China Aerospace International Holdings Limited (HKG:31): Does The Earnings Decline Make It An Underperformer?

When China Aerospace International Holdings Limited's (HKG:31) announced its latest earnings (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were China Aerospace International Holdings's average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not 31 actually performed well. Below is a quick commentary on how I see 31 has performed. See our latest analysis for China Aerospace International Holdings

Did 31 perform worse than its track record and industry?

31's trailing twelve-month earnings (from 31 December 2017) of HK$486.18m has declined by -38.93% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 15.19%, indicating the rate at which 31 is growing has slowed down. Why is this? Well, let’s take a look at what’s transpiring with margins and whether the entire industry is experiencing the hit as well.

Over the last couple of years, revenue growth has been lagging behind which indicates that China Aerospace International Holdings’s bottom line has been propelled by unmaintainable cost-reductions. Inspecting growth from a sector-level, the HK electronic industry has been growing, albeit, at a muted single-digit rate of 8.55% over the past year, and a substantial 13.71% over the past five years. This suggests that whatever tailwind the industry is deriving benefit from, China Aerospace International Holdings has not been able to leverage it as much as its average peer.

In terms of returns from investment, China Aerospace International Holdings has not invested its equity funds well, leading to a 7.24% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 3.63% is below the HK Electronic industry of 5.52%, indicating China Aerospace International Holdings's are utilized less efficiently. However, its return on capital (ROC), which also accounts for China Aerospace International Holdings’s debt level, has increased over the past 3 years from 2.64% to 4.55%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Generally companies that endure a drawn out period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and growth. You should continue to research China Aerospace International Holdings to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 31’s future growth? Take a look at our free research report of analyst consensus for 31’s outlook.
2. Financial Health: Is 31’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 December 2017. This may not be consistent with full year annual report figures.

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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.