Metrod Holdings Berhad's (KLSE:METROD) Solid Earnings May Rest On Weak Foundations

The market shrugged off Metrod Holdings Berhad's (KLSE:METROD) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

Check out our latest analysis for Metrod Holdings Berhad

An Unusual Tax Situation

Metrod Holdings Berhad reported a tax benefit of RM20m, which is well worth noting. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Metrod Holdings Berhad.

Our Take On Metrod Holdings Berhad's Profit Performance

As we have already discussed Metrod Holdings Berhad reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Therefore, it seems possible to us that Metrod Holdings Berhad's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 47% per annum growth in EPS for the last three. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Metrod Holdings Berhad as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Metrod Holdings Berhad (including 1 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Metrod Holdings Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.