AYER Holdings Berhad (KLSE:AYER) has seen a steady increase in its stock over the past three months, leading investors to wonder if the company’s strong financials are driving this positive trend. In order to analyze the financial health of AYER Holdings Berhad, we will take a closer look at its Return on Equity (ROE) in this article.
ROE is a profitability ratio that measures how effectively a company is growing its value and managing shareholders’ investments. It can be calculated using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity. For AYER Holdings Berhad, the ROE is 7.0%, which is derived from a net profit of RM40 million divided by shareholders’ equity of RM577 million, based on the trailing twelve months to March 2023.
At first glance, AYER Holdings Berhad’s ROE may not appear particularly promising. However, it is worth noting that the company’s ROE is higher than the average industry ROE of 4.3%, which is certainly interesting. Additionally, AYER Holdings Berhad has achieved a substantial 23% net income growth over the past five years, which is impressive. While the company’s ROE may be moderately low, it is still higher than the industry average. This suggests that there may be other factors contributing to the company’s earnings growth, such as high earnings retention or belonging to a high-growth industry.
When comparing AYER Holdings Berhad’s net income growth with the industry, we can see that the company has outperformed the industry’s growth rate of 0.8% over the same five-year period.
Earnings growth is a significant factor in stock valuation, and investors should consider whether the expected growth or decline in earnings is already priced into the stock. One useful indicator of expected earnings growth is the price-to-earnings (P/E) ratio, which reflects the price the market is willing to pay for a stock based on its earnings prospects. Therefore, it is worthwhile to check whether AYER Holdings Berhad is trading at a high or low P/E ratio compared to its industry.
AYER Holdings Berhad has a three-year median payout ratio of 34%, indicating that it retains 66% of its income. This suggests that the company’s dividend is well-covered, and given the high growth mentioned above, it appears that AYER Holdings Berhad reinvests its earnings efficiently.
Moreover, AYER Holdings Berhad has a track record of paying dividends for at least ten years, showcasing its commitment to sharing profits with its shareholders.
Overall, AYER Holdings Berhad has demonstrated strong performance, particularly through its significant earnings growth and strategic reinvestment. Consequently, if the company continues to grow its earnings at its current pace, it could have a positive impact on its share price, as earnings per share typically influence long-term share prices. However, it is essential for investors to be aware of potential risks that the company may face. To gain more insights, you can visit the AYER Holdings Berhad risks dashboard, where we have identified two potential risks.
Please note that this article is based on historical data and analyst forecasts and is not intended to provide financial advice. It is crucial for investors to consider their own objectives and financial situation when making investment decisions. Additionally, this article does not take into account the latest price-sensitive company announcements or qualitative material.
