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Could The Market Be Wrong About Shanghai Chicmax Cosmetic Co., Ltd. (HKG:2145) Given Its Attractive Financial Prospects?

Simply Wall St · 5d ago

Shanghai Chicmax Cosmetic (HKG:2145) has had a rough three months with its share price down 26%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Shanghai Chicmax Cosmetic'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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 Shanghai Chicmax Cosmetic is:

38% = CN¥946m ÷ CN¥2.5b (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$0.38.

Check out our latest analysis for Shanghai Chicmax Cosmetic

What Has ROE Got To Do With 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.

A Side By Side comparison of Shanghai Chicmax Cosmetic's Earnings Growth And 38% ROE

First thing first, we like that Shanghai Chicmax Cosmetic has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 11% which is quite remarkable. As a result, Shanghai Chicmax Cosmetic's exceptional 41% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Shanghai Chicmax Cosmetic'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 14%.

past-earnings-growth
SEHK:2145 Past Earnings Growth January 6th 2026

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is 2145 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Shanghai Chicmax Cosmetic Efficiently Re-investing Its Profits?

Shanghai Chicmax Cosmetic has a significant three-year median payout ratio of 79%, meaning the company only retains 21% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Besides, Shanghai Chicmax Cosmetic has been paying dividends over a period of three years. 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 67%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 42%.

Conclusion

In total, we are pretty happy with Shanghai Chicmax Cosmetic's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. 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. 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.