Beyond Lackluster Earnings: Potential Concerns For Marine & General Berhad's (KLSE:M&G) Shareholders

Shareholders didn't appear too concerned by Marine & General Berhad's (KLSE:M&G) weak earnings. We did some analysis and found some concerning details beneath the statutory profit number.

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The Impact Of Unusual Items On Profit

To properly understand Marine & General Berhad's profit results, we need to consider the RM22m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Marine & General Berhad's positive unusual items were quite significant relative to its profit in the year to July 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Marine & General Berhad received a tax benefit of RM14m. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its 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. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Marine & General Berhad's Profit Performance

In its last report Marine & General Berhad received a tax benefit which might make its profit look better than it really is on a underlying level. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. Considering all this we'd argue Marine & General Berhad's profits probably give an overly generous impression of its sustainable level of profitability. So while earnings quality is important, it's equally important to consider the risks facing Marine & General Berhad at this point in time. Every company has risks, and we've spotted 4 warning signs for Marine & General Berhad (of which 1 makes us a bit uncomfortable!) you should know about.

Our examination of Marine & General Berhad has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.