Tuan Sing Holdings' (SGX:T24) Profits Appear To Have Quality Issues

The recent earnings posted by Tuan Sing Holdings Limited (SGX:T24) 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.

See our latest analysis for Tuan Sing Holdings

The Impact Of Unusual Items On Profit

To properly understand Tuan Sing Holdings' profit results, we need to consider the S$8.6m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, after all, that's exactly what the accounting terminology implies. Tuan Sing Holdings had a rather significant contribution from unusual items relative to its profit to December 2023. 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 Tuan Sing Holdings.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Tuan Sing Holdings received a tax benefit which contributed S$2.8m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Tuan Sing Holdings' Profit Performance

In its last report Tuan Sing Holdings received a tax benefit which might make its profit look better than it really is on a underlying level. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. For the reasons mentioned above, we think that a perfunctory glance at Tuan Sing Holdings' statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Tuan Sing Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for Tuan Sing Holdings you should be mindful of and 2 of these don't sit too well with us.

Our examination of Tuan Sing Holdings has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.