Earnings Troubles May Signal Larger Issues for Eastern CommunicationsLtd (SHSE:600776) Shareholders

The market wasn't impressed with the soft earnings from Eastern Communications Co.,Ltd. (SHSE:600776) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

See our latest analysis for Eastern CommunicationsLtd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Eastern CommunicationsLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥62m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that Eastern CommunicationsLtd's positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Eastern CommunicationsLtd.

Our Take On Eastern CommunicationsLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Eastern CommunicationsLtd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Eastern CommunicationsLtd's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 19% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for Eastern CommunicationsLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Eastern CommunicationsLtd's 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.