UOB Kay Hian - Good Buy with Weakness in Trading Volume?

Was just looking at this lightly traded stock, which is also the only listed broker in Singapore as well. Its Singapore operations make up the largest source of revenue, followed by Hong Kong then Thailand, so it is exposed largely to South-East Asia and the more general Asian region. With the decline in trading volume in Singapore, its earnings have fallen quite a bit in 2012 and 2014, which has also dragged its share price down from $1.645 in Aug 2014 to the current ~$1.50.

(Image source: http://www.thesas.org.sg/component/content/category/8-web-pages.html)

At a price of $1.50, UOB Kay Hian has 0.9 P/B ratio, (slightly higher after the company paid its dividends for the year). Most of its assets and liabilities are also current, which can be expected to be fairly valued (as opposed to long-term assets like buildings where valuations can take years to show).

Although the company has a patchy record in earnings for the past 3 years, with earnings per share at 9 cents and 10 cents for 2012 and 2014 respectively, however, the company previously has done much better is years such as 2011 and 2013 where earnings per share was around 12.5 cents, which makes for a P/E ratio of 12 for the years of 2011 and 2013, 15 for 2014 and 16.6 for 2012.

The current decline in trading volume in Singapore, with a large drop from 2013, possibly due to the penny stock crash in late-2013, which would have affected investor confidence in Singapore. This has possibly impacted UOB Kay Hian's profit in 2014, which would result in the decrease in the share price. However, the fundamentals of the business are still sound in my opinion as the company, being one of the largest stock brokers in Singapore would have an advantage in scale, relative to its competitors, allowing it to spread costs over a larger revenue base. This economic moat would allow the company to generate good returns for its shareholders over the long run.

The company also seems to be likely to grow in the near future with its expansion in Malaysia with its investment in a Malaysia company in 2013 and its Malaysian operations entering into the black in 2014. This may be another growth area for the company and would be able to complement its Singapore and Thailand operations in the region.

The company also has a 50% payout ratio that it has stuck to, paying out 50% of its profits annually and for the 2014 year has paid a 5 cent dividend, which is 3.33% yield on a $1.50 and 6 cents for 2013, which is a 4% yield on the same price. Compared to popular dividend stocks such as telcos, which pay out stable 5-6% dividends, this is quite good, as this also has the prospect of a growing dividend as trading volumes pick up in the market (which happens in both bear and bull markets).

With the drop in price of the share, UOB Kay Hian may present a good oppourtunity to the value/dividend investor who is willing to hold it until the trading volume returns to the Singapore market, then either sell it or keep it as a good-dividend paying share in their portfolio.

Another interesting share would be Jardine Cycle & Carriage, more can be seen here: Jardine C&C - Possible Opportunity for Dividends

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