SHH Resources Holdings Berhad's (KLSE:SHH) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

SHH Resources Holdings Berhad (KLSE:SHH) has had a great run on the share market with its stock up by a significant 14% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to SHH Resources Holdings Berhad's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Do You 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 SHH Resources Holdings Berhad is:

3.0% = RM2.5m ÷ RM83m (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.03 in profit.

See our latest analysis for SHH Resources Holdings Berhad

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

SHH Resources Holdings Berhad's Earnings Growth And 3.0% ROE

It is quite clear that SHH Resources Holdings Berhad's ROE is rather low. Even compared to the average industry ROE of 4.3%, the company's ROE is quite dismal. Despite this, surprisingly, SHH Resources Holdings Berhad saw an exceptional 30% net income growth over the past five years. We reckon that there could be other factors at play here. Such as - high earnings retention or an efficient management in place.

We then compared SHH Resources Holdings Berhad's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 7.2% in the same 5-year period.

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. If you're wondering about SHH Resources Holdings Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is SHH Resources Holdings Berhad Using Its Retained Earnings Effectively?

SHH Resources Holdings Berhad has a three-year median payout ratio of 36% (where it is retaining 64% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and SHH Resources Holdings Berhad is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, SHH Resources Holdings Berhad has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

On the whole, we do feel that SHH Resources Holdings Berhad 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. Our risks dashboard would have the 3 risks we have identified for SHH Resources Holdings Berhad.

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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.