Evd Berhad's (KLSE:EVD) Earnings Aren't As Good As They Appear

After announcing healthy earnings, Evd Berhad's (KLSE:EVD) stock rose over the last week.  Despite the strong profit numbers, we believe that there are some deeper issues which investors should look into.     Check out our latest analysis for Evd Berhad KLSE:EVD Earnings and Revenue History March 7th 2023  Examining Cashflow Against Evd Berhad's Earnings  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.  In plain english, this ratio subtracts FCF from net profit, and divides that number by the company's average operating assets over that period.  This ratio tells us how much of a company's profit is not backed by free cashflow.  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".  For the year to December 2022, Evd Berhad had an accrual ratio of 0.41.   As a general rule, that bodes poorly for future profitability.  To wit, the company did not generate one whit of free cashflow in that time.    In the last twelve months it actually had negative free cash flow, with an outflow of RM13m despite its profit of RM7.44m, mentioned above.    It's worth noting that Evd Berhad generated positive FCF of RM740k a year ago, so at least they've done it in the past.    Notably, the company has issued new shares, thus diluting existing shareholders and reducing their share of future earnings.    The good news for shareholders is that Evd Berhad's accrual ratio was much better last year, so this year's poor reading might simply be a case of a short term mismatch between profit and FCF.  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 Evd Berhad.  To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests.  As it happens, Evd Berhad issued 1,395% more new shares over the last year.  That means its earnings are split among a greater number of shares.  To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value.  Check out Evd Berhad's historical EPS growth by clicking on this link.  How Is Dilution Impacting Evd Berhad's Earnings Per Share (EPS)?  Three years ago, Evd Berhad lost money.    Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year.  What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares.     So you can see that the dilution has had a fairly significant impact on shareholders.   If Evd Berhad's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction.   But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving.  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.  Our Take On Evd Berhad's Profit Performance As it turns out, Evd Berhad couldn't match its profit with cashflow and its dilution means that shareholders own less of the company than the did before (unless they bought more shares).      For all the reasons mentioned above, we think that, at a glance, Evd Berhad's statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company.     If you'd like to know more about Evd Berhad as a business, it's important to be aware of any risks it's facing.    Case in point: We've spotted 3 warning signs for Evd Berhad you should be mindful of and 2 of these are concerning.    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 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.  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. Valuation is complex, but we're helping make it simple.Find out whether Evd Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


FSBM Holdings Berhad Full Year 2022 Earnings: EPS: RM0.03 (vs RM0.067 loss in FY 2021)

FSBM Holdings Berhad (KLSE:FSBM) Full Year 2022 ResultsKey Financial Results Revenue: RM12.5m (up by RM12.1m from FY 2021). Net income: RM4.45m (up from RM9.33m loss in FY 2021). Profit margin: 36% (up from net loss in FY 2021). The move to profitability was primarily driven by higher revenue. EPS: RM0.03 (up from RM0.067 loss in FY 2021).  KLSE:FSBM Earnings and Revenue History March 3rd 2023 All figures shown in the chart above are for the trailing 12 month (TTM) period FSBM Holdings Berhad shares are up 15% from a week ago.   Risk Analysis Don't forget that there may still be risks. For instance, we've identified   4 warning signs for FSBM Holdings Berhad  that you should be aware of. Valuation is complex, but we're helping make it simple.Find out whether FSBM Holdings Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Are GHL Systems Berhad's (KLSE:GHLSYS) Mixed Financials Driving The Negative Sentiment?

GHL Systems Berhad (KLSE:GHLSYS) has had a rough month with its share price down 34%.   It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects.  Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance.     In this article, we decided to focus on GHL Systems Berhad's  ROE.    Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital.  In short, ROE shows the profit each dollar generates with respect to its shareholder investments.  Check out our latest analysis for GHL Systems Berhad  How To Calculate Return On Equity?  The formula for return on equity is:  Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for GHL Systems Berhad is:4.9% = RM26m ÷ RM519m (Based on the trailing twelve months to June 2022). The 'return' is the yearly profit.  One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.05 in profit.   Why Is ROE Important For Earnings Growth?  So far, we've learned that ROE is a measure of a company's profitability.  Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits.  Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.  A Side By Side comparison of GHL Systems Berhad's Earnings Growth And 4.9% ROE  As you can see, GHL Systems Berhad's ROE looks pretty weak.   Not just that, even compared to the industry average of 9.5%, the company's ROE is entirely unremarkable.   Therefore, the disappointing ROE therefore provides a background to GHL Systems Berhad's very little net income growth of 4.9% over the past five years.     We then compared GHL Systems Berhad's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 10% in the same period, which is a bit concerning.   KLSE:GHLSYS Past Earnings Growth September 20th 2022 The basis for attaching value to a company is, to a great extent, tied to its earnings growth.  The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in.  By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await.    Has the market priced in the future outlook for GHLSYS? You can find out in our latest intrinsic value infographic research report.   Is GHL Systems Berhad Making Efficient Use Of Its Profits?    GHL Systems Berhad doesn't pay any dividend, meaning that potentially all of its profits are being reinvested in the business.  However, this doesn't explain the low earnings growth the company has seen.  Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.     Summary    On the whole, we feel that the performance shown by GHL Systems Berhad can be open to many interpretations.      While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth.       Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum.     Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company. Valuation is complex, but we're helping make it simple.Find out whether GHL Systems Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Estimating The Fair Value Of GHL Systems Berhad (KLSE:GHLSYS)

