[Bookmark] A Beginner’s Guide to Understanding Annual Reports — This One Article Is All You Need

⑤ A player-centric, delightful gaming experience ⑥ An experienced management team [Part II: What to Focus on When Reading Annual Reports] When reading an annual report, key areas to focus on include: major financial indicators, financial statements, and the Management Discussion and Analysis (MD&A) section. [Chapter ④: Key Financial Indicators] Operating Revenue: increased by 31.16% in 2019 compared to 2018; increased by 14.58% in 2018 compared to 2017. Net Profit: increased by 11.93% in 2019 compared to 2018; increased by 18.52% in 2018 compared to 2017. From the perspective of operating revenue, the growth rate accelerated in 2019. From the perspective of net profit, the growth rate slightly declined in 2019. However, we must not rely solely on operating revenue and net profit—we must also pay close attention to a third metric: net profit after deducting non-recurring gains and losses—commonly known as “net profit attributable to shareholders of the parent company after excluding non-recurring items” (or “non-GAAP net profit”). This metric is more reflective of a company’s true earnings performance than net profit alone. It represents net profit minus income or expenses that are non-routine and non-recurring. In plain terms, it excludes revenues and expenditures unrelated to core business operations. So what constitutes non-recurring gains and losses? Examples include: proceeds from the sale of subsidiaries or assets, and government subsidies received from relevant authorities. For instance, suppose a company has incurred losses for two consecutive years and faces delisting pressure, prompting it to “beautify” its financial statements. With its core business unable to generate sufficient revenue, it resorts to other, non-routine sources of income. Right—doesn’t the company own 50 residential units? Let’s sell 10. And isn’t the subsidiary underperforming? Let’s divest it. Also, a government subsidy application has just been approved and funds have been disbursed… Whether selling assets or receiving government subsidies, such income lacks sustainability: each property sold reduces inventory, and fiscal subsidies are rarely recurring. These all qualify as non-recurring gains and losses. Only after excluding them can we obtain a truer picture of the company’s operational performance. Returning to Gembit’s 2019 annual report: net profit was RMB 809 million, while non-GAAP net profit stood at RMB 751 million—the difference of RMB 57 million represents non-recurring gains and losses. The detailed composition of this RMB 57 million is explained in the annual report, as shown in the screenshot below. In the above example: ① Gembit’s non-GAAP net profit grew by 15.46% in 2019 versus 2018, and by 14.81% in 2018 versus 2017—indicating an acceleration in growth year-on-year. ② Moreover, the 2019 non-GAAP net profit growth rate of 15.46% exceeded the net profit growth rate of 11.93%. Overall, this signals a solidly profitable company. Summary: When reviewing corporate financial reports, priority should be given to non-GAAP net profit. Particular attention should be paid if either of the following occurs: ① Net profit is increasing, but non-GAAP net profit is negative; ② The growth rate of non-GAAP net profit lags significantly behind that of net profit. This suggests weak core business performance, overreliance on non-recurring income, and unstable profitability. [Chapter ⑤: Financial Statements] Those who have flipped through an annual report will notice that the financial statements section centers around three core financial statements: the Balance Sheet, the Income Statement, and the Cash Flow Statement. Financial statements function like a company’s health check-up report, designed to assess whether its operations are healthy. The criteria for evaluating health are embedded within these three statements.

Five-Minute Finance — Financial Weekly (Nov. 13–19)

6. Shanghai Head Office of the People’s Bank of China: In October, citywide RMB- and foreign-currency-denominated real estate development loans decreased by RMB 2.812 billion, representing a RMB 12.062 billion increase in the month-on-month decline. RMB- and foreign-currency-denominated personal housing loans increased by RMB 6.076 billion for the month, down RMB 20.068 billion year-on-year; among these, second-hand home loans increased by RMB 3.292 billion for the month, down RMB 13.671 billion year-on-year. 7. Country Garden: Hong Kong–listed real estate developer Country Garden announced it has been included in the Hang Seng Index constituent stocks, effective December 4—marking its promotion to blue-chip status. Country Garden currently operates over 1,000 projects evenly distributed across tier-1 through tier-5 cities, with sustained, healthy, and rapid growth in 2017 performance. 8. Yasha Holdings Announcement: The company has been designated by China’s Ministry of Housing and Urban-Rural Development as one of the first national industrial bases for prefabricated construction. Yasha Holdings stated that this designation recognizes its standardization and industrialization capabilities, signifying a breakthrough advancement in its progress toward prefabricated interior decoration. 9. 365.com Announcement: The company plans to jointly establish the Zhongyue 365 Industrial Fund with Zhongyue Capital and Tianyue Investment, with an initial fund size of RMB 200 million. Investment priorities will focus on the housing rental sector and related industries—including ownership of rental properties, rental information services, and rental finance. 10. Overview of Last Week: Housing transaction volumes declined both year-on-year and week-on-week, with tier-2 cities showing notably sharper declines than tier-1 and tier-3 cities. Inventory levels across monitored cities rose slightly. Land acquisitions were concentrated in Beijing, Shanghai, Shenzhen, and Chengdu. Overall land supply continued to decline, with Beijing ranking first in land transfer revenue for three consecutive weeks. 11. Financing & Investment Activity: Last week, real estate developers raised capital primarily via corporate bonds, medium-term notes, and guaranteed loans; some firms also secured funding through bank loans, asset-backed notes, and ultra-short-term financing bills. Specifically: Jinhua provided guarantees for RMB 8.1 billion in loans across 13 subsidiaries; Oceanwide Holdings issued its first tranche of RMB 1 billion in corporate bonds, priced at a coupon rate of 4.70%–5.50%; a consortium led by Vanke acquired a Beijing land parcel for RMB 7.8 billion; China Fortune Land Development signed an agreement for the Kaifeng Film & Television Industry Town project; and Greenland Group opened its Shanghai Greater Hongqiao Integrated Complex hotel cluster, comprising a total of 830 guest rooms. V. Corporate Watch 1. Qualcomm: Qualcomm announced venture investments in nine Chinese companies, including SenseTime, Mobike, Chuangtong Electronics, Kneron (an AI solutions provider), Zero Element (an unmanned convenience store operator), Meike Technology, Qihuan Technology, iLearner, and OKM. 2. JD.com Released Q3 Earnings: Third-quarter revenue reached RMB 8.37 billion, with net income of RMB 2.2 billion—representing year-on-year growth of 39.2% and 359%, respectively. JD.com has posted profits for six consecutive quarters, with net income hitting a record high. As of September 30, operating cash flow from continuing operations over the past 12 months totaled RMB 19.9 billion. 3. Qudian: Following its U.S. IPO, Qudian released its inaugural earnings report: Q3 revenue amounted to RMB 1.451 billion, up 308% year-on-year; net income reached RMB 650.7 million, up 321.8% year-on-year. As of the end of Q3, Qudian’s credit-qualified user base stood at 23.6 million. Founder Luo Min stated that Qudian will continue to deeply explore opportunities in the installment credit market. 4. Hisense: Hisense Electric Co., Ltd. and Toshiba Corporation jointly announced in Tokyo the formal transfer of 95% equity in Toshiba Visual Solutions Corporation to Hisense.

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