We Think Muhibbah Engineering (M) Bhd's (KLSE:MUHIBAH) Healthy Earnings Might Be Conservative

Muhibbah Engineering (M) Bhd.'s (KLSE:MUHIBAH) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Muhibbah Engineering (M) Bhd's profit was reduced by RM14m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Muhibbah Engineering (M) Bhd to produce a higher profit next year, all else being equal.

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 Muhibbah Engineering (M) Bhd's Profit Performance

Unusual items (expenses) detracted from Muhibbah Engineering (M) Bhd's earnings over the last year, but we might see an improvement next year. Because of this, we think Muhibbah Engineering (M) Bhd's earnings potential is at least as good as it seems, and maybe even better! Furthermore, it has done a great job growing EPS over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Muhibbah Engineering (M) Bhd at this point in time. Be aware that Muhibbah Engineering (M) Bhd is showing 3 warning signs in our investment analysis and 1 of those shouldn't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Muhibbah Engineering (M) Bhd's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.