Chu Kong Shipping Enterprises (Group) (HKG:560) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by Chu Kong Shipping Enterprises (Group) Company Limited (HKG:560) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Chu Kong Shipping Enterprises (Group)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$21m 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 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. If Chu Kong Shipping Enterprises (Group) doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chu Kong Shipping Enterprises (Group).

Our Take On Chu Kong Shipping Enterprises (Group)'s Profit Performance

We'd posit that Chu Kong Shipping Enterprises (Group)'s statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Chu Kong Shipping Enterprises (Group)'s true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For instance, we've identified 2 warning signs for Chu Kong Shipping Enterprises (Group) (1 is a bit concerning) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Chu Kong Shipping Enterprises (Group)'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 with high insider ownership.

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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.