OREANDA-NEWS. Return on Equity (ROE) measures the profitability of the company as a percentage of common shareholders’ equity. Profits are typically reported quarterly or semi-annually. In other words, ROE shows how management is using shareholders’ funds to generate financial returns.

According to Thomson Reuters, ROE is the most widely used measure of how well management uses shareholders' funds, with those funds representing the balance sheet value of shareholders' interest in a company. If the ROE of a stock is 10% over the past 12 months, it means that for every dollar of a common share invested in the stock, the financial return came to 10%. This means ROE is backward-looking and does not take into account any debt that was also incurred to generate the financial return.

Global ROE Trends

 

Globally, Return on Equity (ROE) ratios have been on a declining trend, as illustrated above. The average ROE of the MSCI World Index has fallen from 12.1% in the first three quarters of 2014 to 11.0% over the same period in 2015. The Straits Timex Index (STI) has seen a similar trend, with the average ROE declining from 10.3% over the first three quarters of 2014 to 9.0% over the first three quarters of 2015.

ROE Growth for STI Stocks

The five STI constituents which experienced the greatest increases in ROE over the first three calendar quarters of 2015, versus the same period in 2014, are from the industries of Real Estate Management & Development, Transportation Infrastructure and Airlines, as categorised by the Global Industry Classification Standard (GICS®).

The five stocks were:

§  Singapore Airlines, with ROE increasing from 2.1% in Q1-Q3 2014 to 3.5% in Q1-Q3 2015

§  CapitaLand, with ROE increasing from 5.5% in Q1-Q3 2014 to 7.1% in Q1-Q3 2015

§  City Developments, with ROE increasing from 7.9% in Q1-Q3 2014 to 9.1% in Q1-Q3 2015

§  SATS, with ROE increasing from 12.5% in Q1-Q3 2014 to 14.2% in Q1-Q3 2015

§  Hongkong Land Holdings, with ROE increasing from 4.3% in Q1-Q3 2014 to 4.7% in Q1-Q3 2015

The next five STI stocks that saw higher ROEs over the two time periods were Singapore Telecommunications, Singapore Exchange, Wilmar International, Oversea-Chinese Banking Corporation and ComfortDelGro Corporation. The ROEs of the remaining Index constituents either declined or remained unchanged.

The table below details the stocks which have experienced ROE growth, and is sorted by percentage increase.

Source: Bloomberg (data as of 14 December 2015)

Note Hongkong Land Holdings data as of first half of 2014 and 2015

Singapore Airlines

Singapore Airlines provides passenger and cargo air transportation services in East Asia, Europe, South West Pacific, the Americas, West Asia, and Africa. The company also offers engineering services, air charters, and tour wholesaling and related services. It also engages in the training of pilots; and provides aircraft maintenance services, including technical and non-technical handling at the airport; airframe maintenance and component overhaul services; and aviation insurance and pilot recruitment services. Further, the company is involved in the manufacture of aircraft cabin equipment and refurbishment of aircraft galleys; provision and marketing of cargo community systems; marketing and support of portal services for the air cargo industry; marketing of abacus computer reservations systems; and repair and overhaul of hydro mechanical equipment for Boeing and Airbus aircraft. As of March 31, 2015, its operating fleet consisted of 170 aircraft, including 162 passenger aircraft and 8 freighters.

CapitaLand

CapitaLand engages in the real estate development, investment in real estate financial products and assets, investment advisory and management services, and management of serviced residences in Singapore, China, other Asia, and Europe and other countries. Its real estate portfolio includes integrated developments, shopping malls, serviced residences, offices, and homes. The company also manages real estate vehicles and real estate investment trusts. In addition, it owns and operates international serviced residences under the Ascott, Somerset, and Citadines brands in cities of the Asia Pacific, Europe, and the Gulf region.

City Developments

City Developments engages in the development and investment of real estate properties, and ownership and management of hotels, as well as the provision of hospitality solutions. It develops various types of residential properties; develops and leases commercial properties, such as office, industrial, and retail properties; owns and operates 110 hotels in 18 countries; and provides technology solutions for the global hospitality industry. The company also operates and owns clubs; offers property management, project management, and consultancy services; and provides information technology and procurement services. City Developments has operations in Asia, Europe, North America, New Zealand, and Australia.

SATS

SATS provides gateway services and food solutions in Singapore, Japan, and internationally. The company’s gateway services comprise airfreight, baggage, ramp handling, passenger, aviation security, cargo, warehousing, perishables and cruise handling, and terminal management services, as well as ground handling and in-flight catering services. Its food solutions include airline catering, food distribution and logistics, and industrial catering services, as well as chilled and frozen food manufacturing, and linen and laundry services. The company also provides apron, flight operation and load control, aviation security, aircraft interior and exterior cleaning, and cruise center operation and management services. It serves airline, hospitality, healthcare, food, and airfreight and logistics industries, as well as the government.

Hongkong Land Holdings

Hongkong Land Holdings engages in the investment, development, and management of real estate properties in Greater China, Southeast Asia, and internationally. The company operates through two segments, Commercial Property and Residential Property. It owns and manages approximately 800,000 square meters of office and luxury retail property primarily in Hong Kong and Singapore. The company also develops residential properties for sale in Hong Kong, Mainland China, Macau, and Singapore. In addition, it is involved in hotel investment and finance businesses; and providing property consultancy and administration services.