Returns On Capital Signal Tricky Times Ahead For Melati Ehsan Holdings Berhad (KLSE:MELATI)
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Melati Ehsan Holdings Berhad (KLSE:MELATI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Melati Ehsan Holdings Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.018 = RM5.6m ÷ (RM407m - RM100m) (Based on the trailing twelve months to November 2024).
So, Melati Ehsan Holdings Berhad has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 10.0%.
Check out our latest analysis for Melati Ehsan Holdings Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Melati Ehsan Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Melati Ehsan Holdings Berhad's past further, check out this free graph covering Melati Ehsan Holdings Berhad's past earnings, revenue and cash flow .
On the surface, the trend of ROCE at Melati Ehsan Holdings Berhad doesn't inspire confidence. Around five years ago the returns on capital were 4.3%, but since then they've fallen to 1.8%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.
On a side note, Melati Ehsan Holdings Berhad has done well to pay down its current liabilities to 25% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
In summary, we're somewhat concerned by Melati Ehsan Holdings Berhad's diminishing returns on increasing amounts of capital. Despite the concerning underlying trends, the stock has actually gained 40% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.
If you want to know some of the risks facing Melati Ehsan Holdings Berhad we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
36 minutes ago
- Yahoo
Bermaz Auto Berhad Just Missed EPS By 8.1%: Here's What Analysts Think Will Happen Next
The analysts might have been a bit too bullish on Bermaz Auto Berhad (KLSE:BAUTO), given that the company fell short of expectations when it released its full-year results last week. Results look to have been somewhat negative - revenue fell 6.4% short of analyst estimates at RM2.6b, and statutory earnings of RM0.13 per share missed forecasts by 8.1%. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. Taking into account the latest results, the 14 analysts covering Bermaz Auto Berhad provided consensus estimates of RM2.48b revenue in 2026, which would reflect a noticeable 5.3% decline over the past 12 months. Statutory earnings per share are forecast to fall 14% to RM0.12 in the same period. In the lead-up to this report, the analysts had been modelling revenues of RM2.85b and earnings per share (EPS) of RM0.15 in 2026. It looks like sentiment has declined substantially in the aftermath of these results, with a substantial drop in revenue estimates and a pretty serious reduction to earnings per share numbers as well. View our latest analysis for Bermaz Auto Berhad It'll come as no surprise then, to learn that the analysts have cut their price target 25% to RM0.96. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Bermaz Auto Berhad analyst has a price target of RM1.26 per share, while the most pessimistic values it at RM0.64. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business. Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that revenue is expected to reverse, with a forecast 5.3% annualised decline to the end of 2026. That is a notable change from historical growth of 15% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Bermaz Auto Berhad is expected to lag the wider industry. The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Bermaz Auto Berhad. On the negative side, they also downgraded their revenue estimates, and forecasts imply they will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Bermaz Auto Berhad's future valuation. Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Bermaz Auto Berhad analysts - going out to 2028, and you can see them free on our platform here. Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Bermaz Auto Berhad (1 shouldn't be ignored) you should be aware of. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
36 minutes ago
- Yahoo
A Look At The Fair Value Of YTL Power International Berhad (KLSE:YTLPOWR)
YTL Power International Berhad's estimated fair value is RM3.11 based on 2 Stage Free Cash Flow to Equity Current share price of RM3.70 suggests YTL Power International Berhad is potentially trading close to its fair value Our fair value estimate is 30% lower than YTL Power International Berhad's analyst price target of RM4.41 How far off is YTL Power International Berhad (KLSE:YTLPOWR) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. It may sound complicated, but actually it is quite simple! Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (MYR, Millions) -RM3.32b -RM1.54b RM1.54b RM1.65b RM1.74b RM1.83b RM1.92b RM2.00b RM2.08b RM2.17b Growth Rate Estimate Source Analyst x6 Analyst x6 Analyst x4 Est @ 6.70% Est @ 5.78% Est @ 5.14% Est @ 4.69% Est @ 4.38% Est @ 4.15% Est @ 4.00% Present Value (MYR, Millions) Discounted @ 8.4% -RM3.1k -RM1.3k RM1.2k RM1.2k RM1.2k RM1.1k RM1.1k RM1.1k RM1.0k RM968 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM4.4b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.6%. We discount the terminal cash flows to today's value at a cost of equity of 8.4%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM2.2b× (1 + 3.6%) ÷ (8.4%– 3.6%) = RM47b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM47b÷ ( 1 + 8.4%)10= RM21b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is RM26b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of RM3.7, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at YTL Power International Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.4%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. View our latest analysis for YTL Power International Berhad Strength No major strengths identified for YTLPOWR. Weakness Earnings declined over the past year. Interest payments on debt are not well covered. Dividend is low compared to the top 25% of dividend payers in the Integrated Utilities market. Opportunity Annual revenue is forecast to grow faster than the Malaysian market. Good value based on P/E ratio compared to estimated Fair P/E ratio. Threat Debt is not well covered by operating cash flow. Paying a dividend but company has no free cash flows. Annual earnings are forecast to grow slower than the Malaysian market. Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For YTL Power International Berhad, we've compiled three relevant factors you should further research: Risks: As an example, we've found 1 warning sign for YTL Power International Berhad that you need to consider before investing here. Future Earnings: How does YTLPOWR's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the KLSE every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
Yahoo
an hour ago
- Yahoo
Should You Buy KPJ Healthcare Berhad (KLSE:KPJ) For Its Upcoming Dividend?
Readers hoping to buy KPJ Healthcare Berhad (KLSE:KPJ) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, KPJ Healthcare Berhad investors that purchase the stock on or after the 19th of June will not receive the dividend, which will be paid on the 11th of July. The company's next dividend payment will be RM00.008 per share, and in the last 12 months, the company paid a total of RM0.041 per share. Looking at the last 12 months of distributions, KPJ Healthcare Berhad has a trailing yield of approximately 1.5% on its current stock price of RM02.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether KPJ Healthcare Berhad has been able to grow its dividends, or if the dividend might be cut. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. KPJ Healthcare Berhad is paying out an acceptable 54% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously. View our latest analysis for KPJ Healthcare Berhad Click here to see the company's payout ratio, plus analyst estimates of its future dividends. Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at KPJ Healthcare Berhad, with earnings per share up 9.3% on average over the last five years. Decent historical earnings per share growth suggests KPJ Healthcare Berhad has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future. Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, KPJ Healthcare Berhad has increased its dividend at approximately 11% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders. Has KPJ Healthcare Berhad got what it takes to maintain its dividend payments? Earnings per share growth has been modest and KPJ Healthcare Berhad paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused about KPJ Healthcare Berhad from a dividend perspective. Wondering what the future holds for KPJ Healthcare Berhad? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Sign in to access your portfolio
