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Could The Market Be Wrong About United Plantations Berhad (KLSE:UTDPLT) Given Its Attractive Financial Prospects?

Simply Wall St · 04/10 22:13

It is hard to get excited after looking at United Plantations Berhad's (KLSE:UTDPLT) recent performance, when its stock has declined 4.8% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to United Plantations Berhad's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for United Plantations Berhad is:

26% = RM719m ÷ RM2.8b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. That means that for every MYR1 worth of shareholders' equity, the company generated MYR0.26 in profit.

Check out our latest analysis for United Plantations Berhad

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

A Side By Side comparison of United Plantations Berhad's Earnings Growth And 26% ROE

Firstly, we acknowledge that United Plantations Berhad has a significantly high ROE. Secondly, even when compared to the industry average of 9.1% the company's ROE is quite impressive. This probably laid the groundwork for United Plantations Berhad's moderate 18% net income growth seen over the past five years.

We then compared United Plantations Berhad's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 15% in the same 5-year period.

past-earnings-growth
KLSE:UTDPLT Past Earnings Growth April 10th 2025

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is United Plantations Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is United Plantations Berhad Making Efficient Use Of Its Profits?

United Plantations Berhad has a significant three-year median payout ratio of 70%, meaning that it is left with only 30% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Moreover, United Plantations Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

On the whole, we feel that United Plantations Berhad's performance has been quite good. 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.