With its stock down 7.7% over the past three months, it is easy to disregard China Foods (HKG:506). However, stock prices are usually driven by a company's financials over the long term, which in this case look pretty respectable. Specifically, we decided to study China Foods' 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for China Foods
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for China Foods is:
14% = CN¥1.2b ÷ CN¥8.6b (Based on the trailing twelve months to June 2022).
The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.14 in profit.
Why Is ROE Important For 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. 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 China Foods' Earnings Growth And 14% ROE
To begin with, China Foods seems to have a respectable ROE. On comparing with the average industry ROE of 7.0% the company's ROE looks pretty remarkable. For this reason, China Foods' five year net income decline of 6.8% raises the question as to why the high ROE didn't translate into earnings growth. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.
That being said, we compared China Foods' 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 23% in the same period.
SEHK:506 Past Earnings Growth August 29th 2022
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). This then helps them determine if the stock is placed for a bright or bleak future. Is 506 fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is China Foods Using Its Retained Earnings Effectively?
Looking at its three-year median payout ratio of 36% (or a retention ratio of 64%) which is pretty normal, China Foods' 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. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.
In addition, China Foods has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 54% over the next three years. Regardless, the ROE is not expected to change much for the company despite the higher expected payout ratio.
Summary
In total, it does look like China Foods has some positive aspects to its business. Although, we are disappointed to see a lack of growth in earnings even in spite of a high 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 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.
在过去三个月股价下跌7.7%的情况下,很容易忽视中国食品(HKG:506)。然而,股价通常是由公司的长期财务状况推动的,在这种情况下,财务状况看起来相当不错。具体地说,我们决定在本文中研究中国食品的净资产收益率。
股本回报率(ROE)是对一家公司增值和管理投资者资金的效率的测试。简而言之,净资产收益率显示了每一美元相对于其股东投资产生的利润。
查看我们对中国食品的最新分析
净资产收益率是如何计算的?
这个股本回报率公式是:
股本回报率=(持续经营的)净利润?股东权益
因此,根据上述公式,中国食品的净资产收益率为:
14%=12亿元×86亿元(以截至2022年6月的12个月为基础)。
“回报”指的是一家公司过去一年的收益。一种将其概念化的方法是,公司每持有1港元的股东资本,就能获得0.14港元的利润。
为什么净资产收益率对收益增长很重要?
到目前为止,我们了解到净资产收益率是衡量一家公司盈利能力的指标。根据公司选择再投资或“保留”多少利润,我们就能够评估一家公司未来产生利润的能力。假设其他条件不变,净资产收益率和利润保留率越高,与不一定具有这些特征的公司相比,公司的增长率就越高。
中国食品盈利增长与14%净资产收益率的并列比较
首先,中国食品似乎拥有令人尊敬的净资产收益率。与7.0%的行业平均净资产收益率相比,该公司的净资产收益率看起来相当可观。出于这个原因,神州食品五年来净利润下降6.8%,这让人不禁要问,为什么高净资产收益率没有转化为盈利增长?基于此,我们认为,可能还有本文迄今未讨论的其他原因,可能正在阻碍公司的增长。例如,公司将很大一部分收益作为股息支付,或者面临竞争压力。
话虽如此,我们将中国食品的表现与行业进行了比较,当我们发现尽管该公司的收益缩水了,但该行业同期的收益增长率为23%,我们对此感到担忧。
联交所:506过去盈利增长2022年8月29日
盈利增长是股票估值的一个重要因素。对于投资者来说,重要的是知道市场是否已经消化了公司预期的收益增长(或下降)。这有助于他们确定这只股票是为光明还是黯淡的未来做准备。506的价值公平吗?这张关于公司内在价值的信息图包含了你需要知道的一切。
中国食品有效利用其留存收益吗?
中国食品的三年派息率中值为36%(或留存率为64%),这是相当正常的,这一点很正常,但中国食品的盈利下滑令人费解,因为当一家公司保留了很大一部分利润时,人们预计会看到相当大的增长。看起来可能还有其他一些原因来解释这方面的缺乏。例如,这项业务可能正在衰落。
此外,中国食品在至少十年的时间里一直在支付股息,这表明继续支付股息对管理层来说要重要得多,即使这是以牺牲业务增长为代价的。在研究了最新的分析师共识数据后,我们发现,该公司未来三年的派息率预计将上升至54%。无论如何,尽管预期派息率较高,但预计公司的净资产收益率不会有太大变化。
摘要
总体而言,中国食品看起来确实有一些积极的方面。然而,我们失望地看到,即使在高ROE和高再投资率的情况下,收益也没有增长。我们认为,可能有一些外部因素可能正在对业务产生负面影响。既然如此,最新的行业分析师预测显示,分析师们预计该公司的收益增长率将大幅提高。要了解更多分析师对该公司的最新预测,请查看分析师对该公司预测的可视化。
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本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。