China Telecom Corporation Limited (HKG:728): Should The Recent Earnings Drop Worry You?

Examining China Telecom Corporation Limited's (SEHK:728) past track record of performance is a valuable exercise for investors. It enables us to understand whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess 728's latest performance announced on 30 September 2017 and weigh these figures against its longer term trend and industry movements. Check out our latest analysis for China Telecom

Despite a decline, did 728 underperform the long-term trend and the industry?

For the purpose of this commentary, I like to 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 method enables me to examine many different companies in a uniform manner using the most relevant data points. For China Telecom, its most recent earnings (trailing twelve month) is CN¥18.96B, which compared to the prior year's figure, has declined by -10.70%. Given that these figures are somewhat nearsighted, I’ve created an annualized five-year figure for 728's net income, which stands at CN¥17.64B This means that though earnings declined against the previous year, over a longer period of time, China Telecom's earnings have been increasing on average.

What's the driver of this growth? Well, let’s take a look at whether it is merely owing to industry tailwinds, or if China Telecom has seen some company-specific growth. The hike in earnings seems to be bolstered by a strong top-line increase outstripping its growth rate of expenses. Though this brought about a margin contraction, it has made China Telecom more profitable. Eyeballing growth from a sector-level, the HK telecom industry has been growing, albeit, at a muted single-digit rate of 4.20% over the prior year, and 3.93% over the past five years. This means whatever recent headwind the industry is facing, it’s hitting China Telecom harder than its peers.

What does this mean?

Though China Telecom's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. You should continue to research China Telecom to get a more holistic view of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for 728’s future growth? Take a look at our free research report of analyst consensus for 728’s outlook.
• 2. Financial Health: Is 728’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 30 September 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.