Should Weakness in Malaysian Pacific Industries Berhad's (KLSE:MPI) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?
editorial-team@simplywallst.com (Simply Wall St)
4 min read
Malaysian Pacific Industries Berhad (KLSE:MPI) has had a rough three months with its share price down 29%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Malaysian Pacific Industries Berhad's ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Malaysian Pacific Industries Berhad is:
10.0% = RM248m ÷ RM2.5b (Based on the trailing twelve months to December 2024).
The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.10 in profit.
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. 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.
Malaysian Pacific Industries Berhad's Earnings Growth And 10.0% ROE
When you first look at it, Malaysian Pacific Industries Berhad's ROE doesn't look that attractive. However, the fact that the company's ROE is higher than the average industry ROE of 4.6%, is definitely interesting. But seeing Malaysian Pacific Industries Berhad's five year net income decline of 8.4% over the past five years, we might rethink that. Remember, the company's ROE is a bit low to begin with, just that it is higher than the industry average. Therefore, the decline in earnings could also be the result of this.
That being said, we compared Malaysian Pacific Industries Berhad's performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 1.5% in the same 5-year period.
KLSE:MPI Past Earnings Growth April 4th 2025
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. 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 Using Its Retained Earnings Effectively?
Looking at its three-year median payout ratio of 39% (or a retention ratio of 61%) which is pretty normal, Malaysian Pacific Industries Berhad's declining earnings is rather baffling as one would expect to see a fair bit of growth when a company is retaining a good portion of its profits. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.
Additionally, Malaysian Pacific Industries Berhad has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 35%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 9.9%.
Summary
Overall, we feel that Malaysian Pacific Industries Berhad certainly does have some positive factors to consider. Although, we are disappointed to see a lack of growth in earnings even in spite of a moderate ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company's earnings growth rate. 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.
