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Should You Be Concerned With Hong Leong Asia Ltd.'s (SGX:H22) -18% Earnings Drop?

Simply Wall St

After looking at Hong Leong Asia Ltd.'s (SGX:H22) latest earnings update (30 June 2019), I found it helpful to revisit the company's performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings.

View our latest analysis for Hong Leong Asia

Commentary On H22's Past Performance

H22 recently turned a profit of S$30m (most recent trailing twelve-months) compared to its average loss of -S$7.9m over the past five years.

SGX:H22 Income Statement, September 2nd 2019

In terms of returns from investment, Hong Leong Asia has fallen short of achieving a 20% return on equity (ROE), recording 6.8% instead. Furthermore, its return on assets (ROA) of 1.1% is below the SG Machinery industry of 5.8%, indicating Hong Leong Asia's are utilized less efficiently. However, its return on capital (ROC), which also accounts for Hong Leong Asia’s debt level, has increased over the past 3 years from 1.9% to 6.8%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 40% to 37% over the past 5 years.

What does this mean?

Hong Leong Asia's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. I recommend you continue to research Hong Leong Asia to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for H22’s future growth? Take a look at our free research report of analyst consensus for H22’s outlook.
  2. Financial Health: Are H22’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 June 2019. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.