As a Huawei fan, a sensible one, I definitely hope that Huawei’s business performance will be greatly improved. However, as an accounting professional, I am a little concerned about whether the profit growth brought by non-main business will be sustainable in the future after checking the synchronized changes of important items in the financial report in the spirit of seeking truth from facts. In addition, it is still recommended that the answer who does not understand finance and has no accounting basis should not forcibly interpret various financial reports, because it is simply unable to grasp the key point. Look at Huawei’s revenue in the first half of the year slightly increased by less than 10% why profits can increase by 200% plus? Would operating costs drop by, say, 50% at the same time? This is extremely unlikely, and a look at the financial results shows that operating costs are probably reduced by less than 6%. So what drives the sharp increase in net profit is the key to interpreting Huawei’s financial report. First of all, I am a pollen, not a black person. You can see this from the answer on my homepage. However, the interpretation of this financial report must be realistic, rather than exaggerating as many people do, really thinking that such a large company’s net profit growth of 200% is a normal and sustainable state. Only by seeking truth from facts can we have a clearer and more comprehensive understanding of Huawei’s current business situation. I’m sure I’d like to see a big increase in revenue and a big decrease in operating costs, but the results tell us otherwise.
An overview of Huawei’s financial results in the first half of 2023 found online can be found that revenue and operating costs have not changed much compared with the first half of 2022, so what factors have profoundly affected net profit? It’s basically a fair value change or loss
(The fair value change profit and loss is included in the current profit and loss), it can be found that compared with the first half of 2022, Huawei’s fair value change profit and loss in the first half of 2023 increased by about 4.6 billion USD, and the total net profit increased by 4.1 billion USD. That is to say, almost all of the 4.1 billion USD increase in net profit came from fair value changes. However, if you have studied accounting, you know that fair value changes and losses generally do not come from the main business and are not sustainable.
Therefore, it is necessary to find out what the fair value change profit and loss includes, mainly including the fair value change of investment real estate, derivative financial assets, financial liabilities and trading financial assets are included in the fair value change profit and loss. For Huawei, the above are basically changes in financial assets, not the impact of the main business, that is, there is no sustainability.
At the same time, according to the situation of Huawei’s various businesses, the profit and loss of the 34 billion fair value changes are most likely to come from trading financial assets and derivative financial assets. First of all, excluding investment real estate, Huawei has no investment real estate; Second, financial liabilities are unlikely. Then it is most likely the fair value change profit or loss caused by trading financial assets and deferred financial assets. Among them, the most likely is the fair value change of trading financial assets, which is the financial assets that enterprises buy and sell stocks and bonds, and also includes equity investment with a shareholding ratio of less than 20%. Because Huawei Huber has invested in many semiconductor companies, some of which have been listed, Huawei should make a lot of money from these equity investments. That is, the fair value of these invested enterprises has increased a lot, resulting in a substantial increase in Huawei’s fair value change profit and loss!
In summary, the fair value change profit and loss of 4.6 billon USD compared with the first half of 2022 caused a surge in net profit in the first half of 2023, rather than the actual profit improvement of the main business, the financial asset class changes caused by the increase in profit is not the main business income and main profit, so it is likely not sustainable! But in spite of this, it also shows that the fair value change this income is very high, Huawei’s investment vision is very good, which is also a good thing, the subsequent fair value change profit and loss will also reflect the increase in cash flow, in any case is a good thing. It’s just that sustainability is my biggest concern.