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 Min Xin Holdings Limited (SEHK:222) useful as an attempt to give more color around how Min Xin Holdings is currently performing. See our latest analysis for Min Xin Holdings
Was 222’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 latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to assess different companies on a more comparable basis, using new information. For Min Xin Holdings, its latest trailing-twelve-month earnings is HK$268.8M, which compared to the prior year’s figure, has declined by -14.22%. Given that these values are relatively nearsighted, I’ve created an annualized five-year value for 222’s net income, which stands at HK$469.1M. This doesn’t seem to paint a better picture, since earnings seem to have gradually been falling over time.
Why could this be happening? Let’s examine what’s going on with margins and if the rest of the industry is facing the same headwind. Over the last few years, Min Xin Holdings has, on average, delivered negative top- and bottom-line growth. As revenues declined by more, expenses have been lowered in order to sustain margins – not the most sustainable operating activity. Eyeballing growth from a sector-level, the HK diversified financial industry has been growing its average earnings by double-digit 15.63% over the past year, and 11.11% over the previous few years. This suggests that any tailwind the industry is enjoying, Min Xin Holdings has not been able to leverage it as much as its industry peers.
What does this mean?
Though Min Xin Holdings’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that face a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I suggest you continue to research Min Xin Holdings to get a more holistic view of the stock by looking at:
1. Financial Health: Is 222’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.