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Hotung Investment Holdings Limited (SGX:BLS), a NT$172.35m small-cap, is a capital market firm operating in an industry, which has been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a strong double-digit growth of 18.11% in the upcoming year , and a whopping growth of 35.64% over the next couple of years. However this rate still came in below the growth rate of the Singapore stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Hotung Investment Holdings is a laggard or leader relative to its financial sector peers.
Check out our latest analysis for Hotung Investment Holdings
What’s the catalyst for Hotung Investment Holdings’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the thirties, beating the Singapore market growth of 11.41%. Hotung Investment Holdings lags the pack with its negative growth rate of -2.37% over the past year, which indicates the company has been growing at a slower pace than its capital markets peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Hotung Investment Holdings poised to deliver a -12.35% growth compared to the industry average growth rate of 18.11%. As an industry laggard, Hotung Investment Holdings may be a cheaper stock relative to its peers.
Is Hotung Investment Holdings and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 16.74x, relatively similar to the rest of the Singapore stock market PE of 12.3x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 6.58% on equities compared to the market’s 7.97%. On the stock-level, Hotung Investment Holdings is trading at a lower PE ratio of 10.55x, making it cheaper than the average capital markets stock. In terms of returns, Hotung Investment Holdings generated 6.29% in the past year, in-line with its industry average.
Next Steps:
Hotung Investment Holdings is capital markets industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Hotung Investment Holdings is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Hotung Investment Holdings’s fundamentals in order to build a holistic investment thesis.