Understanding China Telecom Corporation Limited’s (HKG:728) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how China Telecom is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period.
Were 728’s earnings stronger than its past performances and the industry?
728’s trailing twelve-month earnings (from 30 June 2018) of CN¥19.6b has increased by 3.9% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 2.3%, indicating the rate at which 728 is growing has accelerated. What’s enabled this growth? Well, let’s take a look at if it is merely because of industry tailwinds, or if China Telecom has experienced some company-specific growth.
The climb in earnings seems to be supported by a robust top-line increase outpacing its growth rate of expenses. Though this brought about a margin contraction, it has made China Telecom more profitable.
Looking at growth from a sector-level, the HK telecom industry has been growing its average earnings by double-digit 20% over the past twelve months, and a flatter -0.05% over the past five years. This growth is a median of profitable companies of 8 Telecom companies in HK including CITIC Telecom International Holdings, China Communications Services and APT Satellite Holdings. This suggests that, in the recent industry expansion, China Telecom has not been able to realize the gains unlike its industry peers.
In terms of returns from investment, China Telecom has fallen short of achieving a 20% return on equity (ROE), recording 5.9% instead. Furthermore, its return on assets (ROA) of 3.4% is below the HK Telecom industry of 5.1%, indicating China Telecom’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for China Telecom’s debt level, has increased over the past 3 years from 6.3% to 6.7%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 43% to 25% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. While China Telecom has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I recommend you continue to research China Telecom to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 728’s future growth? Take a look at our free research report of analyst consensus for 728’s outlook.
- Financial Health: Are 728’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.