BAT combined cannot compare to Huawei: a panoramic analysis of the technological content of Chinese companies

As the annual report season officially comes to an end, the technological quality of listed companies is becoming a hot topic in the market.

At the "China in the Past Decade" series of thematic press conferences held by the Central Propaganda Department on June 6, relevant personnel revealed that over the past ten years, the number of high-tech enterprises in my country has increased from 49,000 to 330,000; the total R&D funding for the whole society has increased from 1.03 trillion yuan in 2012 to 2.79 trillion yuan in 2021; and the intensity of R&D investment has increased from 1.91% to 2.44%.

This means that China has successfully entered the ranks of innovative countries. Among them, the improvement of corporate technological innovation capabilities is an important driving factor, and R&D investment and R&D expense rate are also key indicators for measuring the technological content of a company. So, which company had the strongest technological content last year? Which companies took the lead in R&D expense rate? Titanium Media App found that:

1. Huawei is the Chinese technology company with the highest R&D investment in 2021 , with R&D investment reaching 142.7 billion yuan last year, accounting for 22.4% of its annual operating income. Huawei is not only the only company with R&D investment of over 100 billion yuan last year, but also the second largest company in the world in terms of R&D investment (according to the EU 2021 Industrial R&D Investment Scoreboard, it is second only to Google's parent company Alphabet). Its R&D expenses and expense rates are at the highest level in the past decade.

2. Among the top 50 technology companies in China in terms of total R&D investment, except for SMIC, whose R&D investment fell by 11.8% last year (it has fallen for two consecutive years), the other 49 companies all achieved year-on-year growth. Among them, Ideal Auto had the fastest growth, with R&D investment of 3.286 billion yuan in 2021, nearly 2 times that of the same period last year (R&D investment in the same period last year was 1.1 billion yuan), accounting for 12% of the annual operating income.

3. Among non-pharmaceutical companies, the technology company with the highest proportion of R&D investment is Cambrian, with R&D investment of 1.136 billion yuan in 2021, accounting for 157.51% of the annual operating income.

4. The absolute value of R&D investment is related to the company's size and the industry it belongs to, but the proportion of R&D investment is not necessarily related to the size. Some companies with too high a proportion of R&D investment have insufficient hematopoietic capacity.

5. The proportion of R&D investment of pharmaceutical companies is generally high. The proportion of R&D investment of the top 20 pharmaceutical companies is all above 38%, but the overall revenue is not high. For example, last year, the pharmaceutical company with the highest R&D investment, Yahong Pharmaceutical, spent 191 million yuan on R&D, which is 41,700 times its revenue.

6. Many pharmaceutical companies have not yet made a profit as of 2021, and have accumulated unrecovered losses. Titanium Media App noted that among the top 20 listed pharmaceutical companies with the highest R&D expense ratio, only four made a profit last year, accounting for only 20%. Pharmaceutical companies with an R&D expense ratio of more than 51% all suffered varying degrees of losses in their net profit attributable to their parent companies in 2021.

7. Some pharmaceutical companies with high R&D expense ratios pointed out that the proportion of their R&D investment to operating income is not a reference. For example, Digene, Maiwei Biopharma and Asieris Pharmaceuticals mostly gave the reasons that their products are still under development and have not yet generated sales revenue.

8. The three "delisted" companies have a high proportion of R&D investment in operating income, all exceeding 70%. Currently, *ST Wangli has been filed by the China Securities Regulatory Commission for suspected information disclosure violations. *ST Dazhi successfully removed the delisting on May 26 this year.

In 2021, the top 50 technology companies in terms of R&D investment had an average R&D investment of 13.5 billion yuan, with a total R&D investment of 674.76 billion yuan. According to data from the National Bureau of Statistics, domestic technology companies invested 2.79 trillion yuan in R&D in 2021. The total R&D investment of the above 50 technology companies accounted for 24.2% of the total domestic R&D investment.

Among them, automobile parts companies are the largest, with a total of 10 companies on the list; followed by Internet companies, with 9 companies on the list; industrial manufacturing companies, 8 companies on the list; computer hardware and equipment companies, 7 companies on the list; biomedicine and information and communication technology companies, 5 companies each on the list; home appliance industry, 4 companies on the list; photovoltaic and electronic information companies, 1 company each on the list.

In addition, there are 17 companies with R&D investment exceeding 10 billion, accounting for 34%. Among them, Huawei (a non-listed company) has the highest R&D investment.

In 2021, Huawei invested 142.7 billion yuan in R&D, making it the only company with an R&D investment of over 100 billion yuan last year, ranking second among similar technology companies in the world. Its R&D investment accounted for 22.4% of its annual revenue and 21% of the total R&D investment of the top 50 technology companies. According to statistics, Huawei's cumulative R&D investment in the past decade has exceeded 845 billion yuan.

According to data, Huawei, founded in 1987, is a leading global provider of ICT (information and communication) infrastructure and smart terminals. In 2021, Huawei had approximately 107,000 employees engaged in research and development, accounting for approximately 54.8% of the company's total number of employees.

Alibaba, which ranked second, and Tencent Holdings, which ranked third, invested 57.823 billion yuan and 51.88 billion yuan respectively in R&D last year. Their combined R&D investment accounted for 76.9% of Huawei's.

Among the top 50 technology companies in terms of R&D investment last year, 80% of the companies (40) made profits, while 20% of the companies (10) suffered net losses.

Among them, Tencent Holdings had the highest net profit of 224.8 billion yuan, and its R&D investment last year was 51.88 billion yuan, accounting for 0.92% of its annual operating income. Didi suffered the biggest loss among the TOP50 technology companies, with a loss of 493.44 billion yuan last year. Its R&D investment last year was 9.4 billion yuan, accounting for 5.4% of its annual operating income.

At the same time, there are two companies whose R&D investment accounts for more than 100% of their operating income, namely Zai Lab and BeiGene, with R&D expense rates of 397.9% and 125.69% respectively. Both are biopharmaceutical companies, and both had net losses last year.

Titanium Media App noted that among these 50 technology companies, only SMIC's R&D investment fell year-on-year in 2021. In fact, as the largest chip foundry in mainland China, SMIC's R&D investment has declined for two consecutive years.

In 2019, SMIC's R&D expenditure was 4.744 billion yuan, accounting for 21.55% of its annual operating income, the highest level in history. In the following two years, its R&D investment continued to decrease. In 2020 and 2021, SMIC's R&D investment was 4.672 billion yuan and 4.121 billion yuan, respectively, down 1.5% and 11.8% year-on-year. At present, SMIC's R&D expense rate has dropped from a historical high of 21.55% to 11.6%.

The financial report shows that the number of R&D personnel at SMIC continues to decrease. In 2019, 2022 and 2021, the company's R&D personnel were 2,530, 1,758 and 1,758 respectively, and the proportion of the company's total number of employees has dropped from a historical high of 16.02% to the current 9.9%. In this regard, SMIC gave the reason that some research-related personnel were transferred to production and operation positions in the first half of 2021, as well as the impact of the sale of subsidiaries.

Among the 50 technology companies, Ideal Auto, which ranked last, invested 3.286 billion yuan in R&D last year, but its R&D investment growth rate was the highest, reaching 198.8%. In addition, Ideal's operating expenses in 2021 were 6.78 billion yuan, a year-on-year increase of 205.5%. The increase in R&D and sales and management expenses has led to the company's annual operating expenses more than doubling. However, Ideal Auto's losses further expanded last year, with an average operating loss of more than 10,000 yuan for each car sold.

Among the top 50 technology companies in terms of R&D expense ratio, the largest number of companies are from the computer software and services industry, with 15 companies on the list, followed by the chip semiconductor industry, with 14 companies on the list. The R&D investment ratio of the top 50 technology companies is all above 10%, of which two companies have a R&D investment ratio of over 100%, and six companies have a ratio of over 50%.

Among non-pharmaceutical technology companies, Cambrian had the highest proportion of R&D investment in 2021.

According to data, Cambricon was founded on March 15, 2016. It mainly engages in the research and development and technological innovation of artificial intelligence chips. It was listed on the Shanghai Science and Technology Innovation Board on July 20, 2020. Last year, Cambricon's R&D investment was 1.136 billion yuan, accounting for 157.51% of its annual operating income.

In the six years since its establishment, Cambrian has continuously increased its investment in research and development. The financial report shows that the company's research and development expenditure has increased from 30 million yuan in 2017 to 1.136 billion yuan in 2021, with a total research and development expenditure of approximately 2.786 billion yuan in five years.

Welltech, which ranks last on the list, is in the same chip industry as Cambrian. Last year, the company invested 2.62 billion yuan in research and development, accounting for 10.87% of its annual operating income. Unlike Cambrian's five consecutive losses, Welltech has achieved growth in net profit attributable to its parent company for four consecutive years. Last year, the company's net profit attributable to its parent company was 4.476 billion yuan, a year-on-year increase of 65.41%.

Titanium Media App noted that among the TOP50 companies with the highest R&D expense rates, 18 companies suffered net losses last year. Among them, NIO suffered the largest loss, with a loss of 10.572 billion yuan last year. In 2021, the company invested 4.592 billion yuan in R&D, accounting for 12.7% of its annual operating income.

It is worth noting that three "capped" companies appear in the ranking, namely *ST Netpower, *ST Blue Shield and *ST Dazhi. The three companies invested 121 million yuan, 209 million yuan and 103 million yuan in research and development last year, accounting for 110.9%, 72.76% and 70.55% of their operating income respectively. All three companies were in a loss-making state last year.

It is reported that *ST Wangli, formerly known as Dongfang Wangli, is a provider of video management platforms and security artificial intelligence platforms in China. It was one of the first companies to be delisted on the Growth Enterprise Market. It is currently under investigation by the China Securities Regulatory Commission for suspected information disclosure violations. *ST Blue Shield (formerly known as Blue Shield Co., Ltd.), also a security concept stock, is facing bankruptcy reorganization due to debt explosion. *ST Dazhi, which has initially achieved success in the power battery business, successfully removed the star and delisted on May 26 this year and changed its name to "Dazhi Technology".

