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With 30.96% Earnings Growth, Did Sands China Ltd (HKG:1928) Outperform The Industry?

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Sands China Ltd (HKG:1928) useful as an attempt to give more color around how Sands China is currently performing. View out our latest analysis for Sands China

Commentary On 1928’s Past Performance

1928’s trailing twelve-month earnings (from 31 December 2017) of HK$1.60b has jumped 30.96% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 2.33%, indicating the rate at which 1928 is growing has accelerated. What’s the driver of this growth? Let’s see whether it is only attributable to industry tailwinds, or if Sands China has seen some company-specific growth.

The hike in earnings seems to be propelled by a substantial top-line increase overtaking its growth rate of costs. Though this has led to a margin contraction, it has made Sands China more profitable. Viewing growth from a sector-level, the HK hospitality industry has been growing its average earnings by double-digit 26.50% over the prior twelve months, . This is a change from a volatile drop of -4.09% in the last couple of years. This means that, in the recent industry expansion, Sands China is able to leverage this to its advantage.

SEHK:1928 Income Statement June 22nd 18
SEHK:1928 Income Statement June 22nd 18

In terms of returns from investment, Sands China has invested its equity funds well leading to a 35.32% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 16.45% exceeds the HK Hospitality industry of 3.85%, indicating Sands China has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Sands China’s debt level, has declined over the past 3 years from 26.46% to 18.09%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 58.37% to 97.22% over the past 5 years.

What does this mean?

Though Sands China’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be variables that are impacting the industry as a whole, thus the high industry growth rate over the same time period. You should continue to research Sands China to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 1928’s future growth? Take a look at our free research report of analyst consensus for 1928’s outlook.

  2. Financial Health: Is 1928’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 31 December 2017. 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.

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