We Think That There Are Some Issues For Asia Resources Holdings (HKG:899) Beyond Its Promising Earnings

The recent earnings posted by Asia Resources Holdings Limited (HKG:899) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Asia Resources Holdings

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Asia Resources Holdings' profit received a boost of HK$3.1m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Asia Resources Holdings' positive unusual items were quite significant relative to its profit in the year to September 2021. 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 Asia Resources Holdings.

Our Take On Asia Resources Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Asia Resources Holdings' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Asia Resources Holdings' underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you'd like to know more about Asia Resources Holdings as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Asia Resources Holdings and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Asia Resources 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.