GF Securities: A shares' ROE stabilizes for three consecutive quarters, with noticeable rise in Science and Technology Innovation sector.

GF SEC released a research report stating that the non-financial ROE of A-shares stabilized for three consecutive quarters, with sales profit margins boosted but asset turnover rates dragging down. The non-financial 25-year three-quarter ROE (TTM) for A-shares was 6.56%, down 0.01pct relative to the 6.57% in the mid-year report. The major broad-based indexes of A-shares showed a collective rebound in net profit growth, with technology style profits leading the way. The net profit growth rates of the large-cap style indexes, such as the Shanghai 50 (+4.1%) and the CSI 300 (+2.9%), were not significantly different from those of the small-cap style indexes, such as the CSI 1000 (+1.1%) and the CSI 2000 (+3.5%). However, among the growth style indexes, the Growth Enterprise Board Index (+6.3%), Growth 50 (+11.5%), and Innovation 50 (+16.4%) had the highest net profit growth rates year-on-year. The main points of GF SEC are as follows: In the third quarter of 2025, the non-financial A-share adjusted profits increased by 1.2% year-on-year, contributing an additional 24.8 billion. As of October 31, according to Wind, 100% of the companies had disclosed their 2025 third-quarter reports. Performance in all non-financial sectors of A-shares improved, with the third-quarter single-quarter net profit of the major A-share non-financial companies higher than the median level since 2004. The cumulative year-on-year revenue growth rate of non-financial A-shares for the three quarters was +0.31% (compared to -0.56% for the mid-year report); the cumulative year-on-year net profit growth rate for the three quarters was +1.65% (compared to +0.89% for the mid-year report). The non-financial ROE of A-shares stabilized for three consecutive quarters, with sales profit margins boosted while asset turnover rates dragged down. The ROE (TTM) for non-financial A-shares for the 25-year three-quarter report was 6.56%, down 0.01pct compared to the mid-year report. Although turnover rates are still declining, the year-on-year revenue growth on the numerator side has turned positive, indicating a recovery in demand. The improvement in sales profit margins is mainly due to a decrease in expense rates, while non-gross profit margins have slightly increased, indicating that supply and demand structures still need to be balanced and inflation is still in the process of correction. Index comparison: The net profit growth of the major broad-based A-share indexes collectively rebounded, with technology style profits leading the way. The Shanghai 50 (+4.1%) and the CSI 300 (+2.9%) had similar improvements in net profit growth compared to small-cap style indexes such as the CSI 1000 (+1.1%) and the CSI 2000 (+3.5%), but growth style indexes such as the Growth Enterprise Board Index (+6.3%), Growth 50 (+11.5%), and Innovation 50 (+16.4%) had the highest year-on-year net profit growth rates. (Note: The improvement in cumulative year-on-year net profit for the 25Q3 compared to 25Q2 is shown in parentheses) Industry comparison: The midstream industries showed improvement, while consumption remained under pressure. (1) Industries with improved year-on-year revenue growth rates include: TMT (positive acceleration), financial services (positive acceleration), midstream manufacturing (positive acceleration), financial real estate (positive acceleration), midstream materials (narrowed decline), services (narrowed decline), and resource categories (narrowed decline). (2) Industries with improved net profit growth rates include: midstream materials (positive acceleration), TMT (positive acceleration), midstream manufacturing (positive acceleration), financial services (positive acceleration), financial real estate (positive acceleration), and resource categories (narrowed decline). (3) Industries with improved ROE include: TMT, midstream manufacturing, midstream materials, financial services, and financial real estate. (4) In terms of profit contribution, after excluding the financial sector, non-ferrous metals, electronics, steel, communication, and power equipment were the main reasons for the improvement in third-quarter performance, while real estate, coal, petroleum and petrochemicals, construction decoration, and pharmaceuticals still weighed down on the third-quarter performance. (5) Industries with consecutive acceleration in year-on-year net profit growth rates for two quarters and positive cumulative year-on-year growth in the mid-year report are focused on: TMT (film and television, games, software development, components, other electronics, consumer electronics, communication services), essential consumption (animal health, Shenzhen Agricultural Power Group processing, non-white spirits, beverages and dairy products), midstream manufacturing (ground armaments, batteries, motors, grid equipment), optional consumption (black household appliances, personal care products, auto parts, other household appliances). Risk warning: Geopolitical risks, global liquidity easing below expectations, etc.