Why Hai Kwang Enterprise's (TWSE:2038) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Hai Kwang Enterprise Corporation (TWSE:2038) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hai Kwang Enterprise's profit received a boost of NT$48m in unusual items, over the last year. 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 that's as you'd expect, given these boosts are described as 'unusual'. Hai Kwang Enterprise had a rather significant contribution from unusual items relative to its profit to December 2024. 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 Hai Kwang Enterprise.

Our Take On Hai Kwang Enterprise's Profit Performance

As previously mentioned, Hai Kwang Enterprise's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Hai Kwang Enterprise's underlying earnings power is lower than its statutory profit. 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. If you'd like to know more about Hai Kwang Enterprise as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for Hai Kwang Enterprise (1 shouldn't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Hai Kwang Enterprise's profit. 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 with significant insider holdings 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.