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Examining China Aerospace International Holdings Limited’s (HKG:31) past track record of performance is an insightful exercise for investors. It allows us to reflect on whether or not the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess 31’s latest performance announced on 30 June 2018 and compare these figures to its longer term trend and industry movements.
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Did 31’s recent earnings growth beat the long-term trend and the industry?
31’s trailing twelve-month earnings (from 30 June 2018) of HK$449.1m has jumped 19.0% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 11.2%, indicating the rate at which 31 is growing has accelerated. How has it been able to do this? Let’s take a look at whether it is merely because of industry tailwinds, or if China Aerospace International Holdings has experienced some company-specific growth.
In the last few years, China Aerospace International Holdings expanded its bottom line faster than revenue by efficiently controlling its costs. This has led to a margin expansion and profitability over time. Viewing growth from a sector-level, the HK electronic industry has been growing, albeit, at a subdued single-digit rate of 9.7% over the prior twelve months, and a substantial 14.9% over the past five years. This growth is a median of profitable companies of 25 Electronic companies in HK including Truly International Holdings, Prime Intelligence Solutions Group and Yeebo (International Holdings). This means whatever uplift the industry is deriving benefit from, China Aerospace International Holdings is able to leverage this to its advantage.
In terms of returns from investment, China Aerospace International Holdings has fallen short of achieving a 20% return on equity (ROE), recording 6.8% instead. Furthermore, its return on assets (ROA) of 3.4% is below the HK Electronic industry of 5.6%, indicating China Aerospace International Holdings’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for China Aerospace International Holdings’s debt level, has increased over the past 3 years from 2.4% to 3.9%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 21.6% to 15.5% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There could be variables that are affecting the entire industry thus the high industry growth rate over the same period of time. I suggest you continue to research China Aerospace International Holdings to get a more holistic view of the stock by looking at: