Despite posting some strong earnings, the market for Dalian Sunasia Tourism Holding CO.,LTD's (SHSE:600593) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.
See our latest analysis for Dalian Sunasia Tourism HoldingLTD
How Do Unusual Items Influence Profit?
To properly understand Dalian Sunasia Tourism HoldingLTD's profit results, we need to consider the CN¥15m 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, after all, that's exactly what the accounting terminology implies. Dalian Sunasia Tourism HoldingLTD had a rather significant contribution from unusual items relative to its profit to June 2023. 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 Dalian Sunasia Tourism HoldingLTD.
An Unusual Tax Situation
Just as we noted the unusual items, we must inform you that Dalian Sunasia Tourism HoldingLTD received a tax benefit which contributed CN¥5.6m to the bottom line. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. And given that it lost money last year, it seems possible that the benefit is evidence that it now expects to find value in its past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. 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. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.
Our Take On Dalian Sunasia Tourism HoldingLTD's Profit Performance
In its last report Dalian Sunasia Tourism HoldingLTD received a tax benefit which might make its profit look better than it really is on a underlying level. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. Considering all this we'd argue Dalian Sunasia Tourism HoldingLTD's profits probably give an overly generous impression of its sustainable level of profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Dalian Sunasia Tourism HoldingLTD has 2 warning signs (and 1 which is significant) we think you should know about.
Our examination of Dalian Sunasia Tourism HoldingLTD has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.