The Return Trends At South Malaysia Industries Berhad (KLSE:SMI) Look Promising
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. So when we looked at South Malaysia Industries Berhad (KLSE:SMI) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on South Malaysia Industries Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = RM3.4m ÷ (RM159m - RM17m) (Based on the trailing twelve months to September 2025).
Thus, South Malaysia Industries Berhad has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.7%.
View our latest analysis for South Malaysia Industries Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for South Malaysia Industries Berhad's ROCE against it's prior returns. If you'd like to look at how South Malaysia Industries Berhad has performed in the past in other metrics, you can view this free graph of South Malaysia Industries Berhad's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Shareholders will be relieved that South Malaysia Industries Berhad has broken into profitability. The company now earns 2.4% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
Our Take On South Malaysia Industries Berhad's ROCE
As discussed above, South Malaysia Industries Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
On a final note, we've found 1 warning sign for South Malaysia Industries Berhad that we think you should be aware of.
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.
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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.