Declining Stock and Decent Financials: Is The Market Wrong About Genting Singapore Limited (SGX:G13)?

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editorial-team@simplywallst.com (Simply Wall St)

Mon, Dec 16, 2024, 5:15 PM 4 min read

With its stock down 10.0% over the past three months, it is easy to disregard Genting Singapore (SGX:G13). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Genting Singapore's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Genting Singapore

How Is ROE Calculated?

ROE 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 Genting Singapore is:

8.3% = S$692m ÷ S$8.3b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every SGD1 worth of equity, the company was able to earn SGD0.08 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.

A Side By Side comparison of Genting Singapore's Earnings Growth And 8.3% ROE

At first glance, Genting Singapore's ROE doesn't look very promising. However, the fact that the company's ROE is higher than the average industry ROE of 5.2%, is definitely interesting. Consequently, this likely laid the ground for the decent growth of 5.7% seen over the past five years by Genting Singapore. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Genting Singapore's reported growth was lower than the industry growth of 17% over the last few years, which is not something we like to see.

past-earnings-growth — SGX:G13 Past Earnings Growth December 17th 2024

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Genting Singapore's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Genting Singapore Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 74% (or a retention ratio of 26%) for Genting Singapore suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Genting Singapore is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 72%. As a result, Genting Singapore's ROE is not expected to change by much either, which we inferred from the analyst estimate of 8.5% for future ROE.

Summary

In total, it does look like Genting Singapore has some positive aspects to its business. True, the company has posted a respectable growth in earnings. However, the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paying out less dividends. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.