A lackluster earnings announcement from Asia Allied Infrastructure Holdings Limited (HKG:711) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Asia Allied Infrastructure Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$106m 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 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. Which is hardly surprising, given the name. We can see that Asia Allied Infrastructure Holdings' positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Asia Allied Infrastructure Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Asia Allied Infrastructure Holdings' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Asia Allied Infrastructure Holdings' underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased 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. If you want to do dive deeper into Asia Allied Infrastructure Holdings, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Asia Allied Infrastructure Holdings (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Asia Allied Infrastructure Holdings' profit. But there are plenty of other ways to inform your opinion of a company. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com