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The Three Numbers That Drive Ho Bee Land

Fifteen years is probably long enough to judge a company’s past performance. And in the case of property developer, Ho Bee Land (SGX: H13), the decade and a half it has spent as a listed company speaks volumes.

Since 1999, Ho Bee Land has reported a Return on Equity (RoE) of less than 10% on only four occasions. They were between 2001 and 2004. Apart from the four-year blip, Ho Bee has delivered around $20 for every $100 of shareholder equity annually. Last year it was 13.2%.

Ho Bee’s high Return on Equity can be traced to its above-average Net Income Margin. Last year, the developer reported a NIM of 310.9%. Its average NIM over the last five years, though, has been around 150%, which is higher than the market average. It is also higher than the NIM of peer, Wing Tai Holdings (SGX: W05).

Ho Bee’s Asset Turnover is not high, though. But that is not unusual for a property developer. It generates $3 of sales for every S$100 of asset employed in the business. By comparison, CapitaLand (SGX: C31) generates S$8.80 for every $100 of asset employed, while the Asset Turnover for Hongkong Land (SGX: H78) is around 0.06.

Interestingly, Ho Bee is not heavily leveraged. It has Total Liabilities of S$1.07b and Total Assets of S$3.68b, which equates to a Leverage Ratio of just 1.41.The median Leverage Ratio for the 30 companies that make up the Straits Times Index (SGX: ^STI) is 1.8.

By dissecting the Return on Equity for Ho Bee Land, it is easy to see the financial drivers of the business. Its Return on Equity of 13.2% is the product of an extraordinary Net Income Margin of 310.9%; a very low Asset Turnover of 0.03 and a modest Leverage Ratio of 1.41.

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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.