Does Sun Hung Kai Properties's (HKG:16) Statutory Profit Adequately Reflect Its Underlying Profit?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Sun Hung Kai Properties' (HKG:16) statutory profits are a good guide to its underlying earnings.

We like the fact that Sun Hung Kai Properties made a profit of HK$23.5b on its revenue of HK$82.7b, in the last year. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

View our latest analysis for Sun Hung Kai Properties

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Sun Hung Kai Properties' 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

For anyone who wants to understand Sun Hung Kai Properties' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$4.2b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Sun Hung Kai Properties doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Sun Hung Kai Properties' Profit Performance

Because unusual items detracted from Sun Hung Kai Properties' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Sun Hung Kai Properties' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Sun Hung Kai Properties has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Sun Hung Kai Properties' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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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