The Three Numbers That Stress GuocoLeisure Limited

Hotel and property developer GuocoLeisure Limited (SGX: B16) has have been around in various guises for around 50 decades years. But its Return on Equity (RoE), which is a measure of the company’s profitability, leaves a little to be desired.

Over the last five years, GuocoLeisure’s RoE has failed to make it into the double digits. Last year, it came in at 3.3%. It means that the company only generated $3.30 for every $100 of shareholder equity. The average for Singapore’s blue chips is around 8%.

GuocoLeisure’s disappointing RoE appears to be caused by a couple of things. Firstly, its Net Income Margin (NIM) of 8.4% is lower than the market average. The median for the 30m companies that make up the Straits Times Index (SGX: ^STI) is about 14.8%.

The owner of the Guoman and Thistle branded hotels also exhibits a low Asset Turnover of 0.28. It means that GuocoLeisure only generates S$0.28 for every dollar of asset employed in the business. By contrast, Mandarin Oriental (SGX: M04) generates about a-fifth more.

Interestingly, GuocoLeisure is not heavily leveraged. It has Total Assets of S$2.06b compared to Total Liabilities of S$584m. That equates to a Leverage ratio of 1.4, which is slightly lower than the median value for the Singapore market.

By checking out the Return on Equity for GuocoLeisure, it is easy to see why it is stressed. Its RoE of 3.3% is the product of a low Net Income Margin of 8.4%; a disappointing Asset Turnover of 0.28 and small amount of Leverage 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.