When Fu Yu Corporation Limited (SGX:F13) announced its most recent earnings (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Fu Yu has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see F13 has performed. Check out our latest analysis for Fu Yu
Was F13 weak performance lately part of a long-term decline?
I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique enables me to assess many different companies on a more comparable basis, using the most relevant data points. For Fu Yu, its most recent bottom-line (trailing twelve month) is S$4.48M, which compared to the prior year’s level, has dropped by a significant -57.52%. Given that these values may be somewhat short-term, I have estimated an annualized five-year figure for Fu Yu’s earnings, which stands at S$6.05M This doesn’t look much better, as earnings seem to have consistently been deteriorating over time.
What could be happening here? Well, let’s look at what’s transpiring with margins and if the rest of the industry is facing the same headwind. Over the last couple of years, revenue growth has been lagging behind earnings, which implies that Fu Yu’s bottom line has been propelled by unmaintainable cost-cutting. Looking at growth from a sector-level, the SG machinery industry has been enduring some headwinds in the previous year, leading to an average earnings drop of -15.24%. This is a major change, given that the industry has constantly been delivering a a strong growth of 12.67% in the previous five years. This means that whatever near-term headwind the industry is experiencing, it’s hitting Fu Yu harder than its peers.
What does this mean?
Fu Yu’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that endure a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a sign of a structural change, which makes Fu Yu and its peers a riskier investment. I recommend you continue to research Fu Yu to get a more holistic view of the stock by looking at: