To The Moon

SIA Engineering's (SGX:S59) $SIA Engineering(S59.SI)$ stock is up by 4.0% over the past month. As most would know, long-term fundamentals have a strong correlation with market price movements, so I decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, I decided to focus on SIA Engineering's ROE.

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.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for SIA Engineering is:

8.7% = S$151m ÷ S$1.7b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each SGD1 of shareholders' capital it has, the company made SGD0.09 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, I 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", I am then able to evaluate a company's future ability to generate profits. 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 SIA Engineering's Earnings Growth And 8.7% ROE

On the face of it, SIA Engineering's ROE is not much to talk about. However, its ROE is similar to the industry average of 7.7%, so I won't completely dismiss the company. Moreover, I am quite pleased to see that SIA Engineering's net income grew significantly at a rate of 20% over the last five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, I found that SIA Engineering's growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.

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SGX:S59 Past Earnings Growth October 19th 2025

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. Doing so will help them establish if the stock's future looks promising or ominous.

Is SIA Engineering Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 87% (implying that it keeps only 13% of profits) for SIA Engineering suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, SIA Engineering 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. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 61% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Summary

On the whole, I do feel that SIA Engineering has some positive attributes. Namely, its high earnings growth. I do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. 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.

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