Just like how trees don’t grow to the sky, it’s perhaps apt to say that no company can grow forever. Here are two firms that have not managed to grow at all over the past 10 years, suggesting that they might have reached a stage in their lives where just running still would be the best they can do. Are their best days really behind them? Let’s take a closer look. The life of a broker The brokerage business in Singapore has been undergoing consolidation. Many brokerages which existed in the past have since merged with major banks and other financial…
Just like how trees don’t grow to the sky, it’s perhaps apt to say that no company can grow forever. Here are two firms that have not managed to grow at all over the past 10 years, suggesting that they might have reached a stage in their lives where just running still would be the best they can do.
Are their best days really behind them? Let’s take a closer look.
The life of a broker
The brokerage business in Singapore has been undergoing consolidation. Many brokerages which existed in the past have since merged with major banks and other financial institutions.
In Singapore’s stock market, one of the last few listed brokerage firms include UOB-Kay Hian Holdings Limited (SGX: U10). But besides its longevity (the brokerage has been listed since 2000), there’s hardly anything else worth cheering about regarding the firm’s corporate performance over the past decade.
In 2003, UOB-Kay Hian earned S$320 million in revenue; in 2013, the brokerage’s top-line was S$387 million. UOB Kay-Hian’s bottom-line had also hardly moved; the company’s net income in 2003 and 2013 was S$78 million and S$96 million, respectively.
Earlier this month, the London-based Standard Chartered Bank announced that it will be winding down its worldwide equities business and that includes its Singapore operations. With the trading volume in Singapore’s equities market considered thin, and investors asking for ever-decreasing commissions to be paid to brokers, it seems the future for UOB-Kay Hian is anything but bright.
The dragon without the pearl
When it comes to listed financial institutions in Singapore, it’s not just the three big banks – there’s also Hong Leong Finance Ltd (SGX: S41), which offers deposit products and makes loans to small-medium enterprises. The company is in fact one of the larger financial institutions in Singapore and actually sports a sizeable market capitalisation of S$1.16 billion.
But sadly, the firm has not been able to grow its business by much – if at all – over the past 10 years. In 2003, Hong Leong Finance recorded revenue of S$157 million after taking into account loan loss provisions. 10 years later in 2013, the finance outfit’s revenue after loan loss provisions stood at S$166 million. Meanwhile, its net profit actually shrank a little from S$78 million to S$70 million over the same period. For some perspective, all these has happened even while DBS Group Holdings Ltd (SGX: D05), Singapore’s largest bank, had seen its revenue nearly triple from 2003 to 2013.
It seems that Hong Leong Finance is being caught between a rock and a hard place. Its operations are not large enough for it to have the resources to expand overseas in a significant manner, and so it is restricted to operating in Singapore, which has limited growth potential. In contrast, the big three local banks have already made big splashes overseas may years ago. If Hong Leong Finance is unable to pull itself out from the current conundrum it’s in, there might not be much capital gains or dividend growth to look forward to for investors.
The future is always unknown. However, some companies operate in industries which have tougher growth-hurdles to overcome than others. When analyzing a company, we have to look beyond the numbers and try to understand what the future might hold for the industry it belongs to.
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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 does not own any companies listed above.