Stock Analysis

Are Chi Kan Holdings's (HKG:9913) Statutory Earnings A Good Reflection Of Its Earnings Potential?

SEHK:9913
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Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Chi Kan Holdings (HKG:9913).

We like the fact that Chi Kan Holdings made a profit of HK$39.6m on its revenue of HK$685.9m, in the last year.

Check out our latest analysis for Chi Kan Holdings

earnings-and-revenue-history
SEHK:9913 Earnings and Revenue History November 18th 2020

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 Chi Kan Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chi Kan Holdings.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Chi Kan Holdings' profit was reduced by HK$13m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Chi Kan Holdings to produce a higher profit next year, all else being equal.

Our Take On Chi Kan Holdings' Profit Performance

Unusual items (expenses) detracted from Chi Kan Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Chi Kan Holdings' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Chi Kan Holdings as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Chi Kan Holdings, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Chi Kan Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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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