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Weak Statutory Earnings May Not Tell The Whole Story For Chu Kong Petroleum and Natural Gas Steel Pipe Holdings (HKG:1938)

Simply Wall St ·  09/21/2022 06:50

The subdued market reaction suggests that Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Limited's (HKG:1938) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

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

earnings-and-revenue-historySEHK:1938 Earnings and Revenue History September 20th 2022

The Impact Of Unusual Items On Profit

To properly understand Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' profit results, we need to consider the CN¥353m gain attributed to unusual items. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Chu Kong Petroleum and Natural Gas Steel Pipe Holdings had a rather significant contribution from unusual items relative to its profit to June 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 previously mentioned, Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably 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. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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. Case in point: We've spotted 4 warning signs for Chu Kong Petroleum and Natural Gas Steel Pipe Holdings you should be mindful of and 1 of these bad boys doesn't sit too well with us.

Today we've zoomed in on a single data point to better understand the nature of Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

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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.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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