Is Westports Holdings Berhad's (KLSE:WPRTS) Stock's Recent Performance A Reflection Of Its Financial Health?

Most readers would already know that Westports Holdings Berhad's (KLSE:WPRTS) stock increased by 2.1% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Westports Holdings Berhad's ROE.

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.

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How To 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 Westports Holdings Berhad is:

25% = RM982m ÷ RM3.9b (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.25 in profit.

Check out our latest analysis for Westports Holdings 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. 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 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.

Westports Holdings Berhad's Earnings Growth And 25% ROE

To begin with, Westports Holdings Berhad has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 6.9% also doesn't go unnoticed by us. This likely paved the way for the modest 6.7% net income growth seen by Westports Holdings Berhad over the past five years.

Given that the industry shrunk its earnings at a rate of 1.7% over the last few years, the net income growth of the company is quite impressive.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Westports Holdings Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Westports Holdings Berhad Making Efficient Use Of Its Profits?

While Westports Holdings Berhad has a three-year median payout ratio of 72% (which means it retains 28% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Besides, Westports Holdings Berhad has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its 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 73%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 25%.

Summary

In total, we are pretty happy with Westports Holdings Berhad's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.