Should You Use Hap Seng Plantations Holdings Berhad's (KLSE:HSPLANT) Statutory Earnings To Analyse It?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Hap Seng Plantations Holdings Berhad (KLSE:HSPLANT).

While Hap Seng Plantations Holdings Berhad was able to generate revenue of RM439.2m in the last twelve months, we think its profit result of RM84.5m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Hap Seng Plantations Holdings Berhad

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Hap Seng Plantations Holdings Berhad's statutory earnings. 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.

How Do Unusual Items Influence Profit?

To properly understand Hap Seng Plantations Holdings Berhad's profit results, we need to consider the RM11m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Hap Seng Plantations Holdings Berhad doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Hap Seng Plantations Holdings Berhad's Profit Performance

Arguably, Hap Seng Plantations Holdings Berhad's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hap Seng Plantations Holdings Berhad's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 2 warning signs for Hap Seng Plantations Holdings Berhad (1 is significant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Hap Seng Plantations Holdings Berhad's 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. 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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