Keck Seng Investments (Hong Kong)'s (HKG:184) Earnings Are Weaker Than They Seem

Keck Seng Investments (Hong Kong) Limited (HKG:184) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Keck Seng Investments (Hong Kong)

How Do Unusual Items Influence Profit?

To properly understand Keck Seng Investments (Hong Kong)'s profit results, we need to consider the HK$113m 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 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. Keck Seng Investments (Hong Kong) had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Keck Seng Investments (Hong Kong).

Our Take On Keck Seng Investments (Hong Kong)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Keck Seng Investments (Hong Kong)'s earnings a poor guide to its underlying profitability. For this reason, we think that Keck Seng Investments (Hong Kong)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Keck Seng Investments (Hong Kong) you should know about.

This note has only looked at a single factor that sheds light on the nature of Keck Seng Investments (Hong Kong)'s 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.