We're Not Counting On Hong Pu Real Estate Development (TPE:2536) To Sustain Its Statutory Profitability

By
Simply Wall St
Published
February 03, 2021
TWSE:2536
Source: Shutterstock

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 Hong Pu Real Estate Development's (TPE:2536) statutory profits are a good guide to its underlying earnings.

While Hong Pu Real Estate Development was able to generate revenue of NT$4.14b in the last twelve months, we think its profit result of NT$698.3m was more important. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

Check out our latest analysis for Hong Pu Real Estate Development

earnings-and-revenue-history
TSEC:2536 Earnings and Revenue History February 4th 2021

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 focus on the impact unusual items have had on Hong Pu Real Estate Development's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hong Pu Real Estate Development.

How Do Unusual Items Influence Profit?

To properly understand Hong Pu Real Estate Development's profit results, we need to consider the NT$198m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Hong Pu Real Estate Development 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 Hong Pu Real Estate Development's Profit Performance

Arguably, Hong Pu Real Estate Development's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Hong Pu Real Estate Development's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 23% in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Hong Pu Real Estate Development has 4 warning signs (2 are significant!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Hong Pu Real Estate Development's profit. But there are plenty of other ways to inform your opinion of a company. 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 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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