21-04-2025
Could The Market Be Wrong About Bermaz Auto Berhad (KLSE:BAUTO) Given Its Attractive Financial Prospects?
Bermaz Auto Berhad (KLSE:BAUTO) has had a rough three months with its share price down 19%. However, stock prices are usually driven by a company's financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Bermaz Auto Berhad's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
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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 Bermaz Auto Berhad is:
32% = RM238m ÷ RM742m (Based on the trailing twelve months to January 2025).
The 'return' is the income the business earned over the last year. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.32.
See our latest analysis for Bermaz Auto Berhad
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 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.
Firstly, we acknowledge that Bermaz Auto Berhad has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 9.0% which is quite remarkable. Under the circumstances, Bermaz Auto Berhad's considerable five year net income growth of 27% was to be expected.
We then compared Bermaz Auto 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 22% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. 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. Is Bermaz Auto Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Bermaz Auto Berhad has a significant three-year median payout ratio of 55%, meaning the company only retains 45% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.
Besides, Bermaz Auto 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. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 75% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 24%) over the same period.
In total, we are pretty happy with Bermaz Auto Berhad's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. That being so, according to the latest industry analyst forecasts, the company's earnings are expected 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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