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With -133.3% EPS Drop, Should China Mengniu Dairy Company Limited’s (SEHK:2319) Recent Track Record Be A Cause Of Concern?

Declan Brown

After looking at China Mengniu Dairy Company Limited’s (SEHK:2319) latest earnings announcement (30 June 2017), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether China Mengniu Dairy’s performance has been impacted by industry movements. In this article I briefly touch on my key findings. See our latest analysis for 2319

Was 2319’s recent earnings decline indicative of a tough track record?

I look at the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique enables me to assess different companies on a more comparable basis, using the latest information. For China Mengniu Dairy, the most recent earnings -CN¥700.5M, which, relative to the previous year’s figure, has turned from positive to negative. Since these values are somewhat myopic, I have estimated an annualized five-year value for China Mengniu Dairy’s net income, which stands at CN¥1,463.0M.

SEHK:2319 Income Statement Dec 8th 17

We can further evaluate China Mengniu Dairy’s loss by looking at what has been happening in the industry as well as within the company. Initially, I want to quickly look into the line items. Revenue growth over last couple of years has increased by a mere 8.52%. Given that top-line growth is also pretty stale the key to profitability going forward would be managing cost growth rates. Inspecting growth from a sector-level, the HK food products industry has been enduring some headwinds over the past couple of years, leading to an average earnings drop of -2.84% in the most recent year. This suggests that whatever near-term the industry is experiencing, it’s hitting China Mengniu Dairy harder than its peers.

What does this mean?

China Mengniu Dairy’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that incur net loss is always difficult to envisage what will occur going forward, and when. The most valuable step is to examine company-specific issues China Mengniu Dairy may be facing and whether management guidance has consistently been met in the past. I recommend you continue to research China Mengniu Dairy to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 2319’s future growth? Take a look at our free research report of analyst consensus for 2319’s outlook.

2. Financial Health: Is 2319’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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass 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.