Declining Stock and Solid Fundamentals: Is The Market Wrong About Wentel Engineering Holdings Berhad (KLSE:WENTEL)?

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

Wed, Apr 9, 2025, 6:48 PM 4 min read

It is hard to get excited after looking at Wentel Engineering Holdings Berhad's (KLSE:WENTEL) recent performance, when its stock has declined 23% over the past three months. 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 Wentel Engineering Holdings 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Wentel Engineering Holdings Berhad is:

8.1% = RM15m ÷ RM186m (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.08.

Check out our latest analysis for Wentel Engineering Holdings Berhad

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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Wentel Engineering Holdings Berhad's Earnings Growth And 8.1% ROE

On the face of it, Wentel Engineering Holdings Berhad's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 5.6% which we definitely can't overlook. This certainly adds some context to Wentel Engineering Holdings Berhad's moderate 13% net income growth seen over the past five years. 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. E.g the company has a low payout ratio or could belong to a high growth industry.

We then performed a comparison between Wentel Engineering Holdings Berhad's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 12% in the same 5-year period.

past-earnings-growth — KLSE:WENTEL Past Earnings Growth April 10th 2025

Earnings growth is a huge factor in stock valuation. 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. Is Wentel Engineering Holdings Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Wentel Engineering Holdings Berhad Making Efficient Use Of Its Profits?

Wentel Engineering Holdings Berhad doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Summary

In total, we are pretty happy with Wentel Engineering Holdings Berhad's performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. 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. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard would have the 2 risks we have identified for Wentel Engineering Holdings Berhad.

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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.