Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes — just in case they’re material to our investing thesis. The Straits Times Index (SGX: ^STI) has started the week on a good note as it inched up by 0.51% to 3,291 points with the majority of its 30 constituents (some 18 of them to be exact) ended the trading session with gains. Let’s take a closer look at a couple of blue chips which managed to beat the index. Container port owner Hutchison Port Hldg Trust (SGX:…
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes — just in case they’re material to our investing thesis.
The Straits Times Index (SGX: ^STI) has started the week on a good note as it inched up by 0.51% to 3,291 points with the majority of its 30 constituents (some 18 of them to be exact) ended the trading session with gains.
Let’s take a closer look at a couple of blue chips which managed to beat the index.
Container port owner Hutchison Port Hldg Trust (SGX: NS8U) is first in line with its units up 2.22% to US$0.69. Last week, the business trust had released its third quarter results. Although Hutchison had seen a 1.7% year-on-year increase in revenue to HK$3.422 billion for the quarter ended 30 September 2014, its profit had decreased by some 8.0% to HK$392.9 million.
The trust’s top-line had grown on the back of increased throughput from most of its container ports such as Hongkong International Terminals and Yantian International Container Terminals.
Meanwhile, the trust’s decrease in its gross profit margin from 64.3% to 63.1% had flowed to the bottom-line, resulting in a smaller profit. Increased staff costs, among other factors, also heaped pressure on Hutchison’s net profit figure.
But despite the slightly disappointing quarterly performance, investors might be happy to know that the outlook for economic growth in the U.S. and Europe is “favourable in 2014,” according to the trust. Growth in the two regions are a “major factor in determining the total volume of containers handled” by Hutchison and thus would be worth noting for investors.
Given that the trust has significant operations in Hong Kong, political stability in the territory is also important. With the recent political unrest there due to the “Occupy Central” event, there are reasons to be concerned that the trust would be adversely affected. Fortunately, no such thing has happened as Hutchison commented that the protests in Hong Kong had “no negative impact” on its operations.
United Overseas Bank Ltd (SGX: U11) is in the spotlight next. Its shares have climbed by 1.26% to S$23.29 following the release of its third quarter earnings last Thursday. For the quarter ended 30 September 2014, the Singapore-based bank had seen a very healthy 18.7% year-on-year jump in profit to S$866 million.
The bank’s bottom-line growth was driven by an equally-healthy 18.5% year-on-year increase in total income (analogous to the “revenue” for a bank) to S$1.971 billion.
Breaking down the bank’s top-line growth, UOB saw a 10.5% uptick in net interest income to S$1.155 billion on the back of “higher average loan volume in Singapore and the regional countries.” The bank’s net interest margin (a key driver of a bank’s business performance) had remained stable at 1.71% compared to a year ago. This might be a little disappointing to investors as a growing net interest margin can help drive a bank’s profits higher.
Moving on, the bank’s non-interest income segment (the second component of total income) had a great quarter as it spiked by 32.1% year-on-year to S$816 million. There was broad-based growth amongst the many components of non-interest income. For instance, fee and commission income rose 16.8% to S$475 million “with strong contributions from fund management, wealth management, investment banking as well as loan-related businesses.”
With banks, solid profit and revenue growth isn’t enough – investors would also have to pay attention to the quality of the bank’s assets (in other words, the quality of the bank’s loan portfolio) and the strength of its balance sheet.
On the first front (asset quality), the bank performed satisfactorily as its non-performing loans (NPL) ratio for the third quarter of 2014 had stood at a low 1.2%, unchanged from a year ago.
As for UOB’s balance sheet, investors might be happy to know that the bank is very well capitalised. It has a loan to deposit ratio of only 85.8% (though investors might want to watch for further increases here; the ratio had inched up from 84% a year ago) and it has very strong capital adequacy ratios (CARs). CARs are a measure of the amount of cushion a bank has on its balance sheet to absorb losses – the higher the CAR, the thicker the cushion.
For the quarter, UOB had a Common Equity Tier 1 CAR of 14.0%, a Tier 1 CAR of 14.0%, and a Total CAR of 17.0%. These figures are well above regulatory requirements and are also an improvement from a year ago; in the third quarter of 2013, the three CARs came in at 12.9%, 12.9%, and 16.3% respectively.
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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 writer Chong Ser Jing does not own shares in any companies mentioned.