Due to the long R&D cycle in the pharmaceutical industry and the generally high proportion of R&D investment, the Titanium Media App has a separate list and ranking of the R&D expense rate of the pharmaceutical industry.

Among the top 20 pharmaceutical companies, the proportion of R&D investment to operating income ranges from 38.32% to 4169379.3%, with a wide range. Among them, 18 pharmaceutical companies have a R&D investment ratio of more than 50%, 10 companies have a ratio of more than 100%, and 4 companies have a R&D investment ratio of more than 1000%.

Among the 20 pharmaceutical companies, except Tianzhihang, which mainly deals in medical devices, the other 19 are biopharmaceutical companies. In addition, except Zai Lab, InnoCare Pharma, Sutexin and Baida Pharmaceutical, the other 16 companies are listed on the Science and Technology Innovation Board.

Titanium Media App noticed that the top three companies in terms of R&D expense ratio - Asieris Pharmaceuticals, Digene and Maiwei Biopharma - all stated in their annual reports that "the proportion of R&D investment to operating income is not of reference value."

In 2021, Yahong Pharmaceutical's operating income was only 4574.88 yuan, and its R&D investment was 191 million yuan, accounting for 4169379.3% of the annual operating income, ranking first among the 50 pharmaceutical companies. Looking at all Chinese technology companies, this data is unmatched.

According to the 2021 annual report of Yahong Pharmaceutical, the company's core products are all under development, and the operating income in 2021 is only the income realized by Hekewei® (APL-1706) as an urgently needed imported drug in Hainan Boao Lecheng International Medical Tourism Pilot Zone. Therefore, the proportion of R&D investment to operating income is not of reference value.

According to the data, Asieris Pharmaceuticals is a global innovative pharmaceutical company that continues to focus on the research and development of new drugs in the field of urogenital system tumors and other major diseases. The company has been engaged in drug research and development activities for a long time. Such projects have a long research and development cycle and large capital investment, which has led to the company's accumulated unrecovered losses increasing continuously.

It is reported that in 2021, Yahong Pharmaceutical's net profit attributable to the parent company was -235 million yuan, and its non-net profit was -195 million yuan. As of December 31, 2021, Yahong Pharmaceutical's accumulated unrecovered losses were 398 million yuan. The company expects that the accumulated unrecovered losses may continue to expand in the short term.

In addition, Yahong Pharmaceutical's annual report disclosed that last year the company's directors, supervisors and senior management remuneration totaled 11.0276 million yuan; the chairman, general manager and core technical personnel PAN KE received a total pre-tax remuneration of 3.4482 million yuan from the company; the director and deputy general manager ZHUANG CHENGFENG JOHN received a total pre-tax remuneration of 2.2653 million yuan from the company; the financial director Yang Mingyuan received a total pre-tax remuneration of 1.1206 million yuan from the company, and the board secretary Yu Xiaoliang received a total pre-tax remuneration of 1.3019 million yuan from the company.

Digene Pharmaceuticals, which ranks second in terms of the ratio of R&D investment to operating income, invested 588 million yuan in R&D last year, accounting for 5712.89% of its annual revenue. The company stated in its annual report that its core products are all under development and have not yet generated sales revenue, so the ratio of R&D investment to operating income is not a reference.

Too high a proportion of R&D investment may lead to insufficient corporate hematopoietic capacity. Titanium Media App noted that among the top 20 listed pharmaceutical companies with the highest R&D expense ratio, only 4 companies made profits last year, accounting for only 20%. Pharmaceutical companies with R&D expense ratios (R&D investment/operating income) above 51% all suffered varying degrees of losses in their net profits attributable to their parent companies in 2021. Pharmaceutical companies such as Yahong Pharmaceuticals, which have accumulated unrecovered losses, have operating income that is seriously unable to cover their R&D expenses.

Industry insiders pointed out that the reason why pharmaceutical companies are investing so hard in research and development is related to factors such as centralized bulk procurement and drug review reform.

"Under the volume-based procurement policy, the profits of homogeneous products are not enough to support a positive cycle of corporate research and development. The pharmaceutical industry must maintain a high speed of innovation and iteration to disperse the risks that centralized procurement brings to single products." Wang Guohui, chairman and CEO of Xinwei Medical, said in an interview with Titanium Media App that centralized procurement has made industry competition more intense on the one hand, and greatly compressed the life cycle of pharmaceutical products on the other hand. In this case, pharmaceutical companies have to increase their innovation and research and development efforts to ensure that they are not eliminated by the market and policies.

Wang Guohui also said that medical companies ultimately have to rely on profits to support their R&D. "It is unsustainable to rely solely on pure investment to conduct R&D without considering the company's subsequent profits."

Remark:

1. R&D expense ratio = R&D expenditure / company total revenue

2. Except for Huawei, all the companies on the above list are listed on A-shares, Hong Kong-listed stocks and Chinese concept stocks. The data involved are compiled based on the annual reports of individual companies.

3. Some data references: *Titanium Media Kegubao, *Wind, *Eastern Fortune, etc.