When Hua Lien International (Holding) Company Limited (SEHK:969) released its most recent earnings update (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Hua Lien International (Holding)’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not 969 actually performed well. Below is a quick commentary on how I see 969 has performed. See our latest analysis for Hua Lien International (Holding)

How Did 969’s Recent Performance Stack Up Against Its Past?

For the purpose of this commentary, I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This blend allows me to analyze various companies on a similar basis, using the most relevant data points. For Hua Lien International (Holding), its most recent trailing-twelve-month earnings is -HK$91.99M, which compared to the prior year’s figure, has become less negative. Given that these values may be somewhat myopic, I’ve estimated an annualized five-year figure for Hua Lien International (Holding)’s earnings, which stands at -HK$238.35M. This shows that, though net income is negative, it has become less negative over the years.

We can further evaluate Hua Lien International (Holding)’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the past five years Hua Lien International (Holding) has seen an annual decline in revenue of -4.05%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Has the entire industry experienced this headwind? Viewing growth from a sector-level, the HK commercial services industry has been relatively flat in terms of earnings growth in the previous twelve months, evening out from a solid 10.45% over the past half a decade. This shows that even though Hua Lien International (Holding) is currently running a loss, whatever recent headwind the industry is experiencing, the impact on Hua Lien International (Holding) has been softer relative to its peers.

What does this mean?

Though Hua Lien International (Holding)’s past data is helpful, it is only one aspect of my investment thesis. Companies that incur net loss is always difficult to envisage what will happen in the future and when. The most valuable step is to examine company-specific issues Hua Lien International (Holding) may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Hua Lien International (Holding) to get a more holistic view of the stock by looking at:

1. Financial Health: Is 969’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.

2. Valuation: What is 969 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 969 is currently mispriced by the market.

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 31 December 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.