CITIC Heavy Industries' (SHSE:601608) Solid Profits Have Weak Fundamentals

CITIC Heavy Industries Co., Ltd.'s (SHSE:601608) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for CITIC Heavy Industries

How Do Unusual Items Influence Profit?

To properly understand CITIC Heavy Industries' profit results, we need to consider the CN¥84m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. CITIC Heavy Industries had a rather significant contribution from unusual items relative to its profit to December 2023. 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 CITIC Heavy Industries.

Our Take On CITIC Heavy Industries' Profit Performance

As we discussed above, we think the significant positive unusual item makes CITIC Heavy Industries' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that CITIC Heavy Industries' underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about CITIC Heavy Industries as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for CITIC Heavy Industries and you'll want to know about these bad boys.

This note has only looked at a single factor that sheds light on the nature of CITIC Heavy Industries' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.