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of GHL Systems Berhad (KLSE:GHLSYS) as an investment opportunity  by taking the forecast future cash flows of the company and discounting them back to today's value.  One way to achieve this is by employing the Discounted Cash Flow (DCF) model.  Don't get put off by the jargon, the math behind it is actually quite straightforward.  Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.  Check out our latest analysis for GHL Systems Berhad  The Model   We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To begin with, we have to get estimates of the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.   Generally we assume that a dollar today is more valuable than a dollar in the future,  so we discount the value of these future cash flows to their estimated value in today's dollars:  10-year free cash flow (FCF) forecast  2023 2024 2025 2026 2027 2028 2029 2030 2031 2032  Levered FCF (MYR, Millions)  RM48.2m RM53.8m RM58.3m RM62.2m RM65.8m RM69.2m RM72.5m RM75.6m RM78.7m RM81.8m Growth Rate Estimate Source Analyst x2 Analyst x2 Est @ 8.2% Est @ 6.81% Est @ 5.83% Est @ 5.15% Est @ 4.67% Est @ 4.33% Est @ 4.1% Est @ 3.93%  Present Value (MYR, Millions) Discounted @ 9.0%  RM44.2 RM45.3 RM44.9 RM44.0 RM42.7 RM41.2 RM39.6 RM37.9 RM36.1 RM34.4 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM410m After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.6%. We discount the terminal cash flows to today's value at a cost of equity of 9.0%. Terminal Value (TV)= FCF2032 × (1 + g) ÷ (r – g) = RM82m× (1 + 3.6%) ÷ (9.0%– 3.6%) = RM1.5bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= RM1.5b÷ ( 1 + 9.0%)10= RM650m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is RM1.1b.  In the final step we divide the equity value by the number of shares outstanding.  Compared to the current share price of RM1.1, the company appears   around fair value    at the time of writing.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. KLSE:GHLSYS Discounted Cash Flow September 1st 2022  Important Assumptions  Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at GHL Systems Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 9.0%, which is based on a levered beta of 1.010. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.   Looking Ahead:  Whilst important, the DCF calculation  is only one of many factors that you need to assess for a company.  It's not possible to obtain a foolproof valuation with a DCF model.  Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation.  If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different.  For GHL Systems Berhad, we've put together three  fundamental  elements  you should assess:  Financial Health: Does GHLSYS have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does GHLSYS's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!   PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the KLSE every day. If you want to find the calculation for other stocks just search here.Valuation is complex, but we're helping make it simple.Find out whether GHL Systems Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


GHL Systems Berhad (KLSE:GHLSYS) Seems To Use Debt Quite Sensibly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.'  So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company.  Importantly, GHL Systems Berhad (KLSE:GHLSYS) does carry debt.  But the more important question is: how much risk is that debt creating?  When Is Debt A Problem?  Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow.   Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers.  While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price.  By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return.  The first thing to do when considering how much debt a business uses is to look at its cash and debt together.   See our latest analysis for GHL Systems Berhad  How Much Debt Does GHL Systems Berhad Carry?  The image below, which you can click on for greater detail, shows that GHL Systems Berhad had debt of RM18.3m at the end of September 2022, a reduction from RM53.9m over a year.    But on the other hand it also has RM232.8m in cash, leading to a RM214.5m net cash position.  KLSE:GHLSYS Debt to Equity History December 19th 2022 How Healthy Is GHL Systems Berhad's Balance Sheet?  The latest balance sheet data shows that GHL Systems Berhad had liabilities of RM181.0m due within a year, and liabilities of RM19.4m falling due after that.   Offsetting these obligations, it had cash of RM232.8m as well as receivables valued at RM147.3m due within 12 months.   So it actually has RM179.7m more liquid assets than total liabilities.    This excess liquidity suggests that GHL Systems Berhad is taking a careful approach to debt.  Due to its strong net asset position, it is not likely to face issues with its lenders.    Simply put, the fact that GHL Systems Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.    But the bad news is that GHL Systems Berhad has seen its EBIT plunge 14% in the last twelve months.  We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock.       There's no doubt that we learn most about debt from the balance sheet.  But it is future earnings, more than anything, that will determine GHL Systems Berhad's ability to maintain a healthy balance sheet going forward.  So if you're focused on the future you can check out this free report showing analyst profit forecasts.  Finally, a company can only pay off debt with cold hard cash, not accounting profits.   GHL Systems Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt.    Over the last three years, GHL Systems Berhad actually produced more free cash flow than EBIT.  There's nothing better than incoming cash when it comes to staying in your lenders' good graces.    Summing Up While it is always sensible to investigate a company's debt, in this case GHL Systems Berhad has RM214.5m in net cash and a decent-looking balance sheet.     And it impressed us with free cash flow of RM15m, being 129% of its EBIT.     So is GHL Systems Berhad's debt a risk? It doesn't seem so to us.    The balance sheet is clearly the area to focus on when you are analysing debt.  But ultimately, every company can contain risks that exist outside of the balance sheet.   For example - GHL Systems Berhad has   1 warning sign   we think you should be aware of.     If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet. Valuation is complex, but we're helping make it simple.Find out whether GHL Systems Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


