XJ International (SEHK:1765) Margin Slide Raises Doubts on Quality of Reported Profits

XJ International Holdings (SEHK:1765) has just posted its FY 2025 results, reporting revenue of $2.1 billion and net income of $307.5 million for the latest half, with basic EPS coming in at 0.037 CNY. The company has seen revenue fluctuate over recent periods, ranging from $2.0 billion in 1H FY 2024 up to $2.1 billion in 1H FY 2025. Net income moved from $223.9 million to $307.5 million. Margins have compressed compared to last year, influencing how investors read the headline result.

See our full analysis for XJ International Holdings.

Now let's see how these earnings results stack up against the prevailing market narrative. Some expectations could be confirmed, while others might be up for debate.

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Net Profit Margin Falls to 9.7%

• Profit margins dropped to 9.7% over the last year, down from 16.3% in the previous year, while net income in the recent half-year reached $307.5 million.
• What is notable is how this margin compression challenges optimism about sustainable profitability, despite average earnings growth of 5.4% annually over five years.
  • Bears argue that the sudden drop in margin, paired with a short-term decline in earnings growth, overshadows the longer-term trend and signals a risk of weaker underlying business performance.
  • The material impact of a single CN¥541.1 million one-off gain in the period highlights why recent margins may not reflect the company’s regular profitability, suggesting caution about future performance.

Price-to-Earnings Deep Discount

• The stock is trading at a price-to-earnings (P/E) ratio of just 3.6x, well below its peer group average of 7.8x and the wider Hong Kong market’s 12.2x.
• Consensus narrative notes the current low valuation stands out, reflecting investor caution after the margin drop but also creating a potential value opportunity.
  • Investors often seek bargains when P/E multiples fall this far below sector averages, but the lower margin and negative recent earnings growth highlight why the discount persists.
  • The debate centers on whether the inexpensive valuation compensates for the risks tied to compressing margins and reliance on one-off items in reported profits.

Debate continues over whether XJ International's valuation is a hidden opportunity or a reflection of deeper profit quality concerns. Read the analyst consensus view to see the arguments from both sides. 📊 Read the full XJ International Holdings Consensus Narrative.

One-off Gains Skew Profitability Picture

• Headline earnings in the past year were significantly influenced by a one-time CN¥541.1 million gain, distorting the true trend in underlying profit.
• Critics highlight that without this exceptional income, earnings growth over the latest twelve months actually turned negative, which heavily complicates any bullish case for robust ongoing performance.
  • The reliance on non-recurring gains means investors cannot count on these figures repeating, making reported profitability potentially misleading as a basis for future expectations.
  • This discrepancy has sparked skepticism about how representative the latest net income is in guiding forward-looking assessments of the company's earnings power.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on XJ International Holdings's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

See What Else Is Out There

With heavy reliance on one-off gains and shrinking margins, XJ International’s recent results highlight uncertainty about the consistency of future profitability.

If instability concerns you, find steadier performers who deliver reliable revenue and earnings through up-and-down markets with stable growth stocks screener (2074 results).

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.

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