Soo Kee Group Ltd Is Trading Close To Its 52-Week Low: Is It A Good Business?

Soo Kee Group Ltd. (SGX: 42G) is a jeweller operating under three brands, namely Soo Kee Jewellery, SK Jewellery and Love & Co. According to its corporate website, it has a retail network of over 60 showrooms across Singapore and Malaysia.

The company recently captured my attention since it was trading close to its 52-week low. In this article, I will look at one important number – the return on invested capital (ROIC) – that may help to shed some light about the attractiveness of Soo Kee Group’s business.

A brief recap of ROIC

In a previous article, I had explained how to use ROIC to evaluate the quality of a business. For convenience, the formula needed to calculate the ROIC is given below:

Generally speaking, a high ROIC will mean a high-quality business and vice versa. ROIC is important for investors as a stock’s performance is often tied to the performance of its underlying business over the long-term.

The simple idea behind the ROIC is that a business with a higher ROIC requires lesser capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business.

So how does Soo Kee Group perform in this ROIC test? Let’s see below:

S$ Million FY 2016
Revenue 176.8
Profit before interest and tax 8.2
Operating profit margin 4.6%
Net current asset 48
Cash 28
Tangible non-current asset 39
Tangible capital employed 60
ROIC 13.7%

Source: Soo Kee Group 2016 Full Year Result

Here, we can see that the ROIC of 13.7% means that for every S$1 of capital invested in the business, Soo Kee Group earns 13.7 cents in profit.

To put the above into perspective, 13.7% falls around the average range of ROIC ratios that we have looked at in the past. In other words, if ROIC is the only basis used to evaluate the attractiveness of the business, Soo Kee Group would have scored an average.

One thing that investors should note is that the company has a significant amount of borrowings (about S$23.8 million), which is not included in the above calculation of ROIC. As such, when the additional borrowings are included, the ROIC would be reduced to around 9.8%.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.