Does Poh Huat Resources Holdings Berhad's (KLSE:POHUAT) Statutory Profit Adequately Reflect Its Underlying Profit?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Poh Huat Resources Holdings Berhad (KLSE:POHUAT).

We like the fact that Poh Huat Resources Holdings Berhad made a profit of RM51.9m on its revenue of RM659.5m, in the last year. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

See our latest analysis for Poh Huat Resources Holdings Berhad

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. In this article we'll look at how Poh Huat Resources Holdings Berhad is impacting shareholders by issuing new shares. 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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Poh Huat Resources Holdings Berhad increased the number of shares on issue by 16% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Poh Huat Resources Holdings Berhad's historical EPS growth by clicking on this link.

A Look At The Impact Of Poh Huat Resources Holdings Berhad's Dilution on Its Earnings Per Share (EPS).

Unfortunately, Poh Huat Resources Holdings Berhad's profit is down 6.7% per year over three years. On the bright side, in the last twelve months it grew profit by 2.1%. But EPS was far less impressive, dropping 3.3% in that time. This shows how dangerous it is to rely on net income alone, when measuring growth. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Poh Huat Resources Holdings Berhad's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On Poh Huat Resources Holdings Berhad's Profit Performance

Poh Huat Resources Holdings Berhad shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Poh Huat Resources Holdings Berhad's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Poh Huat Resources Holdings Berhad you should know about.

Today we've zoomed in on a single data point to better understand the nature of Poh Huat Resources 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 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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