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After looking at China Resources Beer (Holdings) Company Limited’s (SEHK:291) latest earnings update (30 June 2017), I found it helpful to revisit the company’s performance in the past couple of years and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is an important aspect. In this article I briefly touch on my key findings. View our latest analysis for China Resources Beer (Holdings)
Commentary On 291’s Past Performance
I like to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This blend allows me to analyze different stocks in a uniform manner using the most relevant data points. For China Resources Beer (Holdings), its most recent trailing-twelve-month earnings is CN¥1.19B, which, against the prior year’s level, has risen by 26.89%. Since these values are somewhat nearsighted, I have determined an annualized five-year value for 291’s net income, which stands at CN¥1.71B This means though earnings increased from last year’s level, over the long run, China Resources Beer (Holdings)’s earnings have been declining on average.
Why could this be happening? Well, let’s take a look at what’s occurring with margins and whether the whole industry is experiencing the hit as well. In the past few years, China Resources Beer (Holdings) has, on average, delivered negative top- and bottom-line growth. As revenues declined by more, expenses have been slashed in order to maintain margins – not the most sustainable operating activity. Scanning growth from a sector-level, the HK beverage industry has been growing, albeit, at a subdued single-digit rate of 6.42% over the prior twelve months, . This is a turnaround from a volatile drop of -4.70% in the last couple of years. This means in the recent industry expansion, China Resources Beer (Holdings) is capable of leveraging this to its advantage.
What does this mean?
China Resources Beer (Holdings)’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be factors that are impacting the industry as a whole, hence the high industry growth rate over the same time period. You should continue to research China Resources Beer (Holdings) to get a more holistic view of the stock by looking at: