- Malaysia
- /
- Trade Distributors
- /
- KLSE:SCC
Is SCC Holdings Berhad's (KLSE:SCC) Stock Price Struggling As A Result Of Its Mixed Financials?
With its stock down 2.6% over the past three months, it is easy to disregard SCC Holdings Berhad (KLSE:SCC). It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Specifically, we decided to study SCC Holdings Berhad's ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for SCC Holdings Berhad
How Do You Calculate Return On Equity?
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 SCC Holdings Berhad is:
9.1% = RM3.9m ÷ RM43m (Based on the trailing twelve months to June 2020).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each MYR1 of shareholders' capital it has, the company made MYR0.09 in profit.
Why Is ROE Important For 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.
SCC Holdings Berhad's Earnings Growth And 9.1% ROE
When you first look at it, SCC Holdings Berhad's ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 5.7% doesn't go unnoticed by us. But seeing SCC Holdings Berhad's five year net income decline of 4.1% over the past five years, we might rethink that. Bear in mind, the company does have a slightly low ROE. It is just that the industry ROE is lower. Hence, this goes some way in explaining the shrinking earnings.
Next, when we compared with the industry, which has shrunk its earnings at a rate of 3.2% in the same period, we still found SCC Holdings Berhad's performance to be quite bleak, because the company has been shrinking its earnings faster than the industry.
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). This then helps them determine if the stock is placed for a bright or bleak future. 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 SCC Holdings Berhad is trading on a high P/E or a low P/E, relative to its industry.
Is SCC Holdings Berhad Efficiently Re-investing Its Profits?
While the company did payout a portion of its dividend in the past, it currently doesn't pay a dividend. This implies that potentially all of its profits are being reinvested in the business.
Summary
In total, we're a bit ambivalent about SCC Holdings Berhad's performance. Specifically, the low earnings growth is a bit concerning, especially given that the company has a respectable rate of return. Investors may have benefitted, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining a small portion of its profits. Up till now, we've only made a short study of the company's growth data. You can do your own research on SCC Holdings Berhad and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.
If you decide to trade SCC Holdings Berhad, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
About KLSE:SCC
SCC Holdings Berhad
An investment holding company, engages in the distribution, marketing, and sale of food service equipment and animal health products in Malaysia.
Flawless balance sheet slight.
Similar Companies
Market Insights
Community Narratives
