Is Pan-United Corporation Ltd's (SGX:P52) Latest Stock Performance A Reflection Of Its Financial Health?

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

Tue, Mar 4, 2025, 3:47 PM 4 min read

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 Pan-United is:

15% = S$41m ÷ S$271m (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every SGD1 of its shareholder's investments, the company generates a profit of SGD0.15.

What Has ROE Got To Do With 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. 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.

Pan-United's Earnings Growth And 15% ROE

To begin with, Pan-United seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 6.2%. This probably laid the ground for Pan-United's significant 30% net income growth seen over the past five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Pan-United's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 27% in the same 5-year period.

past-earnings-growth — SGX:P52 Past Earnings Growth March 4th 2025

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Pan-United's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Pan-United Making Efficient Use Of Its Profits?

The three-year median payout ratio for Pan-United is 45%, which is moderately low. The company is retaining the remaining 55%. By the looks of it, the dividend is well covered and Pan-United is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Pan-United has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 30% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Conclusion

On the whole, we feel that Pan-United's performance has been quite good. 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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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.