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Ingdan, Inc.'s (HKG:400) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Simply Wall St · 01/05 23:37

Most readers would already be aware that Ingdan's (HKG:400) stock increased significantly by 17% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Ingdan'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 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 Ingdan is:

6.1% = CN¥294m ÷ CN¥4.8b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.06.

Check out our latest analysis for Ingdan

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.

A Side By Side comparison of Ingdan's Earnings Growth And 6.1% ROE

On the face of it, Ingdan's ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 8.4% either. Thus, the low net income growth of 4.4% seen by Ingdan over the past five years could probably be the result of the low ROE.

When you consider the fact that the industry earnings have shrunk at a rate of 0.8% in the same 5-year period, the company's net income growth is pretty remarkable.

past-earnings-growth
SEHK:400 Past Earnings Growth January 5th 2026

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Ingdan is trading on a high P/E or a low P/E, relative to its industry.

Is Ingdan Making Efficient Use Of Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a regular dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, it does look like Ingdan has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 2 risks we have identified for Ingdan by visiting our risks dashboard for free on our platform here.