We Think That There Are Issues Underlying JF Technology Berhad's (KLSE:JFTECH) Earnings

Despite posting some strong earnings, the market for JF Technology Berhad's (KLSE:JFTECH) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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An Unusual Tax Situation

JF Technology Berhad reported a tax benefit of RM365k, which is well worth noting. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a 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.

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

Our Take On JF Technology Berhad's Profit Performance

JF Technology Berhad reported that it received a tax benefit, rather than paid tax, in its last report. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Because of this, we think that it may be that JF Technology Berhad's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 60% EPS growth in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 2 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in JF Technology Berhad.

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