GHL Systems Berhad (KLSE:GHLSYS) surges 15%; private equity firms who own 49% shares profited along with institutions

To get a sense of who is truly in control of GHL Systems Berhad (KLSE:GHLSYS), it is important to understand the ownership structure of the business.  With 49% stake, private equity firms possess the maximum shares in the company.  Put another way, the group faces the maximum upside potential (or downside risk).  Private equity firms gained the most after market cap touched RM1.1b last week, while institutions who own 20% also benefitted.      Let's take a closer look to see what the different types of shareholders can tell us about GHL Systems Berhad.  See our latest analysis for GHL Systems Berhad KLSE:GHLSYS Ownership Breakdown January 12th 2023 What Does The Institutional Ownership Tell Us About GHL Systems Berhad? Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.   As you can see, institutional investors have a fair amount of stake in GHL Systems Berhad.  This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes.  If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at GHL Systems Berhad's earnings history below. Of course, the future is what really matters. KLSE:GHLSYS Earnings and Revenue Growth January 12th 2023  Hedge funds don't have many shares in GHL Systems Berhad.      Actis LLP is currently the largest shareholder, with 39% of shares outstanding.       The second and third largest shareholders are Wee Loh and Apis Partners LLP, with an equal amount of shares to their name at 10%.     Wee Loh, who is the second-largest shareholder, also happens to hold the title of Senior Key Executive.      To make our study more interesting, we found that the top 3 shareholders have a majority ownership in the company, meaning that they are powerful enough to influence the decisions of the company.    Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments.   There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.  Insider Ownership Of GHL Systems Berhad The definition of an insider can differ slightly between different countries, but members of the board of directors always count.  Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.  I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.   It seems insiders own a significant proportion of GHL Systems Berhad.   It has a market capitalization of just RM1.1b, and insiders have RM159m worth of shares in their own names.  We would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can  click here to see if those insiders have been buying or selling.   General Public Ownership The general public-- including retail investors -- own 15% stake in the company, and hence can't easily be ignored.   While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.  Private Equity Ownership With a stake of 49%, private equity firms could influence the GHL Systems Berhad board.   Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.   Next Steps: While it is well worth considering the different groups that own a company, there are other factors that are even more important.    Consider risks, for instance. Every company has them, and we've spotted   1 warning sign for GHL Systems Berhad   you should know about.      If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.  NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.Valuation is complex, but we're helping make it simple.Find out whether GHL Systems Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


GHL Systems Berhad Third Quarter 2022 Earnings: EPS: RM0.006 (vs RM0.005 in 3Q 2021)

GHL Systems Berhad (KLSE:GHLSYS) Third Quarter 2022 ResultsKey Financial Results Revenue: RM103.4m (up 21% from 3Q 2021). Net income: RM7.11m (up 28% from 3Q 2021). Profit margin: 6.9% (up from 6.5% in 3Q 2021). The increase in margin was driven by higher revenue. EPS: RM0.006 (up from RM0.005 in 3Q 2021).  KLSE:GHLSYS Earnings and Revenue Growth December 4th 2022 All figures shown in the chart above are for the trailing 12 month (TTM) period GHL Systems Berhad Earnings Insights  Looking ahead, revenue is forecast to grow 8.9% p.a. on average during the next 3 years, compared to a 7.6% growth forecast for the IT industry in Malaysia.    Performance of the Malaysian IT industry.  The company's shares are up 19% from a week ago.   Balance Sheet Analysis While earnings are important, another area to consider is the balance sheet.  We've done some analysis and you can see our take on GHL Systems Berhad's balance sheet. Valuation is complex, but we're helping make it simple.Find out whether GHL Systems Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Here's What's Concerning About GHL Systems Berhad's (KLSE:GHLSYS) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term?  Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed.  Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine.    Having said that, from a first glance at GHL Systems Berhad (KLSE:GHLSYS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.     What Is Return On Capital Employed (ROCE)?  If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business.  Analysts use this formula to calculate it for GHL Systems Berhad:  Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.068 = RM37m ÷ (RM736m - RM192m) (Based on the trailing twelve months to June 2022). Therefore, GHL Systems Berhad has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the IT industry average of 11%.    Check out our latest analysis for GHL Systems Berhad  KLSE:GHLSYS Return on Capital Employed December 1st 2022 Above you can see how the current ROCE for GHL Systems Berhad compares to its prior returns on capital, but there's only so much you can tell from the past.  If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.  What The Trend Of ROCE Can Tell Us  When we looked at the ROCE trend at GHL Systems Berhad, we didn't gain much confidence.   Around  five years ago the returns on capital were 9.6%, but since then they've fallen to 6.8%.    On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays.  It may take some time before the company starts to see any change in earnings from these investments.    In Conclusion...  To conclude, we've found that GHL Systems Berhad is reinvesting in the business, but returns have been falling.         Unsurprisingly then, the total return to shareholders over the last  five years has been flat.    All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.     GHL Systems Berhad could be trading at an attractive price in other respects, so you might find our  free intrinsic value estimation  on our platform quite valuable.    For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity. Valuation is complex, but we're helping make it simple.Find out whether GHL Systems Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


HeiTech Padu Berhad First Quarter 2023 Earnings: RM0.032 loss per share (vs RM0.007 profit in 1Q 2022)

