The Three Numbers That Make Hap Seng Consolidated Sing

The company began life as The East Asiatic Company (Malaysia) Berhad. Today, it is known as Hap Seng Consolidated Berhad (KLSE: 3034.KL; KLSE: HAPSENG).

The company has interests in palm oil plantations, property development and credit finance. It also has its fingers in automobiles, building materials and fertilizers. In other words it is an industrial conglomerate.

Last year, the Malaysian conglomerate, which is a subsidiary of Gek Poh (Holdings), delivered a Return on Equity of 21.2%. That is slightly higher than its median return of 17.2 over the last five years, but not significantly so.

It means that the company generated MYR21.2 of Net Income on every MYR100 invested by shareholders. That is nearly twice the return for the Malaysian market.

In 2015, its impressive return on equity was driven primarily by a high Net Income Margin of 21.5%. It means that the company made a bottom-line profit of MYR21.50 on every 100 ringgit of sales it rang up on its tills.

The company also makes good use of its assets. Its Asset Turnover is an above average 0.48. It implies that Hap Seng generated MYR48 of sales on every MYR100 of assets at its disposal. The median Asset Turnover for the 30 companies that make up the Kuala Lumpur Composite Index (KLSE: ^KLCI) is 0.36.

Hap Seng does make use of leverage. It had Total Liabilities of MYR5.2 billion, of which MYR1.4 billion was short-term borrowings and 1.9 billion was long-term debt. It had Total Assets of MYR10 billion. In other words, its Leverage Ratio was 2.1.

By deconstructing Hap Seng Consolidated’s Return on Equity it is easy to see why the company sings. Its Return on Equity of 21.2% is the product of a high Net Income Margin of 21.5%, an above-average Asset Turnover of 0.48 and a hefty dollop of Leverage Ratio of 2.1.

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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.