7-Eleven Malaysia Holdings Berhad's (KLSE:SEM) Strong Earnings Are Of Good Quality

The subdued stock price reaction suggests that 7-Eleven Malaysia Holdings Berhad's (KLSE:SEM) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

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Zooming In On 7-Eleven Malaysia Holdings Berhad's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. This ratio tells us how much of a company's profit is not backed by free cashflow.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

Over the twelve months to September 2025, 7-Eleven Malaysia Holdings Berhad recorded an accrual ratio of -0.14. That indicates that its free cash flow was a fair bit more than its statutory profit. In fact, it had free cash flow of RM113m in the last year, which was a lot more than its statutory profit of RM30.1m. Notably, 7-Eleven Malaysia Holdings Berhad had negative free cash flow last year, so the RM113m it produced this year was a welcome improvement.

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 7-Eleven Malaysia Holdings Berhad's Profit Performance

As we discussed above, 7-Eleven Malaysia Holdings Berhad has perfectly satisfactory free cash flow relative to profit. Based on this observation, we consider it likely that 7-Eleven Malaysia Holdings Berhad's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - 7-Eleven Malaysia Holdings Berhad has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of 7-Eleven Malaysia Holdings Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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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.