Shanghai Haixin Group's (SHSE:600851) Profits May Not Reveal Underlying Issues

Shanghai Haixin Group Co., Ltd.'s (SHSE:600851) healthy profit numbers didn't contain any surprises for investors. 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 Shanghai Haixin Group

The Impact Of Unusual Items On Profit

To properly understand Shanghai Haixin Group's profit results, we need to consider the CN¥5.9m 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 that's as you'd expect, given these boosts are described as 'unusual'. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Haixin Group.

Our Take On Shanghai Haixin Group's Profit Performance

We'd posit that Shanghai Haixin Group's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shanghai Haixin Group's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 15% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Haixin Group at this point in time. You'd be interested to know, that we found 2 warning signs for Shanghai Haixin Group and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Shanghai Haixin Group'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 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.