We Think That There Are Some Issues For Southeast Asia Properties & Finance (HKG:252) Beyond Its Promising Earnings

The recent earnings posted by Southeast Asia Properties & Finance Limited (HKG:252) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Southeast Asia Properties & Finance

The Impact Of Unusual Items On Profit

For anyone who wants to understand Southeast Asia Properties & Finance's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$85m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Southeast Asia Properties & Finance's positive unusual items were quite significant relative to its profit in the year to September 2021. 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 Southeast Asia Properties & Finance.

Our Take On Southeast Asia Properties & Finance's Profit Performance

As we discussed above, we think the significant positive unusual item makes Southeast Asia Properties & Finance's earnings a poor guide to its underlying profitability. For this reason, we think that Southeast Asia Properties & Finance's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Southeast Asia Properties & Finance at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Southeast Asia Properties & Finance (including 1 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Southeast Asia Properties & Finance's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.