Malpac Holdings Berhad's (KLSE:MALPAC) Earnings Are Of Questionable Quality

Malpac Holdings Berhad (KLSE:MALPAC) just reported some strong earnings, and the market rewarded them with a positive share price move. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Malpac Holdings Berhad

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Malpac Holdings Berhad's profit received a boost of RM4.1m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Malpac Holdings Berhad's positive unusual items were quite significant relative to its profit in the year to December 2020. 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 Malpac Holdings Berhad.

Our Take On Malpac Holdings Berhad's Profit Performance

As previously mentioned, Malpac Holdings Berhad's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Malpac Holdings Berhad's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into Malpac Holdings Berhad, you'd also look into what risks it is currently facing. At Simply Wall St, we found 4 warning signs for Malpac Holdings Berhad and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Malpac 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. 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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