Gromutual Berhad's (KLSE:GMUTUAL) Promising Earnings May Rest On Soft Foundations

Investors were disappointed with Gromutual Berhad's (KLSE:GMUTUAL) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

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The Impact Of Unusual Items On Profit

To properly understand Gromutual Berhad's profit results, we need to consider the RM18m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. Which is hardly surprising, given the name. Gromutual Berhad had a rather significant contribution from unusual items relative to its profit to September 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 Gromutual Berhad.

Our Take On Gromutual Berhad's Profit Performance

As we discussed above, we think the significant positive unusual item makes Gromutual Berhad's earnings a poor guide to its underlying profitability. For this reason, we think that Gromutual 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 good news is that its EPS growth over the last three years has been very impressive. 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 while earnings quality is important, it's equally important to consider the risks facing Gromutual Berhad at this point in time. You'd be interested to know, that we found 3 warning signs for Gromutual Berhad and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Gromutual Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.