Hong Kong Finance Group Limited (HKG:1273): Has Recent Earnings Growth Beaten Long-Term Trend?

For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Hong Kong Finance Group Limited (HKG:1273) useful as an attempt to give more color around how Hong Kong Finance Group is currently performing.

See our latest analysis for Hong Kong Finance Group

How 1273 fared against its long-term earnings performance and its industry

1273's trailing twelve-month earnings (from 31 March 2018) of HK$50.05m has increased by 8.10% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 4.50%, indicating the rate at which 1273 is growing has accelerated. What's the driver of this growth? Well, let’s take a look at whether it is merely because of an industry uplift, or if Hong Kong Finance Group has experienced some company-specific growth.

The climb in earnings seems to be driven by a robust top-line increase beating its growth rate of expenses. Though this has led to a margin contraction, it has made Hong Kong Finance Group more profitable. Eyeballing growth from a sector-level, the HK mortgage industry has been growing its average earnings by double-digit 32.38% in the previous twelve months, and 16.06% over the past five. Since the Mortgage sector in HK is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as Global International Credit Group, and . This means that any uplift the industry is deriving benefit from, Hong Kong Finance Group has not been able to realize the gains unlike its industry peers.

In terms of returns from investment, Hong Kong Finance Group has not invested its equity funds well, leading to a 9.29% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 4.53% exceeds the HK Mortgage industry of 1.95%, indicating Hong Kong Finance Group has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Hong Kong Finance Group’s debt level, has declined over the past 3 years from 11.41% to 5.27%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 81.26% to 102.77% over the past 5 years.

What does this mean?

Though Hong Kong Finance Group's past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Hong Kong Finance Group to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1273’s future growth? Take a look at our free research report of analyst consensus for 1273’s outlook.
2. Financial Health: Is 1273’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 31 March 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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.