Stock Analysis

China Tianrui Group Cement Company Limited's (HKG:1252) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Source: Shutterstock

It is hard to get excited after looking at China Tianrui Group Cement's (HKG:1252) recent performance, when its stock has declined 3.7% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to China Tianrui Group Cement'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.

See our latest analysis for China Tianrui Group Cement

How Is ROE Calculated?

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 China Tianrui Group Cement is:

5.9% = CN¥982m ÷ CN¥17b (Based on the trailing twelve months to June 2022).

The 'return' is the yearly profit. That means that for every HK$1 worth of shareholders' equity, the company generated HK$0.06 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

China Tianrui Group Cement's Earnings Growth And 5.9% ROE

When you first look at it, China Tianrui Group Cement's ROE doesn't look that attractive. However, its ROE is similar to the industry average of 7.2%, so we won't completely dismiss the company. Having said that, China Tianrui Group Cement has shown a modest net income growth of 8.7% over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that China Tianrui Group Cement's growth is quite high when compared to the industry average growth of 5.8% in the same period, which is great to see.

SEHK:1252 Past Earnings Growth March 15th 2023

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 China Tianrui Group Cement fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is China Tianrui Group Cement Using Its Retained Earnings Effectively?

China Tianrui Group Cement doesn't pay any dividend, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.


On the whole, we do feel that China Tianrui Group Cement has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 1 risk we have identified for China Tianrui Group Cement visit our risks dashboard for free.

Valuation is complex, but we're helping make it simple.

Find out whether China Tianrui Group Cement is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis