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 Changmao Biochemical Engineering Company Limited (HKG:954) useful as an attempt to give more color around how Changmao Biochemical Engineering is currently performing.
How Did 954’s Recent Performance Stack Up Against Its Past?
954’s trailing twelve-month earnings (from 30 June 2018) of CN¥17.0m has jumped 29.9% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -15.3%, indicating the rate at which 954 is growing has accelerated. What’s enabled this growth? Let’s take a look at if it is merely because of an industry uplift, or if Changmao Biochemical Engineering has experienced some company-specific growth.
Though both top-line and bottom-line growth rates in the past few years were on average negative, earnings were more so. While this has led to a margin contraction, it has softened Changmao Biochemical Engineering’s earnings contraction.
Inspecting growth from a sector-level, the HK chemicals industry has been growing its average earnings by double-digit 29.5% over the past year, and a more muted 2.3% over the past five. This growth is a median of profitable companies of 24 Chemicals companies in HK including Manfield Chemical Holdings, Jiangsu Innovative Ecological New Materials and Tian Chang Group Holdings. This means that any tailwind the industry is deriving benefit from, Changmao Biochemical Engineering is capable of amplifying this to its advantage.
In terms of returns from investment, Changmao Biochemical Engineering has fallen short of achieving a 20% return on equity (ROE), recording 2.7% instead. Furthermore, its return on assets (ROA) of 2.5% is below the HK Chemicals industry of 6.5%, indicating Changmao Biochemical Engineering’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Changmao Biochemical Engineering’s debt level, has declined over the past 3 years from 6.9% to 2.9%.
What does this mean?
Changmao Biochemical Engineering’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be variables that are influencing the entire industry hence the high industry growth rate over the same period of time. You should continue to research Changmao Biochemical Engineering to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 954’s future growth? Take a look at our free research report of analyst consensus for 954’s outlook.
- Financial Health: Are 954’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 30 June 2018. 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 email@example.com.