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Buy On Dips! UOB KH Could Present Value
Tradeable, Tradeable Ideas | 12 June 2014
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By: Lim Si Jie
Articles (169) Profile
  1. Shortfall in top line performance hurt UOB Kay Hian’s operating profit and bottom line.
  2. Consistent and above industry average margins validate fundamental values in UOB Kay Hian’s shares
  3. The few months ahead may not bode well for UOB Kay Hian as market conditions remain tough.

Q1 2014: Shortfall In Topline And Bottom Line

Total revenue decreased 18.1 percent from $116 million to $95 million. Out of the $95 million, commission income accounted for $56.3 million (2013: $86.9 million).

Interest income rose from $17.4 million to $32 million with higher investment activities whilst other operating income declined from $11.7 million to $6.7 million, in line with lesser corporate finance activities.

Operating Profit And Expenses
Concerns over cooling measures and political uncertainties in the region weighed down investor sentiments. Trading volumes across regional markets were thin. Amidst the challenging environment, UOB Kay Hian managed to record a pre-tax profit of only $20.25 million as compared to $43.5 million in Q1 2013

Commission and personnel expenses decreased along with lower brokerage but finance expenses were higher due to higher funding requirements. (Note: Net income in Q1 2013 was boosted by foreign currency translation gains of $9.49 million.)

Fundamental Analysis: Margins

One of the plus points of UOB Kay Hian is its margins. UOB Kay Hian has been consistently beating the industry average margins, especially for its five year averages. UOB Kay Hian’s five year average margins are a notch above the five year average margins registered by the industry.

When a business’s profit margin is below its expectations, it is more difficult for the business to be profitable. No business owner wants to hear about tight profit margins. To quote Warren Buffett, buying a company’s shares is like investing in the company’s business and operations. From a businessman point of view, I like UOB Kay Hian for its consistent and profitable margins.

Looking Forward
UOB Kay Hian expects weak investor sentiment to continue in the coming months in the absence of any positive economic catalyst to spur investor interest.

According to KayHian, trading activities are anticipated to be rotational or event driven rather than a broad based recovery of the overall market. Market conditions would likely improve only if there is an inflow of institutional funds when macroeconomic indicators improve and regional political situations become clearer in some of the neighbouring countries.

Bargain Hunting
I am positive about the long term outlook of UOB Kay Hian as we detect minute traces of the world economy’s slow growth. As the economy improves, investors’ appetite for greater gains would follow. Traders would trade more often and UOB Kay Hian will see improvements in its trade related revenue.

However, that may happen in the coming year or maybe a few years depending on the world economy. In my opinion, the current short term bearish outlook on UOB Kay Hian is still weighing down on UOB Kay Hian. But this might be a good bargain hunting opportunity for long term value investors during the short term bearish period.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

UOB-Kay Hian Hldgs  1.190 -- --   
Business: Co is a regional broking and corporate finance services group. [FY17 Geographical] Singapore (51.6%), Hong Kong (25%), Thailand (13.2%), others (10.2%).

Insight: Aug-18, 1H18 total income rose 14.3% to $208m main... Read More

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