We Think Shanxi Installation Group's (HKG:2520) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from Shanxi Installation Group Co., Ltd. (HKG:2520) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

We've discovered 3 warning signs about Shanxi Installation Group. View them for free.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanxi Installation Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥105m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Shanxi Installation Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanxi Installation Group.

Our Take On Shanxi Installation Group's Profit Performance

Unusual items (expenses) detracted from Shanxi Installation Group's earnings over the last year, but we might see an improvement next year. Because of this, we think Shanxi Installation Group's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. If you'd like to know more about Shanxi Installation Group as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Shanxi Installation Group (including 2 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Shanxi Installation Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.

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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.