Spring Art Holdings Berhad's (KLSE:SPRING) Profits Appear To Have Quality Issues

Spring Art Holdings Berhad (KLSE:SPRING) just released a solid earnings report, and the stock displayed some strength. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

See our latest analysis for Spring Art Holdings Berhad

An Unusual Tax Situation

Spring Art Holdings Berhad reported a tax benefit of RM2.5m, which is well worth noting. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. The receipt of a tax benefit is obviously a good thing, on its own. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

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

Our Take On Spring Art Holdings Berhad's Profit Performance

As we have already discussed Spring Art Holdings Berhad reported that it received a tax benefit, rather than paying tax, in the last year. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Therefore, it seems possible to us that Spring Art Holdings Berhad's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 60% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Spring Art Holdings Berhad, you'd also look into what risks it is currently facing. For example - Spring Art Holdings Berhad has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Spring Art Holdings Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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 with significant insider holdings to be useful.

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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.