Window-Dressed Performance Statements Make A-Share Listed Firms' Sustained Profitability Unclear
Jiang Yiman
/SOURCE : Yicai
Window-Dressed Performance Statements Make A-Share Listed Firms' Sustained Profitability Unclear

(Yicai Global) May 5 -- A-share listed companies' annual reports show their performance achieving its first two-digit growth in the past five years.

Many logged outstanding performance, but huge losses lurk behind these proud achievements.

"Listed companies' overall performance recovered somewhat last year, which related to macro-economic development trends. The performance on the main board grew even faster, while that of small and medium enterprises and growth enterprises grew slowly, and this should be ascribed to the higher base caused by some enterprises' reliance on mergers and acquisitions and restructuring in the past few years," a market analyst told Yicai Global.

A-share companies achieved operating revenues of CNY32.5 trillion in 2016, up 10 percent from a year earlier, whereas those in the fourth quarter amounted to CNY9.9 trillion with a rise of 24 percent from the previous month, while net profits attributable to shareholders of parent companies totaled CNY2.7 trillion, showing an annual increase of 11 percent, public data shows.

The two-digit growth in the overall revenues and net profits after five years of single-digit or even zero growth reflects the improved fundamentals of listed companies riding the coattails of the economic recovery.

If financial companies are excluded, and businesses with a huge scale but poorer performance such as China Petroleum & Chemical Corp [SHA:600028] and China National Petroleum Corp., the other listed companies bagged net profits of CNY1.2 trillion in total last year, which showed a more robust recovery with an increase rate of 31 percent from the previous year.

Eighty companies registered over 500 percent annual growth of net profits attributable to shareholders of parent companies, and 620 firms enjoyed over 100 percent in net profit growth, but many of these window-dressed their statements.

Among the above 620 companies whose performance doubled, 43 recorded negative net profits after deducting their irregular gains and losses.

For instance, the net profit attributable to shareholders of the parent companies of Hengxin Mobile Business Company Ltd. [SHE:300081] last year rose by 14,455 percent to reach CNY16 million, but its net profit should be a loss of CNY23.5 million after deducting irregular gains and losses. In fact, Hengxin Mobile achieved an operating revenue of CNY402 million last year, down by 14.3 percent from a year earlier.

Hengxin Mobile made such significant net profit growth as Shambala Cultural Industry Investment Co. which is listed as a subsidiary of Hengxin in the consolidated statement. Another subsidiary the listed company invested in also brought operating investment returns of CNY11.11 million.

Hengxin Mobile achieved an operating income of CNY78.4 million by this year's first quarter, dropping by 4.57 annual percentage points, while its net profit was negative CNY7.8 million.

Investors generally are bearish toward listed companies that window-dress their statements. The overall sluggish performance of the stock market has also pushed 32 of 43 A-share companies to suffer falling stock prices this year.

Follow Yicai Global on
Keywords: Financial Performance , Assets Sale , Window Dressing , Risk