Hock Lian Seng Holdings' (SGX:J2T) Shareholders Have More To Worry About Than Only Soft Earnings

Investors were disappointed by Hock Lian Seng Holdings Limited's (SGX:J2T ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Hock Lian Seng Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from S$2.0m worth of 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. And, after all, that's exactly what the accounting terminology implies. If Hock Lian Seng Holdings 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 Hock Lian Seng Holdings.

Our Take On Hock Lian Seng Holdings' Profit Performance

Arguably, Hock Lian Seng Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Hock Lian Seng Holdings' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the 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 Hock Lian Seng Holdings at this point in time. Case in point: We've spotted 2 warning signs for Hock Lian Seng Holdings you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Hock Lian Seng 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 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.