Duff & Phelps Releases First Industry Multiples Report in China

Eight out of 11 industries saw their median P/E multiples decline more than 30% during 2018

Energy and consumer staples experienced the largest P/E contractions in Q4 2018; only IT and real estate saw increases in the final quarter of last year

Hong Kong and Beijing – Duff & Phelps, the global advisor that protects, restores and maximizes value for clients, has published its first edition of Industry Multiples in China. The report, which provides an overview of the trading multiples of companies across 11 key industries within the MSCI China Index as of December 31, 2018, finds that every industry saw median P/E ratios decline during 2018.

Commenting on the report, Patrick Wu, Managing Director and Head of Greater China at Duff & Phelps, said, “A deceleration in the Chinese economy and trade tensions between the world’s two economic powerhouses weighed heavily on the Chinese equity market during 2018, sending markets and trading multiples of sectors and companies lower.”

“While the stock markets of Hong Kong, Shenzhen and Shanghai have seen strong gains in the first quarter of 2019, the business environment remains uncertain. Moderating growth in China’s industrial output, slowdowns in the housing and automotive sectors and a yet-to-be-resolved trade impasse between the U.S. and China, could result in a bumpy ride for investors,” Wu added. 

The report provides a detailed overview of the P/B, P/E, EV/EBITDA and EV/Sales multiples for non-financial services industries, and P/E, P/B, Market Cap/Revenue and P/TBV multiples for financial industries. More than 400 companies were observed over a two-year period ending December 31, 2018.

Other highlights from the report include:

  • The materials and consumer discretionary sectors reported the largest declines in median P/E multiples of 49% and 47% respectively during 2018.
  • The utilities and consumer staples industries were most resilient, with median P/E multiples contracting by 9% and 28% respectively during 2018.
  • As of 31 December 2018, the communication services industry had the highest median P/E multiple at 19.8x; the real estate sector was rated the lowest at 7.0x.
  • The energy industry saw the greatest median P/E decline in Q4 2018, falling 27% quarter on quarter. Consumer staples saw the second largest fall at 24% in the same period, as a decline in its P/E median multiple accelerated in the second half of 2018 after a robust H1.
  • The information technology (IT) and real estate sectors saw median P/E multiples in Q4 2018 increase quarter on quarter by 7% and 4% respectively. 

“The picture is very mixed by industry. The IT and real estate sectors saw their P/E multiples increase in the final quarter of 2018, with the former boosted by record investments in 5G networks and the latter benefiting from the easing of property curbs. On a less positive note, the consumer staples industry was adversely affected in the final quarter of last year by weaker consumer confidence as China’s economy slowed. China’s healthcare multiples, while historically strong, were also impacted by the introduction of a centralized bulk procurement program, which drove down drug prices,” he said.

Continuing, Wu said: “Looking beyond trading multiples and at valuations more generally, we believe the Telecommunications, Media and Technology (TMT), consumer staples and healthcare sectors are likely to remain hot this year, buoyed by continued investments from the private equity industry and an unexpected raft of China unicorn and pre-revenue biotech companies.”

Read the report here.

About Duff & Phelps
Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. With Kroll, a division of Duff & Phelps since 2018, our firm has nearly 3,500 professionals in 28 countries around the world.
For more information, visit www.duffandphelps.com


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