Gas Malaysia Berhad's (KLSE:GASMSIA) Stock Has Fared Decently: Is the Market Following Strong Financials?

Most readers would already know that Gas Malaysia Berhad's (KLSE:GASMSIA) stock increased by 5.9% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Gas Malaysia Berhad's ROE.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Gas Malaysia Berhad

How To Calculate Return On Equity?

ROE 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 Gas Malaysia Berhad is:

28% = RM383m ÷ RM1.4b (Based on the trailing twelve months to December 2023).

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 MYR0.28 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Gas Malaysia Berhad's Earnings Growth And 28% ROE

To begin with, Gas Malaysia Berhad has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 11% which is quite remarkable. This likely paved the way for the modest 19% net income growth seen by Gas Malaysia Berhad over the past five years.

Next, on comparing with the industry net income growth, we found that Gas Malaysia Berhad's growth is quite high when compared to the industry average growth of 7.1% in the same period, which is great to see.

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. This then helps them determine if the stock is placed for a bright or bleak future. What is GASMSIA worth today? The intrinsic value infographic in our free research report helps visualize whether GASMSIA is currently mispriced by the market.

Is Gas Malaysia Berhad Using Its Retained Earnings Effectively?

Gas Malaysia Berhad has a significant three-year median payout ratio of 79%, meaning that it is left with only 21% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Besides, Gas Malaysia 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 75%. However, Gas Malaysia Berhad's future ROE is expected to decline to 21% despite there being not much change anticipated in the company's payout ratio.

Summary

In total, we are pretty happy with Gas Malaysia Berhad's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.