With its stock down 11% over the past three months, it is easy to disregard Kelington Group Berhad (KLSE:KGB). 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. In this article, we decided to focus on Kelington Group Berhad's ROE.
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.
How Do You Calculate Return On Equity?
The formula for return on equityis:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Kelington Group Berhad is:
24% = RM141m ÷ RM589m (Based on the trailing twelve months to September 2025).
The 'return' refers to a company's earnings over the last year. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.24.
Check out our latest analysis for Kelington Group Berhad
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Kelington Group Berhad's Earnings Growth And 24% ROE
To begin with, Kelington Group Berhad has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 9.3% the company's ROE is quite impressive. Under the circumstances, Kelington Group Berhad's considerable five year net income growth of 39% was to be expected.
Next, on comparing with the industry net income growth, we found that Kelington Group Berhad's growth is quite high when compared to the industry average growth of 25% in the same period, which is great to see.
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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Kelington Group Berhad's's valuation, check out this gauge of its price-to-earnings ratio , as compared to its industry.
Is Kelington Group Berhad Using Its Retained Earnings Effectively?
Kelington Group Berhad's three-year median payout ratio is a pretty moderate 34%, meaning the company retains 66% of its income. By the looks of it, the dividend is well covered and Kelington Group Berhad is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Moreover, Kelington Group 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. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 54% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.
Conclusion
Overall, we are quite pleased with Kelington Group Berhad's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.
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This article by Simply Wall St is general in nature.
We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice.
It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
