China Shengmu Organic Milk's (HKG:1432) Earnings Seem To Be Promising

China Shengmu Organic Milk Limited (HKG:1432) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand China Shengmu Organic Milk's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥831m 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. In the twelve months to June 2025, China Shengmu Organic Milk had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Shengmu Organic Milk.

Our Take On China Shengmu Organic Milk's Profit Performance

As we mentioned previously, the China Shengmu Organic Milk's profit was hampered by unusual items in the last year. Because of this, we think China Shengmu Organic Milk's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing China Shengmu Organic Milk at this point in time. For instance, we've identified 3 warning signs for China Shengmu Organic Milk (1 is significant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of China Shengmu Organic Milk'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. 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.