Should You Be Concerned About Rivera (Holdings) Limited’s (HKG:281) Earnings Growth?

Understanding Rivera (Holdings) Limited’s (HKG:281) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how Rivera (Holdings) is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period.

View our latest analysis for Rivera (Holdings)

Despite a decline, did 281 underperform the long-term trend and the industry?

281’s trailing twelve-month earnings (from 30 June 2018) of HK$166.0m has more than halved from HK$305.6m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 5.1%, indicating the rate at which 281 is growing has slowed down. Why could this be happening? Let’s examine what’s occurring with margins and if the rest of the industry is facing the same headwind.

Revenue growth in the last few years, has been positive, however, earnings growth has not been able to catch up, meaning Rivera (Holdings) has been ramping up its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the HK capital markets industry has been growing, albeit, at a muted single-digit rate of 8.7% over the past twelve months, and a substantial 17.4% over the previous five years. This growth is a median of profitable companies of 24 Capital Markets companies in HK including Astrum Financial Holdings, Pinestone Capital and DLC Asia. This means that whatever uplift the industry is enjoying, Rivera (Holdings) has not been able to realize the gains unlike its average peer.

SEHK:281 Income Statement Export August 28th 18
SEHK:281 Income Statement Export August 28th 18
In terms of returns from investment, Rivera (Holdings) has fallen short of achieving a 20% return on equity (ROE), recording 5.8% instead. Furthermore, its return on assets (ROA) of 2.0% is below the HK Capital Markets industry of 2.3%, indicating Rivera (Holdings)’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Rivera (Holdings)’s debt level, has increased over the past 3 years from 3.6% to 4.9%.

What does this mean?

Though Rivera (Holdings)’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience a prolonged period of decline in earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. You should continue to research Rivera (Holdings) to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 281’s future growth? Take a look at our free research report of analyst consensus for 281’s outlook.
  2. Financial Health: Are 281’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.