Examining The Bank of East Asia Limited’s (SEHK:23) past track record of performance is a useful exercise for investors. It allows us to reflect on whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess 23’s latest performance announced on 30 June 2017 and weight these figures against its longer term trend and industry movements. View our latest analysis for Bank of Eastia
Was 23 weak performance lately part of a long-term decline?
I prefer 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 blend allows me to assess many different companies in a uniform manner using the most relevant data points. Bank of Eastia’s latest earnings is HK$3,068.0M, which, in comparison to last year’s level, has plunged by -8.17%. Given that these values are relatively nearsighted, I have estimated an annualized five-year figure for 23’s earnings, which stands at HK$4,893.1M. This doesn’t look much better, as earnings seem to have consistently been deteriorating over time.
Why is this? Let’s examine what’s going on with margins and if the entire industry is facing the same headwind. Revenue growth in the last couple of years, has been positive, nevertheless earnings growth has been falling. This suggest that Bank of Eastia has been ramping up expenses, which is harming margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the HK banks industry has been growing, albeit, at a unexciting single-digit rate of 4.21% in the previous twelve months, and 6.05% over the past five years. This means that whatever near-term headwind the industry is experiencing, it’s hitting Bank of Eastia harder than its peers.
What does this mean?
Though Bank of Eastia’s past data is helpful, it is only one aspect of my investment thesis. Typically companies that experience a prolonged period of reduction in earnings are going through some sort of reinvestment phase . Though if the whole industry is struggling to grow over time, it may be a indicator of a structural change, which makes Bank of Eastia and its peers a higher risk investment. I suggest you continue to research Bank of Eastia to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for 23’s future growth? Take a look at our free research report of analyst consensus for 23’s outlook.