UOB Kay-Hian bought at $1.65, sold at $1.67, total gain $1.42.
I sold it immediately this morning after the FY2011 result is announced despite a dividend of $0.06 being declared. The reason why I do so is that the calculation in buying the stock at the start was faulty.
Reasons why I bought the stock
- High Profit Margin
- High ROE
- Dividend Payout Ratio of 60%
- Conservative Management (one of the rare brokerage that likes to ban trading in hot stock)
- Largest brokerage in Singapore with operations in Hong Kong and Thailand
- It's a matter of time that the retails investor will return
- Brokerage demand has high potential for growth given that only 12% of population are trading or investing. This compared to 30% in Hong Kong and 50% in USA
And the reason why I sold it off is definitely not because of unsatisfactory result. I do expect the weak result given that q4 is traditionally where market turnover is at its lowest and with the euro crisis still unsolved. The only reason why I decided to sell it off is that after keying in the data into my spreadsheet, I realised that my calculation of its ROE of 17% is faulty by taking into account Peak Earning in 2007 and 2008. Under normalized situation, its ROE should average around 11%, though in a hot bull like 2008 it can go all the way up to 28%.
A 6% difference in ROE is too much for me. A ROE of 11% is not a good sign especially if the profit margin is as high as 30% and will make it just an average company out there. And this is it - I will never buy an average company at an average PE of 10 for my long-term portfolio, as it will be without much margin of safety. Of course, unless special situation exists such that I believe that its normalized earning can grow in the future to a point that the PE of the current price will be 5. And given that SGX has a ROA of 15% and ROE of 30%, I will rather buy SGX at a price of 20 than UOB Kay-Hian at a price of 10.
It is definitely not that this is a lousy stock. If one will to hold it till a bull market and collect the dividend in the meanwhile, profit is rather guaranteed. This will be a good buy if one can get it at $1.15 and hold it with a mid-term view in mind. However, being without much margin of safety and being low on cash, it might be better to source out a better price for value company.