February 4, 2023
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Is PMB Technology Berhad’s (KLSE:PMBTECH) Stock’s Recent Performance Being Led By Its Attractive Financial Prospects?

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Most readers would already be aware that PMB Technology Berhad’s (KLSE:PMBTECH) stock increased significantly by 5.5% over the past month. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to PMB Technology Berhad’s 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 simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

See our latest analysis for PMB Technology Berhad

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for PMB Technology Berhad is:

25% = RM215m ÷ RM878m (Based on the trailing twelve months to September 2022).

The ‘return’ is the amount earned after tax over the last twelve months. That means that for every MYR1 worth of shareholders’ equity, the company generated MYR0.25 in profit.

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.

PMB Technology Berhad’s Earnings Growth And 25% ROE

To begin with, PMB Technology Berhad has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 11% also doesn’t go unnoticed by us. As a result, PMB Technology Berhad’s exceptional 71% net income growth seen over the past five years, doesn’t come as a surprise.

We then compared PMB Technology Berhad’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 30% in the same period.

past-earnings-growth

past-earnings-growth

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. If you’re wondering about PMB Technology Berhad’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is PMB Technology Berhad Making Efficient Use Of Its Profits?

PMB Technology Berhad’s ‘ three-year median payout ratio is on the lower side at 6.8% implying that it is retaining a higher percentage (93%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, PMB Technology Berhad has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we feel that PMB Technology Berhad’s performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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