HeiTech Padu Berhad (KLSE:HTPADU) First Quarter 2023 ResultsKey Financial Results Revenue: RM71.7m (down 9.2% from 1Q 2022). Net loss: RM3.26m (down from RM667.0k profit in 1Q 2022). RM0.032 loss per share (down from RM0.007 profit in 1Q 2022).  KLSE:HTPADU Earnings and Revenue History June 3rd 2023 All figures shown in the chart above are for the trailing 12 month (TTM) period HeiTech Padu Berhad shares are down 6.8% from a week ago.   Risk Analysis It's still necessary to consider the ever-present spectre of investment risk.   We've identified 1 warning sign  with HeiTech Padu Berhad, and understanding this should be part of your investment process. Valuation is complex, but we're helping make it simple.Find out whether HeiTech Padu Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


HeiTech Padu Berhad (KLSE:HTPADU) Has A Somewhat Strained Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.'  When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin.  We can see that HeiTech Padu Berhad (KLSE:HTPADU) does use debt in its business.  But is this debt a concern to shareholders?  When Is Debt A Problem?  Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow.   If things get really bad, the lenders can take control of the business.  However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet.  By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return.  The first step when considering a company's debt levels is to consider its cash and debt together.   Check out our latest analysis for HeiTech Padu Berhad  What Is HeiTech Padu Berhad's Debt?  The chart below, which you can click on for greater detail, shows that HeiTech Padu Berhad had RM113.8m in debt in December 2022; about the same as the year before.    However, it also had RM42.1m in cash, and so its net debt is RM71.7m.  KLSE:HTPADU Debt to Equity History June 2nd 2023 How Strong Is HeiTech Padu Berhad's Balance Sheet?  According to the last reported balance sheet, HeiTech Padu Berhad had liabilities of RM179.3m due within 12 months, and liabilities of RM20.8m due beyond 12 months.   Offsetting these obligations, it had cash of RM42.1m as well as receivables valued at RM89.2m due within 12 months.   So its liabilities total RM68.8m more than the combination of its cash and short-term receivables.   Given this deficit is actually higher than the company's  market capitalization of RM65.3m, we think shareholders really should watch HeiTech Padu Berhad's debt levels, like a parent watching their child ride a bike for the first time.  Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price.    We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover).  This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.   HeiTech Padu Berhad's net debt is sitting at a very reasonable 2.4 times its EBITDA, while its EBIT covered its interest expense just 6.2 times last year.   While these numbers do not alarm us, it's worth noting that the cost of the company's debt is having a real impact.         Pleasingly, HeiTech Padu Berhad is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 741% gain in the last twelve months.      The balance sheet is clearly the area to focus on when you are analysing debt.  But it is HeiTech Padu Berhad's earnings that will influence how the balance sheet holds up in the future.  So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.  Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it.   So it's worth checking how much of that EBIT is backed by free cash flow.    Over the last three years, HeiTech Padu Berhad recorded negative free cash flow, in total.  Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.    Our View HeiTech Padu Berhad's conversion of EBIT to free cash flow and level of total liabilities definitely weigh on it, in our esteem.   But the good news is it seems to be able to grow its EBIT with ease.       Taking the abovementioned factors together we do think HeiTech Padu Berhad's debt poses some risks to the business.  So while that leverage does boost returns on equity, we wouldn't really want to see it increase from here.    There's no doubt that we learn most about debt from the balance sheet.  However, not all investment risk resides within the balance sheet - far from it.   Be aware that  HeiTech Padu Berhad is showing  1 warning sign in our investment analysis , you should know about...      At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free. Valuation is complex, but we're helping make it simple.Find out whether HeiTech Padu Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Are Robust Financials Driving The Recent Rally In IDB Technologies Berhad's (KLSE:IDBTECH) Stock?

IDB Technologies Berhad (KLSE:IDBTECH) has had a great run on the share market with its stock up by a significant 20% over the last week.   Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market.      In this article, we decided to focus on IDB Technologies Berhad's  ROE.    Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested.  In simpler terms, it measures the profitability of a company in relation to shareholder's equity.  Check out our latest analysis for IDB Technologies Berhad  How To Calculate Return On Equity?  Return on equity can be calculated by using the formula:  Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for IDB Technologies Berhad is:33% = RM1.6m ÷ RM4.7m (Based on the trailing twelve months to December 2022). The 'return' is the amount earned after tax over the last twelve months.  Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.33 in profit.   What Is The Relationship Between ROE And Earnings Growth?  So far, we've learned that ROE is a measure of a company's profitability.  Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential.  Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.  IDB Technologies Berhad's Earnings Growth And 33% ROE   First thing first, we like that IDB Technologies Berhad has an impressive ROE.   Additionally, the company's ROE is higher compared to the industry average of 10% which is quite remarkable.   Under the circumstances, IDB Technologies Berhad's considerable five year net income growth of 27% was to be expected.     As a next step, we compared IDB Technologies Berhad's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 17%.   KLSE:IDBTECH Past Earnings Growth March 23rd 2023 Earnings growth is an important metric to consider when valuing a stock.   The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in.  Doing so will help them establish if the stock's future looks promising or ominous.    Is IDB Technologies Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.    Is IDB Technologies Berhad Using Its Retained Earnings Effectively?    The three-year median payout ratio for IDB Technologies Berhad is 26%, which is moderately low. The company is retaining the remaining 74%.  By the looks of it, the dividend is well covered and IDB Technologies Berhad is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.       Summary    Overall, we are quite pleased with IDB Technologies Berhad's performance.      In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings.        If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices.  Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business.    You can see the 3 risks we have identified for IDB Technologies Berhad by visiting our risks dashboard for free  on our platform here. Valuation is complex, but we're helping make it simple.Find out whether IDB Technologies Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


