Can Supreme Consolidated Resources Berhad's (KLSE:0330) Decent Financials Help Push Its Stock Prices Higher?

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

Fri, Nov 29, 2024, 5:22 PM 4 min read

Supreme Consolidated Resources Berhad's (KLSE:0330) stock was mostly flat over the past three months. However, attentive investors would probably give more consideration to the stock as the company's fundamentals could add more to the story, given how long-term financials are usually what drive market prices. In this article, we decided to focus on Supreme Consolidated Resources 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.

Check out our latest analysis for Supreme Consolidated Resources Berhad

How Is ROE Calculated?

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 Supreme Consolidated Resources Berhad is:

11% = RM10m ÷ RM93m (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.11.

Why Is ROE Important For 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 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.

Supreme Consolidated Resources Berhad's Earnings Growth And 11% ROE

At first glance, Supreme Consolidated Resources Berhad's ROE doesn't look very promising. Next, when compared to the average industry ROE of 16%, the company's ROE leaves us feeling even less enthusiastic. Supreme Consolidated Resources Berhad was still able to see a decent net income growth of 11% over the past five years. So, there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then performed a comparison between Supreme Consolidated Resources 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:0330 Past Earnings Growth November 30th 2024

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 Supreme Consolidated Resources Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Supreme Consolidated Resources Berhad Efficiently Re-investing Its Profits?

Supreme Consolidated Resources Berhad has a three-year median payout ratio of 43%, which implies that it retains the remaining 57% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Supreme Consolidated Resources Berhad has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 41% of its profits over the next three years. However, Supreme Consolidated Resources Berhad's ROE is predicted to rise to 14% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we do feel that Supreme Consolidated Resources Berhad has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 3 risks we have identified for Supreme Consolidated Resources Berhad by visiting our risks dashboard for free on our platform here.

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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.