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Sunright Limited's (SGX:S71) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.
See our latest analysis for Sunright
Operating Revenue Or Not?
At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Oftentimes, non-operating revenue spikes are not repeated, so it makes sense to be cautious where non-operating revenue has made a very large contribution to total profit. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. Notably, Sunright had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from S$4.68m last year to S$22.4m this year. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sunright.
How Do Unusual Items Influence Profit?
On top of the non-operating revenue spike, we should also consider the S$8.9m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Sunright took a rather significant hit from unusual items in the year to July 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
Our Take On Sunright's Profit Performance
In the last year Sunright's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. But on the other hand, it also saw an unusual item depress its profit, suggesting the statutory profit number will actually improve next year, if the unusual expenses are not repeated, and all else stays equal. Given the contrasting considerations, we don't have a strong view as to whether Sunright's profits are an apt reflection of its underlying potential for profit. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 3 warning signs for Sunright and we think they deserve your attention.