Should You Be Concerned With China Aerospace International Holdings Limited's (HKG:31) -38.93% Earnings Drop?

Today I will take a look at China Aerospace International Holdings Limited's (SEHK:31) most recent earnings update (31 December 2017) and compare these latest figures against its performance over the past few years, as well as how the rest of the electronic industry performed. As an investor, I find it beneficial to assess 31’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 China Aerospace International Holdings

Was 31's weak performance lately a part of a long-term decline?

I use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend enables me to examine different companies on a more comparable basis, using new information. For China Aerospace International Holdings, its most recent earnings (trailing twelve month) is HK$486.18M, which, against last year’s figure, has sunken by a large -38.93%. Given that these figures may be somewhat nearsighted, I have calculated an annualized five-year figure for China Aerospace International Holdings's earnings, which stands at HK$536.08M This doesn’t seem to paint a better picture, since earnings seem to have consistently been diminishing over time.

Why is this? Let's examine what's going on with margins and whether the whole industry is experiencing the hit as well. In the past couple of years, revenue growth has been lagging behind which indicates that China Aerospace International Holdings’s bottom line has been driven by unsustainable cost-reductions. Scanning growth from a sector-level, the HK electronic industry has been growing, albeit, at a unexciting single-digit rate of 9.38% in the past year, and 8.82% over the past five years. This suggests that any uplift the industry is deriving benefit from, China Aerospace International Holdings has not been able to leverage it as much as its industry peers.

What does this mean?

Though China Aerospace International Holdings's past data is helpful, it is only one aspect of my investment thesis. Usually companies that experience a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. You should continue to research China Aerospace International Holdings to get a more holistic view of the stock by looking at:

• 1. 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.
• 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.

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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.