Latest news with #RM7.19m
Yahoo
29-05-2025
- Business
- Yahoo
There Are Some Holes In Epicon Berhad's (KLSE:EPICON) Solid Earnings Release
Epicon Berhad (KLSE:EPICON) posted some decent earnings, but shareholders didn't react strongly. We think that they might be concerned about some underlying details that our analysis found. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. This ratio tells us how much of a company's profit is not backed by free cashflow. That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. That's because some academic studies have suggested that high accruals ratios tend to lead to lower profit or less profit growth. Epicon Berhad has an accrual ratio of 0.64 for the year to March 2025. Statistically speaking, that's a real negative for future earnings. And indeed, during the period the company didn't produce any free cash flow whatsoever. Even though it reported a profit of RM7.19m, a look at free cash flow indicates it actually burnt through RM48m in the last year. We also note that Epicon Berhad's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of RM48m. Notably, the company has issued new shares, thus diluting existing shareholders and reducing their share of future earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Epicon Berhad. To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Epicon Berhad issued 5.5% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Epicon Berhad's EPS by clicking here. Epicon Berhad was losing money three years ago. The good news is that profit was up 21% in the last twelve months. But EPS was less impressive, up only 11% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings. Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Epicon Berhad shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow. In conclusion, Epicon Berhad has weak cashflow relative to earnings, which indicates lower quality earnings, and the dilution means its earnings per share growth is weaker than its profit growth. Considering all this we'd argue Epicon Berhad's profits probably give an overly generous impression of its sustainable level of profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that Epicon Berhad is showing 4 warning signs in our investment analysis and 2 of those are concerning... Our examination of Epicon Berhad has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
Yahoo
08-05-2025
- Business
- Yahoo
Sunmow Holding Berhad's (KLSE:SUNMOW) Weak Earnings May Only Reveal A Part Of The Whole Picture
A lackluster earnings announcement from Sunmow Holding Berhad (KLSE:SUNMOW) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. KLSE:SUNMOW Earnings and Revenue History May 8th 2025 A Closer Look At Sunmow Holding Berhad's Earnings As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'. As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While having an accrual ratio above zero is of little concern, we do think it's worth noting when a company has a relatively high accrual ratio. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future". Over the twelve months to December 2024, Sunmow Holding Berhad recorded an accrual ratio of 0.34. Unfortunately, that means its free cash flow was a lot less than its statutory profit, which makes us doubt the utility of profit as a guide. Even though it reported a profit of RM7.19m, a look at free cash flow indicates it actually burnt through RM7.3m in the last year. It's worth noting that Sunmow Holding Berhad generated positive FCF of RM16m a year ago, so at least they've done it in the past. One positive for Sunmow Holding Berhad shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sunmow Holding Berhad. Our Take On Sunmow Holding Berhad's Profit Performance As we discussed above, we think Sunmow Holding Berhad's earnings were not supported by free cash flow, which might concern some investors. For this reason, we think that Sunmow Holding 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 4 warning signs for Sunmow Holding Berhad (of which 2 are a bit unpleasant!) you should know about.
