Declining Stock and Decent Financials: Is The Market Wrong About Sime Darby Property Berhad (KLSE:SIMEPROP)?

With its stock down 12% over the past three months, it is easy to disregard Sime Darby Property Berhad (KLSE:SIMEPROP). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Sime Darby Property Berhad's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Sime Darby Property Berhad is:

4.6% = RM494m ÷ RM11b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.05 in profit.

See our latest analysis for Sime Darby Property Berhad

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Sime Darby Property Berhad's Earnings Growth And 4.6% ROE

As you can see, Sime Darby Property Berhad's ROE looks pretty weak. Further, we noted that the company's ROE is similar to the industry average of 4.6%. Moreover, we are quite pleased to see that Sime Darby Property Berhad's net income grew significantly at a rate of 55% over the last five years. Considering the low ROE, it is quite possible that there might also be some other aspects that are positively influencing the company's earnings 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 Sime Darby Property Berhad's growth is quite high when compared to the industry average growth of 20% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. 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 Sime Darby Property Berhad is trading on a high P/E or a low P/E, relative to its industry.

Is Sime Darby Property Berhad Efficiently Re-investing Its Profits?

Sime Darby Property Berhad has a three-year median payout ratio of 41% (where it is retaining 59% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Sime Darby Property Berhad is reinvesting its earnings efficiently.

Additionally, Sime Darby Property Berhad has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 39%. Still, forecasts suggest that Sime Darby Property Berhad's future ROE will rise to 5.7% even though the the company's payout ratio is not expected to change by much.

Summary

Overall, we feel that Sime Darby Property Berhad certainly does have some positive factors to consider. 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.