IFCA MSC Berhad Third Quarter 2022 Earnings: EPS: RM0.001 (vs RM0.003 in 3Q 2021)

IFCA MSC Berhad (KLSE:IFCAMSC) Third Quarter 2022 ResultsKey Financial Results Revenue: RM21.8m (up 7.3% from 3Q 2021). Net income: RM823.2k (down 47% from 3Q 2021). Profit margin: 3.8% (down from 7.6% in 3Q 2021). The decrease in margin was driven by higher expenses. EPS: RM0.001 (down from RM0.003 in 3Q 2021).  KLSE:IFCAMSC Earnings and Revenue History November 23rd 2022 All figures shown in the chart above are for the trailing 12 month (TTM) period IFCA MSC Berhad's share price is broadly unchanged from a week ago.   Risk Analysis You should learn about the   4 warning signs  we've spotted with IFCA MSC Berhad (including 1 which doesn't sit too well with us). Valuation is complex, but we're helping make it simple.Find out whether IFCA MSC Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Earnings Tell The Story For Infomina Berhad (KLSE:INFOM) As Its Stock Soars 27%

Infomina Berhad (KLSE:INFOM) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness.    Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.    Since its price has surged higher, Infomina Berhad's price-to-earnings (or "P/E") ratio of 58.4x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 13x and even P/E's below 8x are quite common.  Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.    With earnings growth that's superior to most other companies of late, Infomina Berhad has been doing relatively well.   It seems that many are expecting the strong earnings performance to persist, which has raised the P/E.  You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.      View our latest analysis for Infomina Berhad KLSE:INFOM Price Based on Past Earnings April 4th 2023 Want the full picture on analyst estimates for the company? Then our free report on Infomina Berhad will help you uncover what's on the horizon.   What Are Growth Metrics Telling Us About The High P/E?   There's an inherent assumption that a company should far outperform the market for P/E ratios like Infomina Berhad's to be considered reasonable.   If we review the last year of earnings growth, the company posted a terrific increase of 52%.   Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 65% overall.  Therefore, it's fair to say the earnings growth recently has been undesirable for the company.     Looking ahead now, EPS is anticipated to climb by 24% per annum during the coming three years according to the four analysts following the company.  Meanwhile, the rest of the market is forecast to only expand by 10.0% each year, which is noticeably less attractive.  In light of this, it's understandable that Infomina Berhad's P/E sits above the majority of other companies.  It seems most investors are expecting this strong future growth and are willing to pay more for the stock.    The Final Word  The strong share price surge has got Infomina Berhad's P/E rushing to great heights as well.     It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.  As we suspected, our examination of Infomina Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E.  At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio.  Unless these conditions change, they will continue to provide strong support to the share price.      Many other vital risk factors can be found on the company's balance sheet.  You can assess many of the main risks through our free balance sheet analysis for Infomina Berhad with six simple checks.   If you're unsure about the strength of Infomina Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed. Valuation is complex, but we're helping make it simple.Find out whether Infomina Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Is Infomina Berhad (KLSE:INFOM) A High Quality Stock To Own?

While some investors are already well versed in financial metrics (hat tip), this article is for those who would like to learn about Return On Equity (ROE) and why it is important.  To keep the lesson grounded in practicality, we'll use ROE to better understand Infomina Berhad (KLSE:INFOM).  Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital.  In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.  Check out our latest analysis for Infomina Berhad  How To Calculate Return On Equity?  The formula for ROE is:  Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Infomina Berhad is:42% = RM17m ÷ RM40m (Based on the trailing twelve months to May 2022). The 'return' is the profit over the last twelve months.  So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.42.   Does Infomina Berhad Have A Good ROE?  Arguably the easiest way to assess company's ROE is to compare it with the average in its industry.  However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification.   Pleasingly, Infomina Berhad has a superior ROE than the average (12%) in the IT industry. KLSE:INFOM Return on Equity March 8th 2023 That's what we like to see.    However, bear in mind that a high ROE doesn’t necessarily indicate efficient profit generation.  Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk.   How Does Debt Impact ROE?  Virtually all companies need money to invest in the business, to grow profits.  That cash can come from issuing shares, retained earnings, or debt.  In the first and second cases, the ROE will reflect this use of cash for investment in the business.  In the latter case, the debt used for growth will improve returns, but won't affect the total equity.  That will make the ROE look better than if no debt was used.  Infomina Berhad's Debt And Its 42% ROE  Infomina Berhad has a debt to equity ratio of just 0.0022, which is very low.    When I see a high ROE, fuelled by only modest debt, I suspect the business is high quality.   Judicious use of debt to improve returns can certainly be a good thing, although it does elevate risk slightly and reduce future optionality.     Summary    Return on equity is one way we can compare its business quality of different companies.  A company that can achieve a high return on equity without debt could be considered a high quality business.  If two companies have the same ROE, then I would generally prefer the one with less debt.  But ROE is just one piece of a bigger puzzle, since high quality businesses often trade on high multiples of earnings.  The rate at which profits are likely to grow, relative to the expectations of profit growth reflected in the current price, must be considered, too.   So you might want to check this FREE visualization of analyst forecasts for the company.  Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this  free list of interesting companies. Valuation is complex, but we're helping make it simple.Find out whether Infomina Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Declining Stock and Solid Fundamentals: Is The Market Wrong About Infoline Tec Group Berhad (KLSE:INFOTEC)?

