Solid Earnings Reflect Datang International Power Generation's (HKG:991) Strength As A Business

The subdued stock price reaction suggests that Datang International Power Generation Co., Ltd.'s (HKG:991) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for Datang International Power Generation

The Impact Of Unusual Items On Profit

To properly understand Datang International Power Generation's profit results, we need to consider the CN¥984m expense attributed 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. Assuming those unusual expenses don't come up again, we'd therefore expect Datang International Power Generation to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Datang International Power Generation.

Our Take On Datang International Power Generation's Profit Performance

Because unusual items detracted from Datang International Power Generation's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Datang International Power Generation's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Datang International Power Generation you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Datang International Power Generation's 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 that insiders are buying.

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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.