When Haitian Energy International Limited (HKG:1659) released its most recent earnings update (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Haitian Energy International’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not 1659 actually performed well. Below is a quick commentary on how I see 1659 has performed.
Was 1659’s recent earnings decline worse than the long-term trend and the industry?1659’s trailing twelve-month earnings (from 31 December 2017) of CN¥26.42m has declined by -35.11% 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 33.95%, indicating the rate at which 1659 is growing has slowed down. Why is this? Let’s examine what’s occurring with margins and whether the rest of the industry is feeling the heat.
Revenue growth over the last few years, has been positive, however, earnings growth has not been able to catch up, meaning Haitian Energy International has been growing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the HK renewable energy industry has been relatively flat in terms of earnings growth in the past year, levelling off from a notable 13.51% over the past five years. This growth is a median of profitable companies of 19 Renewable Energy companies in HK including China Power International Development, Huaneng Power International and Panda Green Energy Group. This suggests that whatever near-term headwind the industry is enduring, it’s hitting Haitian Energy International harder than its peers.In terms of returns from investment, Haitian Energy International has not invested its equity funds well, leading to a 6.64% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 5.15% exceeds the HK Renewable Energy industry of 4.22%, indicating Haitian Energy International has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Haitian Energy International’s debt level, has increased over the past 3 years from 3.83% to 4.91%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. You should continue to research Haitian Energy International to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1659’s future growth? Take a look at our free research report of analyst consensus for 1659’s outlook.
- Financial Health: Is 1659’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.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.