, batteries, wind power, auto parts in the manufacturing industry, aquaculture, chemicals and pharmaceuticals during the cycle is relatively adequate.
3) On the demand side, the 2025Q2 fixed asset turnover ratio - TTM is rising marginally, and the manufacturing subsector is mainly concentrated in military, electronics, and offshore manufacturing fields, such as military electronics, consumer electronics, marine equipment, aerospace equipment, wind power equipment, precious metals, aquaculture, construction machinery, computer equipment, rail transit equipment, power grid equipment, motorcycles and others, and oil service engineering. These are also currently booming industries. Although the fixed turnover rate of some industries is still low, the 2025Q2 contract debt growth rate has rebounded markedly, including energy metals, small metals, special steels, chemical raw materials, chemical fibers, chemicals, industrial metals, passenger cars, general steel, batteries, medical devices, etc., indicating that they may be at the bottom of the cycle. Orders are beginning to recover, and subsequent demand is expected to drive fundamentals back up.
4. What is the performance of overseas companies under the influence of tariffs? Going overseas is one of the important ways to break the “inner circle.” The bank sorted out the segments that accounted for more than 20% of overseas revenue in the first half of 2025 and analyzed their 2025Q2 fundamental performance, and came to the following conclusions: 1) The overseas revenue share of the overseas industry increased further by about two-thirds in the second quarter, while the share of overseas revenue in the consumer electronics, semiconductor, computer equipment and other industries declined; 2) the gross margin of overseas business in the overseas business of more than two-thirds was higher than the industry as a whole, especially in the manufacturing sector where China has competitive advantages, such as construction machinery, communication equipment, automotive parts, entertainment supplies, special equipment, Batteries, computer equipment, etc., have an overseas gross margin of at least 2 percentage points higher than the overall industry; 3) Industries with relatively high overseas revenue still achieved a marginal rise in fundamentals in 2025Q2, and industries with improved revenue growth, profit growth, and ROE are mainly concentrated in the technology TMT sector and some new energy sources, such as games, components, consumer electronics, automotive components, communication equipment, energy metals, photovoltaic equipment, etc.
5. In the context of low interest rates, what is the dividend situation in the industry? The mid-term dividend phenomenon continues. According to the 2025 interim report, banks once again implemented mid-term dividends after the previous year, totaling 237.29 billion yuan; the petroleum and petrochemical, communications, non-bank finance and coal industries reported interim dividends of 83.37 billion yuan, 76.70 billion yuan, 49.21 billion yuan, and 24.13 billion yuan, respectively.
6. What is the current cost performance ratio of various industries under the PB-ROE framework? Shenwan Hongyuan Strategy stated in a report released on March 3, 2025, that 2025 is optimistic about reversal opportunities for industries in the third quadrant of PB-ROE (low PB, low ROE), including pharmaceuticals, bank real estate chains (banks, real estate, steel, etc.), AI applications (computer/media/mechanical equipment), and power equipment. Since the second quarter of 2025, the pharmaceutical and AI computing power sectors have performed well. Currently, communications is the only industry in the “high PB-high ROE” quadrant.
Looking forward to the future, from a top-down investment perspective, the following segments are recommended: 1) In the main line of artificial intelligence, in addition to the current high computing power chain, the cost-effective direction is AI applications (media, computers, intelligent driving, fintech, robotics, etc.), combined with early AI sector market trading characteristics, that is, the fourth wave of artificial intelligence market interpretation has sufficient time space, or is close to a phased high point. I am optimistic about the interpretation of the fifth wave market after consolidation. The structure emphasizes the bottom reversal of fundamentals and AI applications that have a stronger cost performance ratio.
2) As a relatively independent main line, the current valuation and ROE are still low, and the fundamentals of the 25Q2 industry have stabilized, and the mid-cycle industry is basically facing upward. It continues to focus on the reversal of the pharmaceutical market starting with innovative drugs in 2025. It is expected that the future will further spread from innovative drugs to other pharmaceutical segments.
3) Power equipment also has a certain cost performance ratio within the growth sector. Fundamentals such as wind power, batteries, and photovoltaics continue to improve, and the overall supply of the sector will continue to decline in 2026.
4) From a medium- to long-term perspective, in the context of the continued promotion of the “anti-internal volume” policy, the basic bottom-cycle industry (such as steel, cement, agrochemicals, fluorine chemicals, aquaculture, etc.), which is currently in a “double low” state of PB and ROE, is expected to gradually enter an upward fundamental channel. With the gradual fermentation of the 25Q4 market's fundamental expectations for next year, and short-term trading congestion in the technology sector reaching a high level, these undervalued sectors are expected to usher in a style shift.
Risk warning: 1) The impact of tariff shocks exceeded expectations; 2) Geographic risk uncertainty disrupted industry fundamentals; 3) Financial reporting data lags behind and does not represent future trends.