Tai Sin Electric Limited's (SGX:500) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

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

Tue, Apr 15, 2025, 4:27 PM 4 min read

Tai Sin Electric's (SGX:500) stock is up by a considerable 5.2% over the past week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Tai Sin Electric'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

We've discovered 1 warning sign about Tai Sin Electric. View them for free.

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 Tai Sin Electric is:

11% = S$24m ÷ S$219m (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. So, this means that for every SGD1 of its shareholder's investments, the company generates a profit of SGD0.11.

See our latest analysis for Tai Sin Electric

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Tai Sin Electric's Earnings Growth And 11% ROE

To start with, Tai Sin Electric's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.5%. However, for some reason, the higher returns aren't reflected in Tai Sin Electric's meagre five year net income growth average of 4.7%. This is generally not the case as when a company has a high rate of return it should usually also have a high earnings growth rate. We reckon that a low growth, when returns are quite high could be the result of certain circumstances like low earnings retention or poor allocation of capital.

As a next step, we compared Tai Sin Electric's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 14% in the same period.

past-earnings-growth — SGX:500 Past Earnings Growth April 15th 2025

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 Tai Sin Electric's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Tai Sin Electric Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 65% (that is, the company retains only 35% of its income) over the past three years for Tai Sin Electric suggests that the company's earnings growth was lower as a result of paying out a majority of its earnings.

Moreover, Tai Sin Electric has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

In total, it does look like Tai Sin Electric has some positive aspects to its business. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return. Investors could have benefitted from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining a small portion of its profits. 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 1 risk we have identified for Tai Sin Electric 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.