Where CW Group Holdings Limited (HKG:1322) Stands In Terms Of Earnings Growth Against Its Industry

In this commentary, I will examine CW Group Holdings Limited’s (HKG:1322) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the machinery industry performed. As an investor, I find it beneficial to assess 1322’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. Check out our latest analysis for CW Group Holdings

How Well Did 1322 Perform?

1322’s trailing twelve-month earnings (from 31 December 2017) of HK$249.32m has increased by 6.34% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 23.22%, indicating the rate at which 1322 is growing has slowed down. To understand what’s happening, let’s examine what’s occurring with margins and whether the whole industry is experiencing the hit as well.

In the past few years, revenue growth has been lagging behind which indicates that CW Group Holdings’s bottom line has been propelled by unsustainable cost-reductions. Scanning growth from a sector-level, the HK machinery industry has been growing its average earnings by double-digit 16.94% in the past twelve months, . This is a turnaround from a volatile drop of -5.25% in the last couple of years. This means that, in the recent industry expansion, CW Group Holdings has not been able to leverage it as much as its average peer.

SEHK:1322 Income Statement June 18th 18
SEHK:1322 Income Statement June 18th 18
In terms of returns from investment, CW Group Holdings has not invested its equity funds well, leading to a 12.33% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 7.28% exceeds the HK Machinery industry of 3.68%, indicating CW Group Holdings has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for CW Group Holdings’s debt level, has declined over the past 3 years from 23.13% to 14.31%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 0.33% to 72.86% over the past 5 years.

What does this mean?

CW Group Holdings’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. 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 CW Group Holdings to get a better picture of the stock by looking at:

  1. Financial Health: Is 1322’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.
  2. 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 December 2017. This may not be consistent with full year annual report figures.