The Three Numbers That Underpin UOL

UOLLogoIt was once known as Faber Union. Then it changed its name to United Overseas Limited after it was acquired by United Overseas Bank (SGX: U11).

In 2006, it changed its name again – this time to UOL Group (SGX: U14), which is one of Singapore’s most prolific property developers.

UOL Group boasts an above-average Return on Equity. At 11.3%, it is higher than the median RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI). Its returns are on par with those generated by Keppel Land (SGX: K17) and higher than City Development (SGX: C09).

UOL’s market-beating Return on Equity can be partly attributed to its high Net Income Margin. At 74%, it has delivered $74 of bottom-line profit for every $100 of top-line sales. By comparison, the margin at Hongkong Land (SGX: H78) is around 64%.

UOL’s high Net Income Margin is in marked contrast to its low Asset Turnover. But that is not entirely surprising – property developers are asset heavy. Its Asset Turnover of 0.11 suggests that the company only generates 11 cents of sales for every dollar of asset employed in the business.

UOL also employs a fair amount of leverage but it is not especially high. Its Leverage Ratio of 1.4, which has been consistent over the years, is below the average for Singapore businesses.

By dismantling UOL’s Return on Equity, it is easy to see what underpins the company. Its RoE of 11.3% is the product of an extraordinarily high Net Income Margin of 74%; a modest Asset Turnover of 0.11 and a small Leverage Ratio of 1.4.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.