When Karrie International Holdings Limited’s (HKG:1050) announced its latest earnings (31 March 2018), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Karrie International Holdings’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not 1050 actually performed well. Below is a quick commentary on how I see 1050 has performed.

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How Did 1050’s Recent Performance Stack Up Against Its Past?

1050’s trailing twelve-month earnings (from 31 March 2018) of HK$218m has jumped 15% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 37%, indicating the rate at which 1050 is growing has slowed down. To understand what’s happening, let’s look at what’s occurring with margins and whether the rest of the industry is facing the same headwind.

Over the last couple of years, revenue growth has fallen behind which suggests that Karrie International Holdings’s bottom line has been propelled by unsustainable cost-reductions.

Eyeballing growth from a sector-level, the HK electronic industry has been growing its average earnings by double-digit 13% in the past twelve months, and 17% over the last five years. This growth is a median of profitable companies of 25 Electronic companies in HK including Prime Intelligence Solutions Group, Yeebo (International Holdings) and Pantronics Holdings. This suggests that any tailwind the industry is enjoying, Karrie International Holdings is capable of amplifying this to its advantage.

In terms of returns from investment, Karrie International Holdings has fallen short of achieving a 20% return on equity (ROE), recording 18% instead. However, its return on assets (ROA) of 8.8% exceeds the HK Electronic industry of 5.7%, indicating Karrie International Holdings has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Karrie International Holdings’s debt level, has increased over the past 3 years from 6.9% to 15%.

What does this mean?

Though Karrie International Holdings’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Karrie International Holdings to get a better picture of the stock by looking at: