Yahoo Finance Does Mapletree Pan Asia Commercial Trust's (SGX:N2IU) Weak Fundamentals Mean That The Stock Could Move In The Opposite Direction?
Most readers would already know that Mapletree Pan Asia Commercial Trust's (SGX:N2IU) stock increased by 6.7% over the past three months. Given that the markets usually pay for the long-term financial health of a company, we wonder if the current momentum in the share price will keep up, given that the company's financials don't look very promising. Particularly, we will be paying attention to Mapletree Pan Asia Commercial Trust's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Mapletree Pan Asia Commercial Trust
How Is ROE Calculated?
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 Mapletree Pan Asia Commercial Trust is:
5.3% = S$512m ÷ S$9.7b (Based on the trailing twelve months to September 2022).
The 'return' is the income the business earned over the last year. That means that for every SGD1 worth of shareholders' equity, the company generated SGD0.05 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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 Mapletree Pan Asia Commercial Trust's Earnings Growth And 5.3% ROE
On the face of it, Mapletree Pan Asia Commercial Trust's ROE is not much to talk about. Next, when compared to the average industry ROE of 7.0%, the company's ROE leaves us feeling even less enthusiastic. Given the circumstances, the significant decline in net income by 13% seen by Mapletree Pan Asia Commercial Trust over the last five years is not surprising. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. For instance, the company has a very high payout ratio, or is faced with competitive pressures.
So, as a next step, we compared Mapletree Pan Asia Commercial Trust's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 5.9% in the same period.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Mapletree Pan Asia Commercial Trust's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Mapletree Pan Asia Commercial Trust Using Its Retained Earnings Effectively?
Mapletree Pan Asia Commercial Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 78% (meaning, the company retains only 22% of profits). However, this is typical for REITs as they are often required by law to distribute most of their earnings. So this probably explains the company's shrinking earnings.
In addition, Mapletree Pan Asia Commercial Trust has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 107% over the next three years. Regardless, the ROE is not expected to change much for the company despite the higher expected payout ratio.
Conclusion
In total, we would have a hard think before deciding on any investment action concerning Mapletree Pan Asia Commercial Trust. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.
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