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When Japfa Ltd (SGX:UD2) announced its most recent earnings (31 March 2018), 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 Japfa 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 UD2 has performed. Check out our latest analysis for Japfa
Was UD2’s weak performance lately a part of a long-term decline?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, 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 blend enables me to examine many different companies in a uniform manner using the latest information. For Japfa, its latest earnings (trailing twelve month) is US$15.92M, which compared to last year’s level, has dropped by a large -83.67%. Since these values are fairly short-term thinking, I’ve calculated an annualized five-year value for UD2’s net income, which stands at US$52.34M This doesn’t look much better, since earnings seem to have steadily been declining over the longer term.
Why could this be happening? Let’s examine what’s transpiring with margins and whether the whole industry is experiencing the hit as well. In the last few years, revenue growth has not been able to catch up, which suggests that Japfa’s bottom line has been propelled by unmaintainable cost-cutting. Viewing growth from a sector-level, the SG food industry has been enduring some headwinds in the prior year, leading to average earnings dropping by more than half. This is a a substantial change, given that the industry has been delivering a relatively flat growth rate over the previous few years. This shows that any recent headwind the industry is facing, it’s hitting Japfa harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Usually companies that experience a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase Although, if the whole industry is struggling to grow over time, it may be a sign of a structural change, which makes Japfa and its peers a higher risk investment. I suggest you continue to research Japfa to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for UD2’s future growth? Take a look at our free research report of analyst consensus for UD2’s outlook.
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Financial Health: Is UD2’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.
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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 March 2018. 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.