How Dah Chong Hong Holdings Limited’s (HKG:1828) Earnings Growth Stacks Up Against The Industry
In this article, I will take a look at Dah Chong Hong Holdings Limited’s (HKG:1828) most recent earnings update (31 December 2017) and compare these latest figures against its performance over the past few years, along with how the rest of 1828’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time.
View our latest analysis for Dah Chong Hong Holdings
Could 1828 beat the long-term trend and outperform its industry?
1828’s trailing twelve-month earnings (from 31 December 2017) of HK$802.0m has jumped 56.9% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -15.7%, indicating the rate at which 1828 is growing has accelerated. What’s the driver of this growth? Well, let’s take a look at if it is solely because of an industry uplift, or if Dah Chong Hong Holdings has experienced some company-specific growth.
Over the last couple of years, Dah Chong Hong Holdings top-line expansion has outstripped earnings and the growth rate of expenses. Though this has caused a margin contraction, it has cushioned Dah Chong Hong Holdings’s earnings contraction. Viewing growth from a sector-level, the HK retail distributors industry has been increasing growth, more than doubling average earnings over the past twelve months, and a flatter 1.1% over the last five years. This growth is a median of profitable companies of 11 Retail Distributors companies in HK including Nimble Holdings, China Animation Characters and G.A. Holdings. This shows that whatever tailwind the industry is enjoying, Dah Chong Hong Holdings has not been able to gain as much as its average peer.
In terms of returns from investment, Dah Chong Hong Holdings has fallen short of achieving a 20% return on equity (ROE), recording 8.8% instead. Furthermore, its return on assets (ROA) of 3.6% is below the HK Retail Distributors industry of 4.3%, indicating Dah Chong Hong Holdings’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Dah Chong Hong Holdings’s debt level, has declined over the past 3 years from 7.8% to 7.6%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There could be variables that are affecting the industry as a whole, hence the high industry growth rate over the same time frame. I recommend you continue to research Dah Chong Hong Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1828’s future growth? Take a look at our free research report of analyst consensus for 1828’s outlook.
Financial Health: Are 1828’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.
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 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 editorial-team@simplywallst.com.
