After reading Sino Hotels (Holdings) Limited’s (SEHK:1221) latest earnings update (30 June 2017), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether 1221 has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. See our latest analysis for Sino Hotels (Holdings)
Could 1221 beat the long-term trend and outperform its industry?
I look at the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to examine many different companies on a similar basis, using the most relevant data points. For Sino Hotels (Holdings), its most recent trailing-twelve-month earnings is HK$177.9M, which, in comparison to the previous year’s level, has grown by a relatively soft 7.47%. Since these values may be somewhat short-term, I have estimated an annualized five-year value for 1221’s net income, which stands at HK$208.0M. This shows that, even though earnings growth from last year was positive, in the long run, Sino Hotels (Holdings)’s earnings have been deteriorating on average.
Why is this? Well, let’s take a look at what’s occurring with margins and if the entire industry is facing the same headwind. Although revenue growth in the past few years, has been negative, earnings growth has been deteriorating by even more, implying that Sino Hotels (Holdings) has been growing its expenses. This harms margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the HK hospitality industry has been enduring some headwinds over the previous few years, leading to an average earnings drop of -8.14% in the most recent year. This suggests that any recent headwind the industry is enduring, Sino Hotels (Holdings) is relatively better-cushioned than its peers.
What does this mean?
Though Sino Hotels (Holdings)’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company.
I suggest you continue to research Sino Hotels (Holdings) to get a better picture of the stock by looking at:
1. Financial Health: Is 1221’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.