Guangdong Champion Asia ElectronicsLtd's (SHSE:603386) Soft Earnings Don't Show The Whole Picture

The market for Guangdong Champion Asia Electronics Co.,Ltd.'s (SHSE:603386) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for Guangdong Champion Asia ElectronicsLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Guangdong Champion Asia ElectronicsLtd's profit was reduced by CN¥37m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Guangdong Champion Asia ElectronicsLtd took a rather significant hit from unusual items in the year to March 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong Champion Asia ElectronicsLtd.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Guangdong Champion Asia ElectronicsLtd received a tax benefit which contributed CN¥20m to the bottom line. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Guangdong Champion Asia ElectronicsLtd's Profit Performance

In the last year Guangdong Champion Asia ElectronicsLtd received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Based on these factors, we think that Guangdong Champion Asia ElectronicsLtd's profits are a reasonably conservative guide to its underlying profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 4 warning signs for Guangdong Champion Asia ElectronicsLtd and we think they deserve your attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.