It is hard to get excited after looking at Bintulu Port Holdings Berhad's (KLSE:BIPORT) recent performance, when its stock has declined 4.4% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Bintulu Port Holdings 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.
See our latest analysis for Bintulu Port Holdings 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 Bintulu Port Holdings Berhad is:
7.3% = RM128m ÷ RM1.8b (Based on the trailing twelve months to December 2022).
The 'return' is the profit over the last twelve months. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.07 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
Bintulu Port Holdings Berhad's Earnings Growth And 7.3% ROE
On the face of it, Bintulu Port Holdings Berhad's ROE is not much to talk about. However, its ROE is similar to the industry average of 7.3%, so we won't completely dismiss the company. On the other hand, Bintulu Port Holdings Berhad reported a moderate 19% net income growth over the past five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. For instance, the company has a low payout ratio or is being managed efficiently.
We then compared Bintulu Port Holdings 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 6.0% in the same period.