It is hard to get excited after looking at $MAPLETREE INDUSTRIAL TRUST(ME8U.SI)$ recent performance, when its stock has declined 3.9% over the past three months. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to studyMapletree Industrial Trust's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
How To 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 Mapletree Industrial Trust is:
8.3% = S$439m ÷ S$5.3b (Based on the trailing twelve months to March 2022).
The 'return' is the income the business earned over the last year. Another way to think of that is that for every SGD1 worth of equity, the company was able to earn SGD0.08 in profit.
What Is The Relationship Between ROE And 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. 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 Industrial Trust's Earnings Growth And 8.3% ROE
When you first look at it, Mapletree Industrial Trust's ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 6.9% doesn't go unnoticed by us. Having said that, Mapletree Industrial Trust's net income growth over the past five years is more or less flat. Bear in mind, the company does have a slightly low ROE. It is just that the industry ROE is lower. Hence, this goes some way in explaining the flat earnings growth.
We then compared Mapletree Industrial Trust's net income growth with the industry and found that the industry which has shrunk at a rate of 1.3% in the same period, which makes the company's growth somewhat better.
ME8U Past Earnings Growth June 6th 2022
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. Has the market priced in the future outlook for ME8U? You can find out inour latest intrinsic value infographic research report.
Is Mapletree Industrial Trust Making Efficient Use Of Its Profits?
Mapletree Industrial Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 89%, meaning that the company retains only 11% of its 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 absence of growth in earnings.
Additionally, Mapletree Industrial Trust has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 99%. Accordingly, forecasts suggest that Mapletree Industrial Trust's future ROE will be 7.5% which is again, similar to the current ROE.
Summary
Overall, we feel that Mapletree Industrial Trust certainly does have some positive factors to consider. Namely, its significant earnings growth, to which its moderate rate of return likely contributed. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink.
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