Weak Statutory Earnings May Not Tell The Whole Story For KKB Engineering Berhad (KLSE:KKB)

The subdued market reaction suggests that KKB Engineering Berhad's (KLSE:KKB) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for KKB Engineering Berhad

How Do Unusual Items Influence Profit?

To properly understand KKB Engineering Berhad's profit results, we need to consider the RM4.9m gain attributed to 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 that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On KKB Engineering Berhad's Profit Performance

Arguably, KKB Engineering Berhad's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that KKB Engineering Berhad's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing KKB Engineering Berhad at this point in time. While conducting our analysis, we found that KKB Engineering Berhad has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of KKB Engineering 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. 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.