Infoline Tec Group Berhad (KLSE:INFOTEC) has had a rough month with its share price down 17%.   However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at.     In this article, we decided to focus on Infoline Tec Group Berhad's  ROE.    Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested.  In simpler terms, it measures the profitability of a company in relation to shareholder's equity.  View our latest analysis for Infoline Tec Group Berhad  How To Calculate Return On Equity?  The formula for ROE is:  Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Infoline Tec Group Berhad is:24% = RM12m ÷ RM50m (Based on the trailing twelve months to December 2022). The 'return' is the income the business earned over the last year.  That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.24 in profit.   What Is The Relationship Between ROE And Earnings Growth?  We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings.  Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential.  Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.  A Side By Side comparison of Infoline Tec Group Berhad's Earnings Growth And 24% ROE  To begin with, Infoline Tec Group Berhad has a pretty high ROE which is interesting.   Second, a comparison with the average ROE reported by the industry of 12% also doesn't go unnoticed by us.   So, the substantial 23% net income growth seen by Infoline Tec Group Berhad over the past five years isn't overly surprising.     Given that the industry shrunk its earnings at a rate of 0.4% in the same period, the net income growth of the company is quite impressive.   KLSE:INFOTEC Past Earnings Growth March 14th 2023 Earnings growth is an important metric to consider when valuing a stock.   What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price.   This then helps them determine if the stock is placed for a bright or bleak future.    If you're wondering about Infoline Tec Group Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.    Is Infoline Tec Group Berhad Efficiently Re-investing Its Profits?   Infoline Tec Group Berhad's three-year median payout ratio to shareholders is 20%, which is quite low. This implies that the company is retaining 80% of its profits.  This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.       Summary    In total, we are pretty happy with Infoline Tec Group Berhad's performance.      In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings.        If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices.  Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business.    You can see the 3 risks we have identified for Infoline Tec Group Berhad by visiting our risks dashboard for free  on our platform here. Valuation is complex, but we're helping make it simple.Find out whether Infoline Tec Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Estimating The Fair Value Of Infoline Tec Group Berhad (KLSE:INFOTEC)

Key Insights The projected fair value for Infoline Tec Group Berhad is RM0.74 based on 2 Stage Free Cash Flow to Equity   With RM0.79 share price, Infoline Tec Group Berhad appears to be trading close to its estimated fair value   Industry average of 23% suggests Infoline Tec Group Berhad's peers are currently trading at a higher premium to fair value    Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Infoline Tec Group Berhad (KLSE:INFOTEC) as an investment opportunity  by taking the forecast future cash flows of the company and discounting them back to today's value.  We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  It may sound complicated, but actually it is quite simple!  Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.  See our latest analysis for Infoline Tec Group Berhad  Is Infoline Tec Group Berhad Fairly Valued?   We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To start off with, we need to estimate the next ten years of cash flows.   Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.   A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  so we discount the value of these future cash flows to their estimated value in today's dollars:  10-year free cash flow (FCF) estimate  2023 2024 2025 2026 2027 2028 2029 2030 2031 2032  Levered FCF (MYR, Millions)  RM14.2m RM17.5m RM20.6m RM23.4m RM25.8m RM27.9m RM29.9m RM31.7m RM33.3m RM34.9m Growth Rate Estimate Source Est @ 32.11% Est @ 23.55% Est @ 17.55% Est @ 13.36% Est @ 10.42% Est @ 8.37% Est @ 6.93% Est @ 5.92% Est @ 5.22% Est @ 4.72%  Present Value (MYR, Millions) Discounted @ 12%  RM12.7 RM13.9 RM14.6 RM14.8 RM14.5 RM14.0 RM13.4 RM12.7 RM11.9 RM11.1 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM134m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 12%. Terminal Value (TV)= FCF2032 × (1 + g) ÷ (r – g) = RM35m× (1 + 3.6%) ÷ (12%– 3.6%) = RM421mPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= RM421m÷ ( 1 + 12%)10= RM134m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is RM267m.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Relative to the current share price of RM0.8, the company appears   around fair value    at the time of writing.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. KLSE:INFOTEC Discounted Cash Flow May 9th 2023  The Assumptions  We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows.  If you don't agree with these result, have a go at the calculation yourself and play with the assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Infoline Tec Group Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 12%, which is based on a levered beta of 1.071. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.  SWOT Analysis for Infoline Tec Group BerhadStrength Earnings growth over the past year exceeded the industry. Currently debt free. Balance sheet summary for INFOTEC. Weakness Dividend is low compared to the top 25% of dividend payers in the IT market. Current share price is above our estimate of fair value. Opportunity  INFOTEC's financial characteristics indicate limited near-term opportunities for shareholders.Lack of analyst coverage makes it difficult to determine INFOTEC's earnings prospects.Threat Dividends are not covered by cash flow.  See INFOTEC's dividend history.  Next Steps:  Although the valuation of a company is important, it  is only one of many factors that you need to assess for a company.  It's not possible to obtain a foolproof valuation with a DCF model.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.  For Infoline Tec Group Berhad, we've compiled three  pertinent  items  you should further examine:   Risks: To that end, you should learn about the   3 warning signs  we've spotted with Infoline Tec Group Berhad (including 1 which doesn't sit too well with us) .   Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!  Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook!   PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the KLSE every day. If you want to find the calculation for other stocks just search here.Valuation is complex, but we're helping make it simple.Find out whether Infoline Tec Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Infoline Tec Group Berhad Third Quarter 2022 Earnings: EPS: RM0.04 (vs RM0.68 in 3Q 2021)

