Earnings Troubles May Signal Larger Issues for Sunrise Manufacture Group (SHSE:605138) Shareholders

Sunrise Manufacture Group Co., Ltd.'s (SHSE:605138) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Sunrise Manufacture Group

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sunrise Manufacture Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥14m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Sunrise Manufacture Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Sunrise Manufacture Group received a tax benefit of CN¥12m. This is meaningful because companies usually pay tax rather than receive tax benefits. The receipt of a tax benefit is obviously a good thing, on its own. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Sunrise Manufacture Group's Profit Performance

In its last report Sunrise Manufacture Group received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, it's hard to tell if Sunrise Manufacture Group's profits are a reasonable reflection of its underlying profitability. If you'd like to know more about Sunrise Manufacture Group as a business, it's important to be aware of any risks it's facing. For example, Sunrise Manufacture Group has 4 warning signs (and 2 which are significant) we think you should know about.

Our examination of Sunrise Manufacture Group has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.