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Sunway Construction Group Berhad's (KLSE:SUNCON) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

Simply Wall St · 04/08 05:26

Sunway Construction Group Berhad (KLSE:SUNCON) has had a rough three months with its share price down 24%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Sunway Construction Group Berhad's ROE today.

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. 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?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Sunway Construction Group Berhad is:

21% = RM197m ÷ RM939m (Based on the trailing twelve months to December 2024).

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 MYR0.21 in profit.

See our latest analysis for Sunway Construction Group 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. 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.

Sunway Construction Group Berhad's Earnings Growth And 21% ROE

To begin with, Sunway Construction Group Berhad seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 8.5%. This certainly adds some context to Sunway Construction Group Berhad's decent 14% net income growth seen over the past five years.

As a next step, we compared Sunway Construction Group Berhad's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 15% in the same period.

past-earnings-growth
KLSE:SUNCON Past Earnings Growth April 8th 2025

Earnings growth is a huge factor in stock valuation. 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 Sunway Construction Group Berhad's's valuation, check out this gauge of its price-to-earnings ratio , as compared to its industry.

Is Sunway Construction Group Berhad Making Efficient Use Of Its Profits?

While Sunway Construction Group Berhad has a three-year median payout ratio of 55% (which means it retains 45% 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.

Moreover, Sunway Construction Group Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend. 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 51%. However, Sunway Construction Group Berhad's ROE is predicted to rise to 27% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we feel that Sunway Construction Group Berhad's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. 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.