Uni-President China Holdings' (HKG:220) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for Uni-President China Holdings Ltd's (HKG:220) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Uni-President China Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Uni-President China Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥405m worth of 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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.

Our Take On Uni-President China Holdings' Profit Performance

We'd posit that Uni-President China Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Uni-President China Holdings' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 36% EPS growth 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. So while earnings quality is important, it's equally important to consider the risks facing Uni-President China Holdings at this point in time. Case in point: We've spotted 2 warning signs for Uni-President China Holdings you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Uni-President China 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. 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.