Jinhui Holdings' (HKG:137) Solid Profits Have Weak Fundamentals

Despite announcing strong earnings, Jinhui Holdings Company Limited's (HKG:137) stock was sluggish. We did some digging and found some worrying underlying problems.

How Do Unusual Items Influence Profit?

To properly understand Jinhui Holdings' profit results, we need to consider the HK$94m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Jinhui Holdings had a rather significant contribution from unusual items relative to its profit to December 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jinhui Holdings.

Our Take On Jinhui Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Jinhui Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Jinhui Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Jinhui Holdings as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Jinhui Holdings has 2 warning signs and it would be unwise to ignore these.

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