In this commentary, I will examine Huaneng Power International Inc’s (SEHK:902) latest earnings update (30 September 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the renewable energy industry performed. As an investor, I find it beneficial to assess 902’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. Check out our latest analysis for Huaneng Power International
How Did 902’s Recent Performance Stack Up Against Its Past?
I prefer to use data from the most recent 12 months, 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 analyze many different companies on a more comparable basis, using the most relevant data points. For Huaneng Power International, its most recent trailing-twelve-month earnings is CN¥543.72M, which, relative to the prior year’s figure, has plunged by a significant -95.35%. Given that these values may be somewhat short-term thinking, I’ve estimated an annualized five-year figure for Huaneng Power International’s net income, which stands at CN¥8.10B This doesn’t seem to paint a better picture, since earnings seem to have consistently been diminishing over time.
Why is this? Well, let’s take a look at what’s occurring with margins and if the entire industry is feeling the heat. In the last few years, revenue growth has not been able to keep up with, earnings, which indicates that Huaneng Power International’s bottom line has been driven by unsustainable cost-cutting. Viewing growth from a sector-level, the HK renewable energy industry has been growing, albeit, at a muted single-digit rate of 2.53% in the prior twelve months, and a substantial 11.02% over the last five years. This suggests that any recent headwind the industry is facing, it’s hitting Huaneng Power International harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that face a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase . Though if the whole industry is struggling to grow over time, it may be a signal of a structural shift, which makes Huaneng Power International and its peers a higher risk investment. I recommend you continue to research Huaneng Power International to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for 902’s future growth? Take a look at our free research report of analyst consensus for 902’s outlook.
- 2. Financial Health: Is 902’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.
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.