Does Red Star Macalline Group’s (HKG:1528) Statutory Profit Adequately Reflect Its Underlying Profit?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it’s not always clear whether statutory profits are a good guide, going forward. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Red Star Macalline Group (HKG:1528).

While Red Star Macalline Group was able to generate revenue of CN¥16.1b in the last twelve months, we think its profit result of CN¥4.10b was more important. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).

Check out our latest analysis for Red Star Macalline Group

SEHK:1528 Income Statement, January 5th 2020
SEHK:1528 Income Statement, January 5th 2020

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Red Star Macalline Group’s most recent profit results. 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.

The Impact Of Unusual Items On Profit

To properly understand Red Star Macalline Group’s profit results, we need to consider the CN¥1.2b gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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’. If Red Star Macalline Group doesn’t see that contribution repeat, then all else being equal we’d expect its profit to drop over the current year.

Our Take On Red Star Macalline Group’s Profit Performance

We’d posit that Red Star Macalline 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 Red Star Macalline Group’s statutory profits are better than its underlying earnings power. Nonetheless, it’s still worth noting that its earnings per share have grown at 29% over the last three years. 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. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. Luckily, you can check out what analysts are forecsting by clicking here.

This note has only looked at a single factor that sheds light on the nature of Red Star Macalline Group’s 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 that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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