UOB-Kay Hian Holdings Limited Is Near Its 52-Week Low: What Does It Tell Us About The Markets?

It is official! UOB-Kay Hian Holdings Limited (SGX: U10) closed at a 52-week low of S$1.605 per share yesterday.

What is happening to this regional broking and corporate finance services provider? Is the market over-reacting to a temporary setback for the company or is the low price an indication of more unpleasant things to follow? Let’s find out.

What’s happening?

The earnings of UOB-Kay Hian has been lumpy for a few years now. Earnings per share fell from 19.25 Singapore cents in 2010 to 9.07 cents in 2012 before rebounding to 12.88 cents last year

However, just as the market assumed that the recovery of UOB-Kay Hian’s earnings is on the way, the company released its second quarter results last week and reported a 42.3% year-on-year decline in profit for the first half of 2014. Its Commission revenue, the main bulk of its revenue, fell by more than 30% year-on-year due to low trading volume in the financial markets in the region (UOB-Kay Hian conducts business predominantly in Singapore, Hong Kong, and Thailand).

What does this mean for investors?

From UOB-Kay Hian’s latest financial report card, the sentiment surrounding financial markets still seem very weak. However, the good thing about the brokering business is that the company does not need to invest a lot to scale up its business. The infrastructure and staffing are all prepared and ready and when the trading volume returns (financial markets moves in cycles after all), the company can handle it easily without much need for further reinvestment.

Foolish Summary

UOB-Kay Hian’s business depends on investors’ risk appetite – if investors are willing to invest in the financial markets, the company would thrive.

Here’s an interesting observation I have. If most investors are investing aggressively in the financial markets, would it not be a sign for value investors like me to stay out of the market? After all, it was value investing supremo Warren Buffett who once said that investors should “Be fearful when others are greedy, and greedy when others are fearful.

Now with UOB-Kay Hian’s corporate results and share price painting a picture of financial markets that are awash in fear, does it mean that it’s time to be greedy? What do you think? Tell me more in the comments section below!

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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 contributor Stanley Lim doesn't own any shares of companies mention above