Does Oriental Holdings Berhad's (KLSE:ORIENT) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Oriental Holdings Berhad's (KLSE:ORIENT) statutory profits are a good guide to its underlying earnings.

While Oriental Holdings Berhad was able to generate revenue of RM3.47b in the last twelve months, we think its profit result of RM93.3m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

View our latest analysis for Oriental Holdings Berhad

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Oriental Holdings Berhad's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Oriental Holdings Berhad.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Oriental Holdings Berhad's profit was reduced by RM37m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Oriental Holdings Berhad doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Oriental Holdings Berhad's Profit Performance

Unusual items (expenses) detracted from Oriental Holdings Berhad's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Oriental Holdings Berhad's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 want to do dive deeper into Oriental Holdings Berhad, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Oriental Holdings Berhad you should know about.

Today we've zoomed in on a single data point to better understand the nature of Oriental Holdings Berhad'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. 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. 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.
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