Chi Kan Holdings' (HKG:9913) Solid Earnings May Rest On Weak Foundations

Chi Kan Holdings Limited's (HKG:9913) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Chi Kan Holdings

The Impact Of Unusual Items On Profit

To properly understand Chi Kan Holdings' profit results, we need to consider the HK$14m 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. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Chi Kan Holdings' Profit Performance

Arguably, Chi Kan Holdings' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Chi Kan Holdings' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 37% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Chi Kan Holdings at this point in time. In terms of investment risks, we've identified 1 warning sign with Chi Kan Holdings, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Chi Kan Holdings' 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. 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. 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.