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Is Hanmi Pharm. Co., Ltd.'s (KRX:128940) Latest Stock Performance A Reflection Of Its Financial Health?

Simply Wall St · 05/29/2025 22:17

Most readers would already be aware that Hanmi Pharm's (KRX:128940) stock increased significantly by 28% 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. Particularly, we will be paying attention to Hanmi Pharm'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. 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?

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 Hanmi Pharm is:

9.6% = ₩122b ÷ ₩1.3t (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. Another way to think of that is that for every ₩1 worth of equity, the company was able to earn ₩0.10 in profit.

View our latest analysis for Hanmi Pharm

Why Is ROE Important For 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 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 Hanmi Pharm's Earnings Growth And 9.6% ROE

On the face of it, Hanmi Pharm's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 6.3% which we definitely can't overlook. Particularly, the substantial 34% net income growth seen by Hanmi Pharm over the past five years is impressive . Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So, there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

As a next step, we compared Hanmi Pharm'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 3.7%.

past-earnings-growth
KOSE:A128940 Past Earnings Growth May 29th 2025

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is A128940 worth today? The intrinsic value infographic in our free research report helps visualize whether A128940 is currently mispriced by the market.

Is Hanmi Pharm Using Its Retained Earnings Effectively?

Hanmi Pharm's ' three-year median payout ratio is on the lower side at 13% implying that it is retaining a higher percentage (87%) of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Additionally, Hanmi Pharm has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 7.3% over the next three years. The fact that the company's ROE is expected to rise to 12% over the same period is explained by the drop in the payout ratio.

Summary

On the whole, we feel that Hanmi Pharm's performance has been quite good. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. 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.