Does Shangri-La Asia’s (HKG:69) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Shangri-La Asia‘s (HKG:69) statutory profits are a good guide to its underlying earnings.

We like the fact that Shangri-La Asia made a profit of US$152.5m on its revenue of US$2.43b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, albeit not in the last year.

View our latest analysis for Shangri-La Asia

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SEHK:69 Earnings and Revenue History July 15th 2020

Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Shangri-La Asia’s statutory earnings. 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 Shangri-La Asia’s profit results, we need to consider the US$30m gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that’s as you’d expect, given these boosts are described as ‘unusual’. If Shangri-La Asia 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 Shangri-La Asia’s Profit Performance

Arguably, Shangri-La Asia’s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shangri-La Asia’s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 44% per annum growth in EPS for the last three. At the end of the day, it’s essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Shangri-La Asia, you’d also look into what risks it is currently facing. Case in point: We’ve spotted 1 warning sign for Shangri-La Asia you should be aware of.

Today we’ve zoomed in on a single data point to better understand the nature of Shangri-La Asia’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. 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.
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