China Merchants Port Holdings Company Limited (HKG:144) just reported some strong earnings, and the market rewarded them with a positive share price move. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for China Merchants Port Holdings

The Impact Of Unusual Items On Profit

To properly understand China Merchants Port Holdings' profit results, we need to consider the HK$1.4b 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that China Merchants Port Holdings' positive unusual items were quite significant relative to its profit in the year to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Merchants Port Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes China Merchants Port Holdings' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that China Merchants Port Holdings' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 50% EPS growth in the 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. If you want to do dive deeper into China Merchants Port Holdings, you'd also look into what risks it is currently facing. For example - China Merchants Port Holdings has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of China Merchants Port 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 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.