AI-enabled ST Forecasting: Intelligent Profit Forecasting Enables Investment Decisions

The introduction of the new "Nine Articles of the State Council" has triggered a great deal of attention and extensive discussion in the Chinese market. This Article emphasizes strict regulation and risk prevention, and the Shanghai and Shenzhen exchanges have further modified the ST rules. After the release of the new regulations, the ST sector has fluctuated, and investors need to make more cautious investment decisions on ST stocks.Datayes Alternative Data team has added 2 new events to the TDX Intelligent Event Database: 1) Financial ST Forecasts; and 2) ST Alert Announcements, which aim to assist investors to be informed in advance of the risk that a stock may be subjected to ST.

1）ST forecasts for the financial category

The event uses historical financial data, consensus expectations, AI earnings forecasts, and other data at the end of each month to forecast the company's unpublished annual report for a future financial year, and then determines whether the company triggers ST conditions based on the actual current financial ST rules.

Historically, there have been 2 revisions to the financial ST rules, and after 2021, because the audit reports are not directly predictable, the rule of "3 consecutive years of negative net income" is incomplete, which will lead to an inflated number of stocks being predicted to be ST.

Since the reasons for ST are not only financial, we count the percentage of stocks that have been ST for financial reasons over the years to evaluate the accuracy of the event objectively. As can be seen from the chart below, the percentage of ST's for financial reasons was higher before 2017, but in recent years, with the diversification of the rules, the percentage has gradually decreased, and after 2024, it is only 30%.

Based on this, the precision and recall of the event are counted (precision: number of stocks predicted to be ST and actually ST'd / number of stocks predicted to be ST'd; recall: number of stocks predicted to be ST and actually ST'd / number of stocks actually ST'd). The following chart shows the results under the prediction of all financial rules.

As seen in the above figure, the recall rate reaches 65% at the end of 2023, because the incomplete description of the rule of "3 consecutive years of negative net profit" leads to an inflated prediction rate, and therefore a lower precision. Because the proportion of stocks with ST financial rules is gradually decreasing, the precision and recall rate have a similar trend.

If the prediction result of the rule of "three consecutive years of negative net profit" is excluded, the number of predictions decreases dramatically, and so does the recall rate, but at the same time, the precision increases correspondingly, reaching 64%.

The new regulation in 2024 explicitly states for the first time that a risk warning will be issued to listed companies that do not meet the dividend target. Statistics on the forecast results on May 31, 2024, and statistics on the number of stocks in All A that may be ST at the time of the release of the 2024 annual report.

2）ST Announcement Alert

The listing rules require companies to issue risk alert announcements in advance when risky situations such as partial delisting occur. Therefore, timely attention to the listed company's risk-alert type of announcement can effectively avoid exposure to risk. Usually, listed companies will release several risk alert announcements, and finally release a definitive announcement of being put on ST.

The "ST Announcement Alert" event is constructed by filtering and processing the announcement data released by listed companies. The event contains three types of alerts: delisting risk alert, other risk alert, and termination/mandatory delisting, and distinguishes the certainty type of the announcement: risk alert, certainty announcement, the type of release: first disclosure, re-disclosure, and whether the stock has been ST at the time of the announcement.

Datayes statistics since 2011, the actual implementation of ST stocks, the proportion of the release of reminder announcements or confirmation of the implementation of the announcement. 2024, there are 76 stocks were implemented ST, and all of them released the announcement, of which 19 listed companies more than 20 days in advance of the release of the risk reminder announcement, accounting for 25%.

Statistics since 2011, ST prompt announcement of the stock, the actual percentage of ST. 2024 there are 84 listed companies released the relevant work reform, of which 75 stocks have been implemented ST (the existence of a portion of the stock has not yet reached the implementation time). Among them, 19 of these listed companies have issued risk alert announcements more than 20 days in advance, accounting for 23%.

If the type of certainty of the event is restricted to risk alerts, the percentage of advance knowledge can be increased.