# AviChina Industry & Technology Company Limited's (HKG:2357) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Simply Wall St ·  06/07 19:39

AviChina Industry & Technology (HKG:2357) has had a great run on the share market with its stock up by a significant 16% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, 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. In this article, we decided to focus on AviChina Industry & Technology's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

## 如何計算股東權益報酬率？

Return on equity can be calculated by using the formula:

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

So, based on the above formula, the ROE for AviChina Industry & Technology is:

7.6% = CN¥6.7b ÷ CN¥88b (Based on the trailing twelve months to December 2023).

7.6％= CN¥6.7b ÷ CN¥88b（基於過去12個月至2023年12月）。

The 'return' refers to a company's earnings over the last year. So, this means that for every HK\$1 of its shareholder's investments, the company generates a profit of HK\$0.08.

‘回報’是指公司在過去一年的收益。 因此，這意味着對於其股東投資的每1港元，該公司會獲得0.08港元的利潤。

## ROE與盈利增長有什麼關係？

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.

## 中航科工收益增長和7.6％的roe並列比較

On the face of it, AviChina Industry & Technology's ROE is not much to talk about. However, given that the company's ROE is similar to the average industry ROE of 8.1%, we may spare it some thought. On the other hand, AviChina Industry & Technology reported a moderate 15% net income growth over the past five years. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then performed a comparison between AviChina Industry & Technology's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 14% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is AviChina Industry & Technology fairly valued compared to other companies? These 3 valuation measures might help you decide.

## 中航科工是否有效地重新投資其利潤？

With a three-year median payout ratio of 26% (implying that the company retains 74% of its profits), it seems that AviChina Industry & Technology is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, AviChina Industry & Technology has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 29% of its profits over the next three years. Regardless, the future ROE for AviChina Industry & Technology is predicted to rise to 9.5% despite there being not much change expected in its payout ratio.

## 總的來說，我們對偉明環保的表現非常滿意。具體而言，我們喜歡公司以高回報率再投資了其利潤的很大一部分。當然，這導致公司的收益大幅增長。但是，最新的行業分析師預測表明，該公司的收益預計將加速增長。

Overall, we feel that AviChina Industry & Technology certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.