BofA Global Research-Equity Strategy - China SOE reform 2.0, and the “Fantastic ...-106834823

AccessibleversionEquityStrategy-China04March2024SOEreform2.0,andthe“FantasticFour”EquityStrategysectorsChinaEquityStrategyTableofContentsSOEsoutperformed,withincreasedinvestorinterestsExecutivesummary2WithSOEs’outperformanceinthepast2-3years,globalinvestors’interestsareSOEscontinuedtooutperform3graduallyexpandingfromSOEinsurerstooil&gas,andmorerecently,toSOEbanks,coal,andutilitiesstocks.Ourtripodstrategyfor2024continuestolikehighyieldSOEsSOEreform2.0:unlockingthevalue4inthevolatilemarket.WebelieveSOEs’outperformancecouldcontinue,withtheirenhancedfocusonshareholderreturnandfinancialdiscipline.FundamentalimprovementinROE4UnlockingSOEs’value:morefocusonshareholderreturnDividend:centralSOEsincreasedpayout5Since2020,theSASACintroducedkeyfinancialmetricsasSOEs’KPIs,including“oneBuyback:mostlybyfinancialsandinternetPOEs6profitandfiveratios”inJan-2023.Inthepast2-3years,A-sharelistedSOEsindeedimprovedonrevenuegrowth,debt/equityleverage,andROE,relativetothePOEs.InJan-LearningfromJapan’splaybook82024,SASACsaidmarketvaluemanagementwouldbecomeaKPIforlistedcentralSOEs,indicatingthatSOEre-ratinghasbecomeapolicypriority.BesidesfundamentalCasestudy9improvement,SOEsalsoincreasedshareholderreturnrecently.CentralSOEsraisedpayoutratiofrom<45%onaveragein2018-20,to50-55%in2021-22.PayoutratioforThe“FantasticFour”andstock...