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Lippo China Resources (HKG:156) Strong Profits May Be Masking Some Underlying Issues

Simply Wall St ·  {{timeTz}}

Lippo China Resources Limited's (HKG:156) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

See our latest analysis for Lippo China Resources

SEHK:156 Earnings and Revenue History May 9th 2022

The Impact Of Unusual Items On Profit

For anyone who wants to understand Lippo China Resources' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$230m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Lippo China Resources had a rather significant contribution from unusual items relative to its profit to December 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Lippo China Resources.

Our Take On Lippo China Resources' Profit Performance

As previously mentioned, Lippo China Resources' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Lippo China Resources' underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Lippo China Resources, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Lippo China Resources and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Lippo China Resources' 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

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