Is Fraser & Neave Holdings Bhd's (KLSE:F&N) Latest Stock Performance A Reflection Of Its Financial Health?

Fraser & Neave Holdings Bhd's (KLSE:F&N) stock is up by a considerable 30% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Fraser & Neave Holdings Bhd's ROE.

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

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Fraser & Neave Holdings Bhd is:

13% = RM515m ÷ RM3.9b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. So, this means that for every MYR1 of its shareholder's investments, the company generates a profit of MYR0.13.

See our latest analysis for Fraser & Neave Holdings Bhd

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Fraser & Neave Holdings Bhd's Earnings Growth And 13% ROE

To start with, Fraser & Neave Holdings Bhd's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 14%. Consequently, this likely laid the ground for the decent growth of 7.8% seen over the past five years by Fraser & Neave Holdings Bhd.

As a next step, we compared Fraser & Neave Holdings Bhd's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 16% in the same period.

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). This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for F&N? You can find out in our latest intrinsic value infographic research report.

Is Fraser & Neave Holdings Bhd Making Efficient Use Of Its Profits?

Fraser & Neave Holdings Bhd has a healthy combination of a moderate three-year median payout ratio of 44% (or a retention ratio of 56%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Additionally, Fraser & Neave Holdings Bhd has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 51%. Accordingly, forecasts suggest that Fraser & Neave Holdings Bhd's future ROE will be 15% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with Fraser & Neave Holdings Bhd's performance. 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 respectable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.

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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.