Stock Analysis

Tianjin Port Development Holdings (HKG:3382) Is Finding It Tricky To Allocate Its Capital

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SEHK:3382
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To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at Tianjin Port Development Holdings (HKG:3382), so let's see why.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Tianjin Port Development Holdings:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.041 = HK$1.4b ÷ (HK$44b - HK$9.9b) (Based on the trailing twelve months to June 2022).

Therefore, Tianjin Port Development Holdings has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.5%.

See our latest analysis for Tianjin Port Development Holdings

roce
SEHK:3382 Return on Capital Employed September 29th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Tianjin Port Development Holdings, check out these free graphs here.

What Can We Tell From Tianjin Port Development Holdings' ROCE Trend?

In terms of Tianjin Port Development Holdings' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 6.7% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Tianjin Port Development Holdings to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Tianjin Port Development Holdings is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 49% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing to note, we've identified 2 warning signs with Tianjin Port Development Holdings and understanding these should be part of your investment process.

While Tianjin Port Development Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Tianjin Port Development Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About SEHK:3382

Tianjin Port Development Holdings

Tianjin Port Development Holdings Limited, an investment holding company, operates the port of Tianjin in the People’s Republic of China.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth0
Past Performance2
Financial Health6
Dividends5

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet established dividend payer.