Is KLCC Property Holdings Berhad's (KLSE:KLCC) Recent Stock Performance Influenced By Its Financials In Any Way?
KLCC Property Holdings Berhad's (KLSE:KLCC) stock is up by 5.6% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study KLCC Property Holdings Berhad's ROE in this article.
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. 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 KLCC Property Holdings Berhad
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for KLCC Property Holdings Berhad is:
6.9% = RM1.1b ÷ RM15b (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.07.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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.
A Side By Side comparison of KLCC Property Holdings Berhad's Earnings Growth And 6.9% ROE
On the face of it, KLCC Property Holdings Berhad's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 3.4% which we definitely can't overlook. Having said that, KLCC Property Holdings Berhad's net income growth over the past five years is more or less flat. Bear in mind, the company does have a slightly low ROE. It is just that the industry ROE is lower. Hence, this goes some way in explaining the flat earnings growth.
We then compared KLCC Property Holdings Berhad's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 12% in the same 5-year period, which is a bit concerning.
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. This then helps them determine if the stock is placed for a bright or bleak future. Is KLCC Property Holdings Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is KLCC Property Holdings Berhad Using Its Retained Earnings Effectively?
KLCC Property Holdings Berhad has a low three-year median payout ratio of 17% (or a retention ratio of 83%) but the negligible earnings growth number doesn't reflect this as high growth usually follows high profit retention.
Moreover, KLCC Property Holdings Berhad 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. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 90% over the next three years. Regardless, the future ROE for KLCC Property Holdings Berhad is speculated to rise to 8.5% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.
Conclusion
Overall, we feel that KLCC Property Holdings Berhad certainly does have some positive factors to consider. Yet, the low earnings growth is a bit concerning, especially given that the company has a respectable rate of return and is reinvesting a huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink slightly in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.