Infoline Tec Group Berhad (KLSE:INFOTEC) Third Quarter 2022 ResultsKey Financial Results Revenue: RM28.5m (up 121% from 3Q 2021). Net income: RM7.04m (up 317% from 3Q 2021). Profit margin: 25% (up from 13% in 3Q 2021). The increase in margin was driven by higher revenue. EPS: RM0.04.  KLSE:INFOTEC Earnings and Revenue History November 23rd 2022 All figures shown in the chart above are for the trailing 12 month (TTM) period Infoline Tec Group Berhad Earnings Insights  Looking ahead, revenue is forecast to grow 4.4% p.a. on average during the next 3 years, compared to a 8.7% growth forecast for the IT industry in Malaysia.    Performance of the Malaysian IT industry.  The company's shares are up 11% from a week ago.   Risk Analysis Before we wrap up, we've discovered 2 warning signs for Infoline Tec Group Berhad (1 is potentially serious!) that you should be aware of. Valuation is complex, but we're helping make it simple.Find out whether Infoline Tec Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Infoline Tec Group Berhad's (KLSE:INFOTEC) Shareholders May Want To Dig Deeper Than Statutory Profit

Infoline Tec Group Berhad (KLSE:INFOTEC) just released a solid earnings report, and the stock displayed some strength.  While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.     Check out the opportunities and risks within the MY IT industry. KLSE:INFOTEC Earnings and Revenue History November 28th 2022  A Closer Look At Infoline Tec Group Berhad's Earnings  One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time.  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 it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow.  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 September 2022, Infoline Tec Group Berhad recorded an accrual ratio of 1.23.   Statistically speaking, that's a real negative for future earnings.  To wit, the company did not generate one whit of free cashflow in that time.    Over the last year it actually had negative free cash flow of RM6.9m, in contrast to the aforementioned profit of RM10.2m.    We saw that FCF was RM3.8m a year ago though, so Infoline Tec Group Berhad has at least been able to generate positive FCF in the past.   That might leave you wondering what analysts are forecasting in terms of future profitability.  Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.   Our Take On Infoline Tec Group Berhad's Profit Performance As we discussed above, we think Infoline Tec Group Berhad's earnings were not supported by free cash flow, which might concern some investors.      For this reason, we think that Infoline Tec Group 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.    Sadly, its EPS was down over the last twelve months.     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.    With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks.    To help with this, we've discovered 2 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Infoline Tec Group Berhad.   This note has only looked at a single factor that sheds light on the nature of Infoline Tec Group Berhad's profit.   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. Valuation is complex, but we're helping make it simple.Find out whether Infoline Tec Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Lacklustre Performance Is Driving Key Alliance Group Berhad's (KLSE:KGROUP) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 0.8x Key Alliance Group Berhad (KLSE:KGROUP) is a stock worth checking out, seeing as almost half of all the IT companies in Malaysia have P/S ratios greater than 1.4x and even P/S higher than 4x aren't out of the ordinary.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.     View our latest analysis for Key Alliance Group Berhad KLSE:KGROUP Price to Sales Ratio vs Industry June 20th 2023 How Key Alliance Group Berhad Has Been Performing  As an illustration, revenue has deteriorated at Key Alliance Group Berhad over the last year, which is not ideal at all.   One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future.  However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.     We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Key Alliance Group Berhad's earnings, revenue and cash flow.   Is There Any Revenue Growth Forecasted For Key Alliance Group Berhad?   Key Alliance Group Berhad's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.   In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.2%.   That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 25% in total.  So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.     This is in contrast to the rest of the industry, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.  In light of this, it's understandable that Key Alliance Group Berhad's P/S sits below the majority of other companies.  It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.    What Does Key Alliance Group Berhad's P/S Mean For Investors?  It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.  Our examination of Key Alliance Group Berhad confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.      Before you take the next step, you should know about the 3 warning signs for Key Alliance Group Berhad that we have uncovered.   If these risks are making you reconsider your opinion on Key Alliance Group Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there. Valuation is complex, but we're helping make it simple.Find out whether Key Alliance Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Is Kronologi Asia Berhad (KLSE:KRONO) Potentially Undervalued?

