Is SD Guthrie Berhad's (KLSE:SDG) Recent Performance Tethered To Its Attractive Financial Prospects?

Most readers would already know that SD Guthrie Berhad's (KLSE:SDG) stock increased by 9.8% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to SD Guthrie Berhad's ROE today.

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. 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 SD Guthrie Berhad is:

14% = RM2.8b ÷ RM21b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.14 in profit.

See our latest analysis for SD Guthrie Berhad

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

SD Guthrie Berhad's Earnings Growth And 14% ROE

At first glance, SD Guthrie Berhad seems to have a decent ROE. Especially when compared to the industry average of 9.2% the company's ROE looks pretty impressive. This certainly adds some context to SD Guthrie Berhad's decent 9.9% net income growth seen over the past five years.

Next, on comparing SD Guthrie Berhad's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 8.6% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about SD Guthrie Berhad's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is SD Guthrie Berhad Using Its Retained Earnings Effectively?

SD Guthrie Berhad has a healthy combination of a moderate three-year median payout ratio of 46% (or a retention ratio of 54%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Moreover, SD Guthrie Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 58% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 9.2%) over the same period.

Conclusion

Overall, we are quite pleased with SD Guthrie Berhad's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.