WEBULL

China Tobacco International (HK) Company Limited's (HKG:6055) Stock Is Going Strong: Is the Market Following Fundamentals?

Simply Wall St · 6d ago

China Tobacco International (HK) (HKG:6055) has had a great run on the share market with its stock up by a significant 30% over the last month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study China Tobacco International (HK)'s ROE in this article.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How To Calculate Return On Equity?

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 China Tobacco International (HK) is:

26% = HK$946m ÷ HK$3.7b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.26 in profit.

Check out our latest analysis for China Tobacco International (HK)

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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 China Tobacco International (HK)'s Earnings Growth And 26% ROE

Firstly, we acknowledge that China Tobacco International (HK) has a significantly high ROE. Secondly, even when compared to the industry average of 9.3% the company's ROE is quite impressive. Under the circumstances, China Tobacco International (HK)'s considerable five year net income growth of 22% was to be expected.

We then performed a comparison between China Tobacco International (HK)'s net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 23% in the same 5-year period.

past-earnings-growth
SEHK:6055 Past Earnings Growth February 15th 2026

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. 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 China Tobacco International (HK) is trading on a high P/E or a low P/E, relative to its industry.

Is China Tobacco International (HK) Using Its Retained Earnings Effectively?

China Tobacco International (HK)'s three-year median payout ratio is a pretty moderate 37%, meaning the company retains 63% of its income. So it seems that China Tobacco International (HK) is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Besides, China Tobacco International (HK) has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 37% of its profits over the next three years. As a result, China Tobacco International (HK)'s ROE is not expected to change by much either, which we inferred from the analyst estimate of 25% for future ROE.

Conclusion

On the whole, we feel that China Tobacco International (HK)'s performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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.