Xinyi Glass Holdings Limited's (HKG:868) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Xinyi Glass Holdings' (HKG:868) stock is up by a considerable 19% over the past three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. In this article, we decided to focus on Xinyi Glass Holdings' 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Xinyi Glass Holdings is:

5.3% = CN¥1.9b ÷ CN¥35b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.05 in profit.

Check out our latest analysis for Xinyi Glass Holdings

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Xinyi Glass Holdings' Earnings Growth And 5.3% ROE

On the face of it, Xinyi Glass Holdings' ROE is not much to talk about. However, its ROE is similar to the industry average of 5.8%, so we won't completely dismiss the company. But then again, Xinyi Glass Holdings' five year net income shrunk at a rate of 14%. Remember, the company's ROE is a bit low to begin with. Hence, this goes some way in explaining the shrinking earnings.

From the 12% decline reported by the industry in the same period, we infer that Xinyi Glass Holdings and its industry are both shrinking at a similar rate.

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. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Xinyi Glass Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Xinyi Glass Holdings Using Its Retained Earnings Effectively?

In spite of a normal three-year median payout ratio of 49% (that is, a retention ratio of 51%), the fact that Xinyi Glass Holdings' earnings have shrunk is quite puzzling. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Additionally, Xinyi Glass Holdings has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 50%. However, Xinyi Glass Holdings' ROE is predicted to rise to 9.7% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we feel that the performance shown by Xinyi Glass Holdings can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.