2 weeks Ago By Simply Wall St.
Uchi Technologies Berhad's (KLSE:UCHITEC) stock up by 2.9% over the past month. 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.
Particularly, we will be paying attention to ROE today. 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
The is: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Uchi Technologies Berhad is: 62% = RM133m ÷ RM214m (Based on the trailing twelve months to June 2024). The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.
62 in profit. So far, we've learned that ROE is a measure of a company's profitability. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features. Firstly, we acknowledge that Uchi Technologies Berhad has a significantly high ROE. Secondly, even when compared to the industry average of 8.
5% the company's ROE is quite impressive. This probably laid the groundwork for Uchi Technologies Berhad's moderate 15% net income growth seen over the past five years. Next, on comparing Uchi Technologies Berhad's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 15% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future.
Has the market priced in the future outlook for UCHITEC? You can find out in The high three-year median payout ratio of 92% (or a retention ratio of 7.7%) for Uchi Technologies Berhad suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders. Besides, Uchi Technologies Berhad has been paying dividends for at least ten years or more.
This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 82%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 53%.
On the whole, we do feel that Uchi Technologies Berhad has some positive attributes. Especially the growth in earnings which was backed by an impressive ROE. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits.
As highlighted earlier, the current reinvestment rate appears to be negligible. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals?.
