Industrial: A-share companies achieve year-on-year improvement in revenue in 2025, but performance is dragged down by asset impairments and subsidy reductions.

Industrial released a research report stating that the A-share 2026 first quarter report and the 2025 annual report have been basically disclosed. The revenue of listed companies in 2025 has improved compared to the previous year, and end demand is gradually recovering. However, the substantial increase in asset impairment losses and the rapid decline in government subsidies have collectively hindered the non-financial performance of the entire A-share in 2025. Based on the high proportion of 2025 policy subsidies in net profit and the continued negative growth of 2026Q1 policy subsidies, industries such as computers, building materials, steel, light industry, and new energy show a high dependence on government subsidies and may face greater performance pressure in the subsequent subsidy tapering. From the fourth quarter of 2025 to the first quarter of 2026, what caused the fluctuations in the A-share performance? The net profit growth rates of the entire A non-financial sector in 2025 and 2026Q1 were -1.91% and 13.0% respectively, showing significant fluctuations. To determine the reasons for the performance fluctuations, the report detailed the breakdown of net profit into operating income, financial investment income, strategic investment income, policy subsidies, operating income, non-operating income, and income tax. It found that the decline in government subsidies and the increase in asset impairment losses were the main reasons for the drag on the non-financial performance of the entire A in 2025. In the 2025 annual report, the provision for asset impairment losses significantly increased year-on-year, becoming one of the core reasons affecting the performance in 2025, creating a "golden pit" that deserves attention. The performance of industries such as pharmaceuticals, environmental protection, building materials, comprehensive services, household appliances, and real estate was significantly affected by the provision of impairment. Another key factor contributing to the decline in performance in 2025 came from the rapid tapering of government subsidies. By excluding the "other income from debt restructuring" item, the report measured the daily government subsidies received by listed companies. Government subsidies declined by 23.1% in 2025, the largest drop since 2019, and continued to decline by 12.2% in 2026Q1. In terms of cash flow generation of the main business, the report constructed two indicators to evaluate the profit-making ability of the main business: [year-on-year growth rate of operating income] and [cash content of operating income]. The cash content of operating income is calculated by adjusted net cash flow from operating activities divided by absolute value of after-tax operating income. From the perspective of the main business performance, the top five industries with the highest growth rates of operating income in 2026Q1 include building materials, non-ferrous metals, national defense and military industry, power equipment and computers. Industries where the growth rate of operating income significantly lags behind the growth rate of net profit include comprehensive services, computers, household appliances, real estate, and steel. When combining the growth rate of the main business operation and its cash flow content, the industries with more valuable performance growth in 2026Q1 include building materials, national defense and military industry, and social services, which have both high operating growth rates and cash content of operating income. As a new expansion cycle kicks off, how does the cash flow of corporate operations change? To more accurately measure the cash flow generated by the main business of enterprises, the report simplified and broke down the cash flow from operating activities. In 2026Q1, the adjusted operating cash flow of the entire A non-financial sector further expanded from the negative value of the same period last year, mainly due to improved corporate confidence at the beginning of the year, and positive changes in inventory behavior and personnel compensation. The main outflow items of the adjusted operating cash flow of the entire A non-financial sector in 2026Q1 come from cash payments for purchase of goods and services, which grew by 4.60% year-on-year, up from 2.27% in 2025, indicating an increase. Additionally, the growth rate of employee salaries paid by listed companies in 2026Q1 increased by 4.41% year-on-year, up from 0.43% in 2025. In specific industries, there was a clear improvement in operating cash flow in 2026Q1 compared to the same period last year in industries such as communications, non-ferrous metals, national defense and military industry, real estate, and coal. The improvement in operating cash flow for industries like communications, non-ferrous metals, and national defense and military industry was mainly due to the improvement in main business revenue and the reduction in upstream and downstream accounts; while the improvement in operating cash flow for the real estate industry was more from a decrease in outflows, indicating a slowdown in the deterioration of the industry fundamentals. Industries with a net inflow of operating cash flow in 2026Q1 compared to the same period last year include communications, non-ferrous metals, national defense and military industry, real estate, and coal. However, the situation for industries such as petroleum and petrochemicals, transportation, construction and decoration, computers, and electronics showed a significant weakening in the net inflow of operating cash flow in 2026Q1 compared to the same period last year. This negative change in operating cash flow for the petroleum and petrochemicals industry was mainly due to a significant increase in miscellaneous expenses. Looking further into inventory behavior and employee compensation in each industry, industries with a sustained advantage in main business performance, such as electronics, power equipment, national defense and military industry, and non-ferrous metals, have shown a stronger desire and ability for expansion. In terms of upstream and downstream accounts (inventory purchases, payments to upstream suppliers, payments from downstream customers), industries such as electronics, communications, power equipment, mechanical equipment, national defense and military industry, and non-ferrous metals showed significant growth in inventory and prepayments, indicating that their future performance may continue to deliver. Regarding employee compensation, industries such as non-ferrous metals, electronics, national defense and military industry, power equipment, and mechanical equipment showed a year-on-year increase of more than 5% in employee compensation. How did the listed companies perform in terms of dividends in 2025? The cash dividend situation of listed companies in 2025 remained stable. As of April 30, 2026, a total of 3,679 listed companies (listed in 2025 and before) disclosed their 2025 profit distribution plans and were expected to implement dividends, accounting for 67.34% of the disclosed plans in A shares, slightly lower than the percentage of companies implementing dividends in 2024 (-2.95pct). Under the guidance of policies, the proportion of stable dividend payments by listed companies in 2024 continued to improve. The median dividend ratio of 2025 A shares was 30.02%, remaining relatively stable over the past two years, maintaining a historically high level of dividend distribution. Companies that have continuously distributed dividends for five years accounted for 48.45% in 2025, a slight increase from 48.35% in 2024, while companies that have continuously improved their dividend distribution for three years accounted for 10.13% in 2025, up from 9.81% in 2024. This indicates that with the gradual improvement of the dividend system in A shares, the stability and predictability of listed companies' dividends are gradually increasing. Looking at the primary industries, the consumer goods sector had a generally higher dividend payout ratio. Based on the median dividend payout ratio for 2025, the top industries were food and beverage (48.80%), beauty and personal care (46.70%), household appliances (41.35%), transportation (40.21%), and coal (39.09%). In terms of dynamic changes, the median dividend payout ratio for agriculture, forestry, animal husbandry, and fisheries improved significantly by 6.39% in 2025 compared to the previous year, with transportation (+5.08%), steel (+4.70%), and national defense and military industry (+3.99%) showing relatively high levels of improvement in their dividend payout ratios. Meanwhile, the median dividend payout ratios for petroleum and petrochemicals (-26.89%), wholesale and retail trade (-22.67%), and building materials (-20.60%) in 2025 showed a significant decline compared to previous years. In general, the banking industry (4.11%) had the highest dividend yield in 2025, followed by coal (3.85%), household appliances (3.57%), and petroleum and petrochemicals (3.51%). Dynamically, the industries with significant improvements in dividend yield in 2025 compared to 2024 were food and beverage (+0.26%), non-bank financial institutions (+0.12%), and steel (+0.11%), while the industries with a significant decline in dividend yield in 2025 were coal (-0.78%) and petroleum and petrochemicals (-0.74%).