We're Not Counting On CNQC International Holdings (HKG:1240) To Sustain Its Statutory Profitability

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether CNQC International Holdings' (HKG:1240) statutory profits are a good guide to its underlying earnings.

We like the fact that CNQC International Holdings made a profit of HK$81.8m on its revenue of HK$5.05b, in the last year. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for CNQC International Holdings

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted CNQC International Holdings' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CNQC International Holdings.

The Impact Of Unusual Items On Profit

For anyone who wants to understand CNQC International Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$94m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Which is hardly surprising, given the name. CNQC International Holdings had a rather significant contribution from unusual items relative to its profit to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On CNQC International Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes CNQC International Holdings'earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that CNQC International Holdings' underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. 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. Every company has risks, and we've spotted 4 warning signs for CNQC International Holdings (of which 2 make us uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of CNQC International 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

If you’re looking to trade CNQC International Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.