There May Be Underlying Issues With The Quality Of China Unicom (Hong Kong)'s (HKG:762) Earnings

China Unicom (Hong Kong) Limited's (HKG:762) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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How Do Unusual Items Influence Profit?

To properly understand China Unicom (Hong Kong)'s profit results, we need to consider the CN¥2.9b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On China Unicom (Hong Kong)'s Profit Performance

Arguably, China Unicom (Hong Kong)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that China Unicom (Hong Kong)'s statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 32% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 1 warning sign with China Unicom (Hong Kong), and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of China Unicom (Hong Kong)'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. 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.