UBS Equities-China Equity Strategy _A-share Q225 earnings review_ Meng-117588692

ab2 September 2025Global ResearchChina Equity StrategyA-share Q225 earnings reviewOverall A-share earnings +0.7% YoY in Q2, -3.2% YoY for ex-financialsOverall A-share earnings grew 2.3% in H125, or 0.6% YoY for ex-financials. Specifically, overall A-share earnings edged up 0.7% YoY in Q225 (Figure 10A-share earnings growth by sector), slower than +3.7% YoY in Q125. Given intensified China-US trade frictions and the property sector's ongoing bottoming in Q225, non-financial sectors' earnings growth was again in a negative territory (-3.2% YoY), in line with NBS (National Bureau of Statistics) YoY industrial profit growth turning negative in Q225 (Figure 11NBS industrial profit growth and A-share industrial-related sectors’ earnings growth). Financials posted 5.6% YoY earnings growth in Q225, far above non-financial sectors. Of which, given a more energetic capital market, non-bank financials achieved 16% YoY earnings growth in Q225. For H225, assuming the current China-US bilateral tariffs remain unchanged, we expect CSI 300 EPS to rise 6% YoY in 2025. With a low base (non-financial sectors saw negative YoY earnings growth every quarter in 2024, and increasingly wider, at that) and launch of more supportive policies, we expect A-share earnings to recover mildly on a quarterly basis in 2025.Overall A-share NPM flat YoY in Q2, capex fell 2.8% YoY in H1Margin wise, non-financial sectors' GPM was flat QoQ/-0.1ppt YoY and NPM was flat YoY/-0.2ppt QoQ in Q225. Overall A-share ROE arrived at 7.7% in Q225, largely in line with Q125. Non-financial sectors' capex fell 2.8% YoY in H125, pointing to companies' still weak desire to expand capacity.Which sectors and boards have had earnings uptrends?By sector (Figure 10A-share earnings growth by sector), over half of them saw YoY earnings growth in Q225. Steel, electronics, building materials, computer, media and electrical equipment sectors recorded 20%-plus YoY earnings growth in Q225. Given rapid growth under the AI theme, relevant sectors all delivered strong YoY earnings growth in Q225, of which electronics/media/computer sectors' earnings rose 29%/21%/20% YoY. By board, the ChiNext and STAR boards significantly outgrew the main board, with respective earnings up 6%/21%/a merely 0.3% YoY in Q225.Equity strategy: tactical style and sector allocationStyle allocation: due to markedly improved market sentiment and a positive medium-term outlook, we think growth may outperform value (Figure 17 Growth valuation relative to stable and cyclical style – Wind Al A-share Index). However, given a little likelihood of a further surge in market turnover, small caps that have outperformed may find it harder to gain further excess returns. Sector preference: we suggest investors tactically add positions in high-beta sectors that are sensitive to liquidity, including electronics/semis, computer, communications, media, national defense, and non-bank financials. Furthermore, amid the anti-involution drive, we advise i