More Chinese companies scramble to issue profit warnings as debris field from M&A boom begins to surface
- More than 280 mainland companies revised their earnings outlooks for 2018 by a deadline on Thursday, in a wave of write-downs tied to the M&A boom, analysts say
Hundreds of Chinese companies have revised their earnings outlook for 2018 before a deadline late Thursday, warning that results will fail to meet expectations as economic growth eases, forcing heavy write-downs.
Of 2,488 companies that made preliminary announcements, more than 280 revised their estimates, while 59 warned earnings would be down by more than 66 per cent from their previous estimates.
Among those warning of the sharp downward revision, 42 cited impairment of goodwill as a factor.
Goodwill is an accounting term referring to an intangible asset class arising from one company acquiring another for a premium value. As such, goodwill has to be assessed periodically in case of impairment that could affect asset value.
However, uncertainty stemming from the timing and amount of any impairment in goodwill amounts to a potential black swan that could hit investors.
A record 1.45 trillion yuan (US$215.3 billion) worth of goodwill is sitting on the books of Chinese listed companies as of the end of September, according to China Business News.