Royal China International Holdings Limited’s (HKG:1683) Earnings Dropped -135.29%, Did Its Industry Show Weakness Too?

For investors with a long-term horizon, examining earnings trend over time and against industry peers is more insightful than looking at an earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Royal China International Holdings Limited (SEHK:1683) useful as an attempt to give more color around how Royal China International Holdings is currently performing. View our latest analysis for Royal China International Holdings

Was 1683’s recent earnings decline indicative of a tough track record?

To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique allows me to examine different companies on a more comparable basis, using new information. For Royal China International Holdings, its latest trailing-twelve-month earnings is -HK$8.15M, which, relative to the prior year’s figure, has turned from positive to negative. Given that these values may be relatively short-term, I have determined an annualized five-year value for Royal China International Holdings’s earnings, which stands at HK$20.45M.

SEHK:1683 Income Statement May 2nd 18
SEHK:1683 Income Statement May 2nd 18
We can further assess Royal China International Holdings’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past half a decade Royal China International Holdings has seen an annual decline in revenue of -17.59%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Eyeballing growth from a sector-level, the HK consumer services industry has been growing its average earnings by double-digit 28.38% in the previous twelve months, and 16.72% over the past five years. This means whatever tailwind the industry is deriving benefit from, Royal China International Holdings has not been able to reap as much as its industry peers.

What does this mean?

Royal China International Holdings’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. With companies that are currently loss-making, it is always hard to predict what will happen in the future and when. The most insightful step is to examine company-specific issues Royal China International Holdings may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Royal China International Holdings to get a better picture of the stock by looking at:

  1. Financial Health: Is 1683’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. Valuation: What is 1683 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 1683 is currently mispriced by the market.
  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 December 2017. This may not be consistent with full year annual report figures.