Kronologi Asia Berhad (KLSE:KRONO), might not be a large cap stock, but it     led the KLSE gainers with a relatively large price hike in the past couple of weeks.    As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy?  Let’s examine Kronologi Asia Berhad’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.     View our latest analysis for Kronologi Asia Berhad  Is Kronologi Asia Berhad Still Cheap?  According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied.   I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 22.05x is currently trading slightly above its industry peers’ ratio of 18.34x, which means if you buy Kronologi Asia Berhad today, you’d be paying a relatively sensible price for it. And if you believe Kronologi Asia Berhad should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term.    Although, there may be an opportunity to buy in the future. This is because Kronologi Asia Berhad’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.      What kind of growth will Kronologi Asia Berhad generate? KLSE:KRONO Earnings and Revenue Growth March 23rd 2023 Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio.   Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations.    With profit expected to grow by a double-digit 15% in the upcoming year, the short-term outlook is positive for Kronologi Asia Berhad. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.    What This Means For You Are you a shareholder? KRONO’s optimistic future growth appears to have been factored into the current share price,  with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as  the financial strength of the company.  Have these factors changed since the last time you looked at KRONO? Will you have enough  confidence to invest in the company should the price drop below the industry PE ratio? Are you a potential investor? If you’ve been  keeping tabs on KRONO,  now may not be the most  advantageous  time to buy, given it is trading around industry price multiples. However, the  optimistic forecast  is encouraging for KRONO, which means it’s worth  diving deeper into  other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.   Keep in mind, when it comes to analysing a stock it's worth noting the risks involved.   While conducting our analysis, we found that Kronologi Asia Berhad has 2 warning signs and it would be unwise to ignore these.    If you are no longer interested in Kronologi Asia Berhad, you can use our free platform to see our list of over 50 other stocks with a high growth potential. Valuation is complex, but we're helping make it simple.Find out whether Kronologi Asia Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Kronologi Asia Berhad Full Year 2023 Earnings: EPS: RM0.035 (vs RM0.038 in FY 2022)

Kronologi Asia Berhad (KLSE:KRONO) Full Year 2023 ResultsKey Financial Results Revenue: RM314.2m (up 2.0% from FY 2022). Net income: RM25.0m (up 5.7% from FY 2022). Profit margin: 8.0% (up from 7.7% in FY 2022). The increase in margin was driven by higher revenue. EPS: RM0.035.  KLSE:KRONO Earnings and Revenue Growth March 30th 2023 All figures shown in the chart above are for the trailing 12 month (TTM) period Kronologi Asia Berhad Earnings Insights  Looking ahead, revenue is forecast to grow 2.4% p.a. on average during the next 2 years, compared to a 22% growth forecast for the Software industry in Asia.    Performance of the market in Malaysia.  The company's shares are down 4.3% from a week ago.   Risk Analysis It is worth noting though that we have found 2 warning signs for Kronologi Asia Berhad that you need to take into consideration. Valuation is complex, but we're helping make it simple.Find out whether Kronologi Asia Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.


Kronologi Asia Berhad (KLSE:KRONO) Seems To Use Debt Rather Sparingly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.'  So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company.  As with many other companies Kronologi Asia Berhad (KLSE:KRONO) makes use of debt.  But should shareholders be worried about its use of debt?  When Is Debt Dangerous?  Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy.  Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing.  While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price.  Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return.  When we examine debt levels, we first consider both cash and debt levels, together.   View our latest analysis for Kronologi Asia Berhad  How Much Debt Does Kronologi Asia Berhad Carry?  You can click the graphic below for the historical numbers, but it shows that Kronologi Asia Berhad had RM32.6m of debt in April 2023, down from RM51.0m, one year before.    However, its balance sheet shows it holds RM112.4m in cash, so it actually has RM79.8m net cash.  KLSE:KRONO Debt to Equity History July 14th 2023 How Healthy Is Kronologi Asia Berhad's Balance Sheet?  We can see from the most recent balance sheet that Kronologi Asia Berhad had liabilities of RM93.6m falling due within a year, and liabilities of RM31.4m due beyond that.   Offsetting these obligations, it had cash of RM112.4m as well as receivables valued at RM82.6m due within 12 months.   So it can boast RM70.0m more liquid assets than total liabilities.   It's good to see that Kronologi Asia Berhad has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities.  Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders.    Simply put, the fact that Kronologi Asia Berhad has more cash than debt is arguably a good indication that it can manage its debt safely.    And we also note warmly that Kronologi Asia Berhad grew its EBIT by 13% last year, making its debt load easier to handle.      The balance sheet is clearly the area to focus on when you are analysing debt.  But it is future earnings, more than anything, that will determine Kronologi Asia Berhad's ability to maintain a healthy balance sheet going forward.  So if you're focused on the future you can check out this free report showing analyst profit forecasts.  Finally, a company can only pay off debt with cold hard cash, not accounting profits.   Kronologi Asia Berhad may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt.    Over the last three years, Kronologi Asia Berhad recorded free cash flow worth a fulsome 81% of its EBIT, which is stronger than we'd usually expect.  That puts it in a very strong position to pay down debt.    Summing Up While it is always sensible to investigate a company's debt, in this case Kronologi Asia Berhad has RM79.8m in net cash and a decent-looking balance sheet.     And it impressed us with free cash flow of RM16m, being 81% of its EBIT.     So we don't think Kronologi Asia Berhad's use of debt is risky.    The balance sheet is clearly the area to focus on when you are analysing debt.  However, not all investment risk resides within the balance sheet - far from it.   Be aware that  Kronologi Asia Berhad is showing  2 warning signs in our investment analysis , you should know about...      If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay. Valuation is complex, but we're helping make it simple.Find out whether Kronologi Asia Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.