Malaysian Pacific Industries Berhad's (KLSE:MPI) Stock Is Going Strong: Is the Market Following Fundamentals?
Simply Wall St
4 min read
Most readers would already be aware that Malaysian Pacific Industries Berhad's (KLSE:MPI) stock increased significantly by 17% over the past month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Malaysian Pacific Industries Berhad's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Malaysian Pacific Industries Berhad is:
15% = RM357m ÷ RM2.4b (Based on the trailing twelve months to September 2022).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.15 in profit.
What Has ROE Got To Do With 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. 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.
Malaysian Pacific Industries Berhad's Earnings Growth And 15% ROE
At first glance, Malaysian Pacific Industries Berhad seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 15%. This certainly adds some context to Malaysian Pacific Industries Berhad's exceptional 20% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.
As a next step, we compared Malaysian Pacific Industries Berhad's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 18% in the same period.
KLSE:MPI Past Earnings Growth December 19th 2022
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is MPI worth today? The intrinsic value infographic in our free research report helps visualize whether MPI is currently mispriced by the market.
Is Malaysian Pacific Industries Berhad Making Efficient Use Of Its Profits?
Malaysian Pacific Industries Berhad's ' three-year median payout ratio is on the lower side at 24% implying that it is retaining a higher percentage (76%) of its profits. So it looks like Malaysian Pacific Industries Berhad is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Besides, Malaysian Pacific Industries Berhad has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. 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 22%. Accordingly, forecasts suggest that Malaysian Pacific Industries Berhad's future ROE will be 14% which is again, similar to the current ROE.
Summary
In total, we are pretty happy with Malaysian Pacific Industries 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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the company's future earnings growth forecasts take a look at this freereport on analyst forecasts for the company to find out more.
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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.
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