Royal Deluxe Holdings' (HKG:3789) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Despite Royal Deluxe Holdings Limited's (HKG:3789) recent earnings report having lackluster headline numbers, the market responded positively. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

View our latest analysis for Royal Deluxe Holdings

How Do Unusual Items Influence Profit?

For anyone who wants to understand Royal Deluxe Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$1.7m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Royal Deluxe Holdings doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Royal Deluxe Holdings' Profit Performance

Arguably, Royal Deluxe Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Royal Deluxe Holdings' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To that end, you should learn about the 4 warning signs we've spotted with Royal Deluxe Holdings (including 1 which shouldn't be ignored).

This note has only looked at a single factor that sheds light on the nature of Royal Deluxe 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.