Malpac Holdings Berhad's (KLSE:MALPAC) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Malpac Holdings Berhad (KLSE:MALPAC) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View 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 RM4.3m 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 that's as you'd expect, given these boosts are described as 'unusual'. Malpac Holdings Berhad had a rather significant contribution from unusual items relative to its profit to June 2024. 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 we discussed above, we think the significant positive unusual item makes Malpac Holdings Berhad's earnings 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. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the 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. If you'd like to know more about Malpac Holdings Berhad as a business, it's important to be aware of any risks it's facing. Our analysis shows 4 warning signs for Malpac Holdings Berhad (2 can't be ignored!) and we strongly recommend you look at these before investing.

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. 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.