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HarryG asked 5 years ago

Hello,
Can I ask what you interpret of this: I keep seeing a lot of insider buying activity at UOB Kay Hian – the CEO Wee Eee Chao has been buying shares in the open market since 2013 (which is the earliest I can find on the company’s website), from a time when its share price was $1.70 till now when it’s around $1.38. The company’s revenue and earnings per share have been continuously falling since a peak in 2010. The book value per share, however, has been rising continuously since 2009 and is now $1.69. The stock has been trading below book value since 2015 (currently P/B = 0.8) but it’s P/E seems to be at historical high now at 18.9. The company’s net current assets is larger than it’s market capitalization.
Do you think the CEO’s buying is a reflection that he think’s the stock is under-valued, or simply the Wee family’s way of consolidating their holdings? Would you consider this a cyclical business? What is the appropriate valuation measure for such a company: P/B, P/E, or another measure?
Thank you!

4 Answers
Best Answer
HarryG answered 5 years ago

Thanks Victor!
 

Victor Chng replied 5 years ago

No prob Harry

Victor Chng answered 5 years ago

Hi Harry,
 
Personally, I also had notice the insider buying by Wee Ee Chao for UOB Kay Hian. The brokerage business had been tough in recent years and may be disrupted by technology in the near future. The business is now trading at below book which is why Wee Ee Chao had been purchasing the shares. The questions is do you foresee the brokerage industry to come back up with more people trading with UOB. I think PB will be the the most suitable valuation for Brokerage companies as they deal with securities. PE is high because earnings decrease hence, it is not the best valuation method for this business as it is cyclical in nature. 

HarryG answered 5 years ago

Thanks Victor for your quick reply! I guess the margins of brokerages will fall as more people move to cheaper online brokerages, but brokerages may not go obsolete since we still need a brokerage to trade? Traditional brokerages will have to depend more on their lower margin online service, and expand their products / services. I wonder since the Wee family have a controlling stake in the company, whether UOB Kay Hian will be able to realize it’s full value even if it trades below book value, since nobody can buy them out.
 
Best wishes,
Harry

Victor Chng answered 5 years ago

Hi Harry,
 
From my personal experience and looking at the Wee family, my opinion is sometime they may be fully on Shareholder interest. Hence, if I want to buy into the business they owned. I usually buy with a higher margin of safety to safe guard my downside.