Investment Rating - The industry investment rating is Attractive [6] Core Insights - Despite weaker May industrial profit growth, the incremental impact on industrial credit risks remains small due to concentrated profit deterioration in a few sectors affected by US tariffs, a notable decline in US tariffs from their peak, and modest negative impacts on EBIT interest coverage [2][4] - More sectors are slowing capacity expansion, with ferrous metal processing showing a 1.6% year-on-year decline in fixed asset investment in May 2025, down from 5.4% year-on-year growth in the first half of 2024, indicating continued capacity control [3] - Year-to-date industrial sector profit fell 1.1% year-on-year in May compared to a 1.4% year-on-year decline in April, primarily affected by mining, particularly oil mining [4] - Risks around loans to the auto sector are emerging as a new concern, representing 40% of sectors showing expanding capacity with deteriorating profit, which is the largest drag on year-on-year profit growth in manufacturing firms [5] - Overall manufacturing sector profit growth moderated to 5.4% year-on-year in January-May 2025 from 8.6% in January-April 2025, partly due to the peak in US tariffs [9] Summary by Sections Industrial Credit Risks - The report indicates that the impact of weaker industrial profit growth on credit risks is limited due to the concentration of issues in specific sectors and the decline in US tariffs [2][4] - The mining sector, dominated by large state-owned enterprises, poses less concern for credit risks unless commodity prices remain pressured for an extended period [4] Capacity Expansion and Profit Trends - A significant portion of sectors (73.5% by liabilities) slowed capital expenditure growth in May 2025 compared to the first half of 2024, an increase from 66.8% in April 2025 [9] - Profit trends show that 42.7% of sectors experienced improvements, while 27.5% saw deterioration, indicating a shift in profit dynamics influenced by US export exposure and capital expenditure growth [9] Sector-Specific Insights - The auto sector is highlighted as a potential risk area, with significant capacity expansion occurring alongside profit deterioration [5] - The report emphasizes the importance of market-oriented credit allocation and loan pricing to manage industrial credit risks effectively over time [3]