5 Companies with ROE above 15% for the Past 3 Years

Return on Equity (“ROE”) is the measure of the profitability of a particular company in relation to its shareholders' equity.

As a rule of thumb, investors can consider an ROE near the long-term average of the S&P 500 at 14% as an acceptable ratio and anything less than 10% as a poor indication.

In this article, we will be looking at 5 companies that has achieved a ROE of above 15% for the past 3 years

• AEM Holdings Limited (SGX: AWX)

• Micro-Mechanics Holdings Limited (SGX: 5DD)

• Sheng Siong Group Limited (SGX: OV8)

• TalkMed Group Limited (SGX: 5G3)

• Union Gas Holdings limited (SGX: 1F2)

1. AEM Holdings Limited (SGX: AWX)

AEM Holdings Limited (“AEM”) is listed on the main board of the Singapore Exchange and offers application specific-intelligent system test and handling solutions for semiconductor and electronics companies serving advanced computing, 5G, and AI markets.

AEM started off with a sky-high ROE of 54.4% in FY2017 on the back of strong financial performance and a low level of net assets. Hence, despite an improvement in its earnings for FY2018 and FY2019, its ROE has dropped to 37.4% and 39.2% respectively.

That said, its ROE still remains at an admirable 46.1% as of Jun 2020 trailing 12 months.

AEM last traded at $3.51 and it translates to a P/E ratio of 18.3.

2. Micro-Mechanics Holdings Limited (SGX: 5DD)

Micro-Mechanics Holdings Limited (“Micro-Mechanics”) designs, manufactures and markets high precision tools and parts used in process-critical applications for the wafer-fabrication and assembly processes of the semiconductor industry.

For FY2018, Micro-Mechanics' ROE stands at a high of 28.4% due to a higher level of earnings. However, its ROE has fallen to 22.1% in FY2019 as its profits in the period has fallen by 24.4% year-on-year.

But as Micro-Mechanics' earnings improved in FY2020, its ROE increased by 3.1 percentage points to 25.1%. Despite some minor fluctuations, Micro-Mechanics' ROE remained at a high level above 20%.

Micro-Mechanics last traded at $2.68 and it translates to a P/E ratio of 25.4.

3. Sheng Siong Group Limited (SGX: OV8)

Sheng Siong Group Limited (“Sheng Siong”) is one of the largest supermarket chains in Singapore. Currently, the group has 61 outlets across the island and are primarily located in retail locations in the heartlands of Singapore.

From FY2017 to FY2019, Sheng Siong’s earnings has been on a steady uptrend. Its ratio has shot up from 25.7% in FY2017 to 29.06% in Jun 2020 trailing 12months due to the earnings jump during this COVID-19 period.

Sheng Siong last traded at $1.59 and it translates to a P/E ratio of 31.6.

4. TalkMed Group Limited (SGX: 5G3)

TalkMed Group Limited (“TalkMed”) is a Singapore-based investment holding company. The Company's principal activities are the provision of medical oncology services and stem cell transplant services.

The Company's segments include Oncology services and Stem cells services. Its doctors provide tertiary healthcare services in the fields of medical oncology, stem cell transplant and palliative care to the oncology patients in the private sector in Singapore through Parkway Cancer Centre (“PCC”).

TalkMed’s ROE for FY2017 came in at a high of 44.2%. However, the ratio has suffered a 5.1 percentage points drop in FY2018 as a result of a 9.7% year-on-year drop in its earnings. With a 23% year-on-year growth in earnings for FY2019, TalkMed’s ROE has recovered back to 43%.

With TalkMed’s business model generally more towards asset-light strategy, this would explain the exceptionally high level of ROE as the company generally has a lower level of assets.

TalkMed last traded at $0.435 and it translates to a P/E ratio of 16.0.

5. Union Gas Holdings limited (SGX: 1F2)

Union Gas Holdings Limited (“Union Gas”) is an established provider of fuel products in Singapore with over 40 years of operating track record. Its three key businesses comprise Retail Liquefied Petroleum Gas (“LPG”), Compressed Natural Gas (“CNG”), and Diesel.

Since FY2017, Union Gas’s ROE has been on a steady uptrend and has risen from 17.5% in FY2017 to 33.24% in June 2020 trailing 12 months FY2019. The constant rise in ROE is supported by the increase in Union Gas’s earnings.

Union Gas last traded at $0.455 and it translates to a P/E ratio of 12.3.

Conclusion

ROE is one of the favourite indicators to show how efficient the management utilizes the shareholders’ equity to generate profits/earnings.

You would have noticed on the fact that companies that has an asset-heavy business model tend to have a lower ROE while those who has an asset-light business model will have a higher ROE.

Lastly, the best way to analyse the ROE of a certain company is to compare with its peers in the same industry. This will allow investors to have a clearer picture on whether the company is performing well.

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