We're Not Counting On Hanison Construction Holdings (HKG:896) To Sustain Its Statutory Profitability

Statistically speaking, it is less risky to invest in profitable companies than in 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 Hanison Construction Holdings' (HKG:896) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Hanison Construction Holdings made a profit of HK$221.4m on revenue of HK$958.2m. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Hanison Construction Holdings

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 discuss how unusual items have impacted Hanison Construction Holdings' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hanison Construction Holdings.

How Do Unusual Items Influence Profit?

To properly understand Hanison Construction Holdings' profit results, we need to consider the HK$181m 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, after all, that's exactly what the accounting terminology implies. We can see that Hanison Construction Holdings' positive unusual items were quite significant relative to its profit in the year to March 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Hanison Construction Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Hanison Construction Holdings'earnings a poor guide to its underlying profitability. For this reason, we think that Hanison Construction Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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 Hanison Construction Holdings, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Hanison Construction Holdings (including 2 which are potentially serious).

Today we've zoomed in on a single data point to better understand the nature of Hanison Construction 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 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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