Robust Earnings May Not Tell The Whole Story For Shunten International (Holdings) (HKG:932)

Shunten International (Holdings) Limited's (HKG:932) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for Shunten International (Holdings)

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shunten International (Holdings)'s profit received a boost of HK$24m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that Shunten International (Holdings)'s positive unusual items were quite significant relative to its profit in the year to September 2022. 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 Shunten International (Holdings).

Our Take On Shunten International (Holdings)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Shunten International (Holdings)'s earnings a poor guide to its underlying profitability. For this reason, we think that Shunten International (Holdings)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 Shunten International (Holdings) as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 4 warning signs for Shunten International (Holdings) and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Shunten International (Holdings)'s profit. 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 that insiders are buying 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.