Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' (HKG:1938) Shareholders May Want To Dig Deeper Than Statutory Profit

By
Simply Wall St
Published
April 06, 2021
SEHK:1938

Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Limited's (HKG:1938) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Chu Kong Petroleum and Natural Gas Steel Pipe Holdings

earnings-and-revenue-history
SEHK:1938 Earnings and Revenue History April 6th 2021

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' profit received a boost of CN¥1.8b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Chu Kong Petroleum and Natural Gas Steel Pipe Holdings had a rather significant contribution from unusual items relative to its profit to December 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Chu Kong Petroleum and Natural Gas Steel Pipe Holdings.

Our Take On Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Chu Kong Petroleum and Natural Gas Steel Pipe Holdings at this point in time. To that end, you should learn about the 4 warning signs we've spotted with Chu Kong Petroleum and Natural Gas Steel Pipe Holdings (including 1 which is a bit concerning).

This note has only looked at a single factor that sheds light on the nature of Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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. 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.
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