We Think You Should Be Aware Of Some Concerning Factors In Puncak Niaga Holdings Berhad's (KLSE:PUNCAK) Earnings

Following the solid earnings report from Puncak Niaga Holdings Berhad (KLSE:PUNCAK), the market responded by bidding up the stock price. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

Check out our latest analysis for Puncak Niaga Holdings Berhad

How Do Unusual Items Influence Profit?

For anyone who wants to understand Puncak Niaga Holdings Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM4.1m worth of 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. 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'. If Puncak Niaga Holdings 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 Puncak Niaga Holdings Berhad.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Puncak Niaga Holdings Berhad received a tax benefit which contributed RM12m to the bottom line. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. 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.

Our Take On Puncak Niaga Holdings Berhad's Profit Performance

In the last year Puncak Niaga Holdings Berhad received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. For the reasons mentioned above, we think that a perfunctory glance at Puncak Niaga Holdings Berhad's statutory profits might make it look better than it really is on an underlying level. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 4 warning signs for Puncak Niaga Holdings Berhad you should be mindful of and 1 of them is significant.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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 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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