5 companies with Cash Earnings Return on Equity above 20% for the past 3 years

Cash Earnings Return on Equity (“ROE”) measures the rate of operating cash return generated, disregarding the impact of non-cash items on shareholders' investments through the effective use of shareholders' funds.

The metric, which is rising over time or higher in comparison with industry average, is favoured as an indication of good investment prospect due to management's effectiveness at generating cash and managing assets on shareholders' investment while maintaining an optimal level of leverage.

In this article, we will be looking at 5 companies with Cash Earnings ROE 20% for the past 3 years:

• Kimly Limited (SGX: 1D0)
• MeGroup Limited (SGX: SJY)
• Old Chang Kee Limited (SGX: 5ML)
• RE&S Holdings Limited (SGX: 1G1)
• Reclaims Global Limited (SGX: NEX)

1) Kimly Limited (SGX: 1D0)

Kimly Limited (“Kimly”) is one of the largest traditional coffeeshop operators in Singapore with 30 years of experience. The Group operates and manages an extensive network of 83 food outlets, 137 food stalls, 2 Tonkichi restaurants and 7 Rive Gauche Patisserie shops across the heartlands of Singapore. It also operates a Central Kitchen that supplies sauces, marinades and semi-finished food products to its food stalls.

For the past 3 financial years, Kimly’s Cash Earnings ROE has been fluctuating between 29.61% and 63.42%.

After suffering a decline in FY2019, the metrics rebounded strongly in FY2020 and came in at 63.42%. This was mainly due to a higher operating cashflow, while partially being offset by a higher shareholder equity in the financial period.

Kimly’s share price last traded at S$0.375, with a market capitalization of S$440.50 million.

2) MeGroup Limited (SGX: SJY)

MeGroup Limited is a component manufacturer and dealer in the automotive industry. Under its Manufacturing business, MeGroup specialises in manufacturing ‘noise, vibration and harshness’ (“NVH”) and non-NVH components primarily for the automotive industry in Malaysia.

Under the Group’s Dealership business, MeGroup owns and operates three Peugeot dealerships; ii) two Honda dealerships; iii) one Mazda dealership; iv) one Hyundai dealership; v) one Ford dealership; vi) two Mitsubishi Motors dealerships; and vii) one Proton dealership in Malaysia.

For the past 3 financial years, MeGroup’s Cash Earnings ROE has been fluctuating between 21.40% and 27.82%.

After experiencing a rise in its Cash Earnings ROE to 27.82% in FY2020, it suffered a slight decline in the metrics to 25.98% in FY2021. The drop was due to a lower operating cash flow, as a result of lower earnings.

MeGroup’s share price last traded at S$0.15, with a market capitalization of S$17.92 million.

3) Old Chang Kee Limited (SGX: 5ML)

Old Chang Kee Limited (“Old Chang Kee”) specialises in the manufacture and sale of affordable and delectable food products, under the “Old Chang Kee” brand name. The signature curry puff is sold at various outlets together with over 30 other food products including fishballs, chicken nuggets and chicken wings.

Old Chang Kee’s cash earnings ROE has been on a rising trend since FY2019, from 40.50% to 79.02% in FY2021. The strong uptrend was attributed to the consistent growth in its operating cashflow over the years, while its total shareholder equity remained constant.

Old Chang Kee’s share price last traded at S$0.705, with a market capitalization of S$85.56 million.

4) RE&S Holdings Limited (SGX: 1G1)

Established in 1988, RE&S Holdings Limited (“RE&S”) is a multi-concept owner and operator of F&B outlets in Singapore and Malaysia that provides customers with authentic Japanese cuisine and dining experience.

Since then, RE&S has grown from a single Fiesta restaurant into a network comprising its Corporate Headquarters which houses more than 1,600 employees across the corporate office, a central kitchen in Tai Seng, a procurement office in Japan, and more than 70 F&B outlets.

Like Old Chang Kee, RE&S’s cash earnings ROE has been on a rising uptrend since FY2019, from 39.65% to 103.21% in FY2021.

This trend can be explained by the growth in its operating cash flow across the years, while keeping its total shareholder equity constant throughout the various financial years.

RE&S’s share price last traded at S$0.20, with a market capitalization of S$70.80 million.

5) Reclaims Global Limited (SGX: NEX)

Reclaims Global Limited ("Reclaims Global") is a Singapore-based eco-friendly integrated service provider in the construction industry, specialising in the recycling of Construction and Demolition ("C&D") waste, customisation of excavation solutions and operating fleet management.

The Group’s business is divided into three main segments – namely recycling, excavation services, and logistics and leasing.

For the past 3 financial years, Reclaims Global’s Cash Earnings ROE has been fluctuating between 20.63% and 30.74%.

After suffering a steep y-o-y decline in the metric for FY2020, it managed to stage a mild rebound to 23.13% in FY2021. The figure is set to increase even further as can be seen from the 34.8% as of Jul 2021, mainly contributed by an improvement in its operating cash flow.

Reclaims Global’s share price last traded at S$0.20, with a market capitalization of S$26.20 million.

Conclusion

In general, a cash earnings ROE above 20% is a good indication of whether the respective companies are operating at an efficient level.

Apart from that, investors who wish to have a more holistic view of the companies should also consider its historical financial performance, balance sheet and cash flow to determine the next course of action.

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