Are Strong Financial Prospects The Force That Is Driving The Momentum In Ximei Resources Holding Limited's HKG:9936) Stock?

Most readers would already be aware that Ximei Resources Holding's (HKG:9936) stock increased significantly by 67% 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. Specifically, we decided to study Ximei Resources Holding's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Ximei Resources Holding is:

13% = CN¥179m ÷ CN¥1.4b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.13 in profit.

View our latest analysis for Ximei Resources Holding

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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Ximei Resources Holding's Earnings Growth And 13% ROE

At first glance, Ximei Resources Holding seems to have a decent ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. This probably goes some way in explaining Ximei Resources Holding's moderate 11% growth over the past five years amongst other factors.

Next, on comparing with the industry net income growth, we found that Ximei Resources Holding's reported growth was lower than the industry growth of 15% over the last few years, which is not something we like to see.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Ximei Resources Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Ximei Resources Holding Efficiently Re-investing Its Profits?

Ximei Resources Holding has a low three-year median payout ratio of 13%, meaning that the company retains the remaining 87% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

While Ximei Resources Holding has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Conclusion

Overall, we are quite pleased with Ximei Resources Holding's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see a good amount of growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. You can see the 2 risks we have identified for Ximei Resources Holding by visiting our risks dashboard for free on our platform here.

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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.