The Three Numbers That Underpin United Engineers

The OCBC Centre, Cavenagh Bridge, and more recently the impressive overhead walkway that stretches across Orchard Road at Orchard Gateway are just some of the projects that United Engineers (SGX: U04) has been involved in.

Unfortunately the engineer’s Net Income Margin (NIM) over the years has not been quite as sturdy as its magnificent constructions. This has weighed on its Return on Equity (RoE), which was only 4.3% last year. It implies that United Engineers only generated S$4.30 of Net Profit for every S$100 of shareholder equity.

Between 2004 and last year, United Engineer’s NIM has come in at between 1% and 32%. Last year, it was 3.9%, which is not only below its ten-year average but below the market average, too. The median Net Income Margin for the 30 companies that make up the Straits Times Index (SGX: STI) is around 14%.

That said United Engineers is quite efficient in the use of its assets. Over the last decade it has been able to generate around $0.30 for every dollar of asset employed. Last year its Asset Turnover was 0.54, which was better than that market average of 0.47.

United Engineers, which was also responsible for building the (Old) Supreme Court Building, does make use of leverage. With Total Liabilities of S$2.5b and Total Assets of S$4.9b, it sports a Leverage Ratio of 2.04, which is slightly higher than the market average.

By deconstructing the Return on Equity for United Engineers, it is possible to how the numbers underpin the company. Its RoE of 4.3% is the product of a low Net Income Margin of 3.9%; an efficient Asset Turnover of 0.54 and Leverage Ratio of 2.04.

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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.