Tianjin Development Holdings (HKG:882) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by Tianjin Development Holdings Limited (HKG:882) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Tianjin Development Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Tianjin Development Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$226m worth of 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Tianjin Development Holdings' positive unusual items were quite significant relative to its profit in the year to June 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 Tianjin Development Holdings.

Our Take On Tianjin Development Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Tianjin Development Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Tianjin Development 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, its earnings per share increased by 21% in the 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 Tianjin Development Holdings at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Tianjin Development Holdings.

Today we've zoomed in on a single data point to better understand the nature of Tianjin Development 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.