Is Hong Leong Industries Berhad's (KLSE:HLIND) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?
Hong Leong Industries Berhad's (KLSE:HLIND) stock is up by a considerable 19% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Hong Leong Industries Berhad's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How To Calculate Return On Equity?
Return on equity 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 Hong Leong Industries Berhad is:
25% = RM688m ÷ RM2.7b (Based on the trailing twelve months to September 2025).
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 MYR0.25 in profit.
View our latest analysis for Hong Leong Industries Berhad
What Has ROE Got To Do With 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.
A Side By Side comparison of Hong Leong Industries Berhad's Earnings Growth And 25% ROE
Firstly, we acknowledge that Hong Leong Industries Berhad has a significantly high ROE. Secondly, even when compared to the industry average of 8.0% the company's ROE is quite impressive. As a result, Hong Leong Industries Berhad's exceptional 21% net income growth seen over the past five years, doesn't come as a surprise.
We then compared Hong Leong Industries 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 16% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Hong Leong Industries Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Hong Leong Industries Berhad Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 54% (implying that it keeps only 46% of profits) for Hong Leong Industries Berhad suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Moreover, Hong Leong Industries Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.
Summary
Overall, we are quite pleased with Hong Leong Industries 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.