ITMAX System Berhad's (KLSE:ITMAX) Stock Been Rising: Are Strong Financials Guiding The Market?

ITMAX System Berhad's (KLSE:ITMAX) stock up by 8.6% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study ITMAX System Berhad's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Is ROE Calculated?

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 ITMAX System Berhad is:

20% = RM92m ÷ RM472m (Based on the trailing twelve months to September 2025).

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 MYR0.20 in profit.

Check out our latest analysis for ITMAX System Berhad

Why Is ROE Important For 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

ITMAX System Berhad's Earnings Growth And 20% ROE

To begin with, ITMAX System Berhad seems to have a respectable ROE. On comparing with the average industry ROE of 8.5% the company's ROE looks pretty remarkable. This certainly adds some context to ITMAX System Berhad's exceptional 31% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared ITMAX System Berhad's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 10%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is ITMAX System Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is ITMAX System Berhad Making Efficient Use Of Its Profits?

ITMAX System Berhad's ' three-year median payout ratio is on the lower side at 19% implying that it is retaining a higher percentage (81%) of its profits. So it looks like ITMAX System Berhad is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, ITMAX System Berhad has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 20%. Accordingly, forecasts suggest that ITMAX System Berhad's future ROE will be 21% which is again, similar to the current ROE.

Summary

On the whole, we feel that ITMAX System Berhad's performance has been quite good. 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. 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 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.