Weak Statutory Earnings May Not Tell The Whole Story For Kluang Rubber Company (Malaya) Berhad (KLSE:KLUANG)

The subdued market reaction suggests that Kluang Rubber Company (Malaya) Berhad's (KLSE:KLUANG) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Kluang Rubber Company (Malaya) Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM3.5m worth of 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Kluang Rubber Company (Malaya) Berhad doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kluang Rubber Company (Malaya) Berhad.

Our Take On Kluang Rubber Company (Malaya) Berhad's Profit Performance

We'd posit that Kluang Rubber Company (Malaya) Berhad's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Kluang Rubber Company (Malaya) Berhad's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 45% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Kluang Rubber Company (Malaya) Berhad and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Kluang Rubber Company (Malaya) 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.