Examining Zhong Hua International Holdings Limited’s (HKG:1064) 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 1064’s latest performance announced on 31 December 2017 and weight these figures against its longer term trend and industry movements. Check out our latest analysis for Zhong Hua International Holdings

How Well Did 1064 Perform?

1064’s trailing twelve-month earnings (from 31 December 2017) of HK$18.61m has more than halved from HK$58.63m in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 10.09%, indicating the rate at which 1064 is growing has slowed down. Why is this? Well, let’s look at what’s going on with margins and whether the entire industry is facing the same headwind.

In the last couple of years, revenue growth has failed to keep up which indicates that Zhong Hua International Holdings’s bottom line has been driven by unmaintainable cost-reductions. Inspecting growth from a sector-level, the HK real estate industry has been growing its average earnings by double-digit 46.60% over the prior year, and a less exciting 4.90% over the past five. This means whatever tailwind the industry is profiting from, Zhong Hua International Holdings has not been able to realize the gains unlike its industry peers.

In terms of returns from investment, Zhong Hua International Holdings has not invested its equity funds well, leading to a 3.08% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 0.55% is below the HK Real Estate industry of 4.02%, indicating Zhong Hua International Holdings’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for Zhong Hua International Holdings’s debt level, has increased over the past 3 years from 0.046% to 0.15%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 5.43% to 2.90% over the past 5 years.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Typically companies that experience a prolonged period of decline in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. I suggest you continue to research Zhong Hua International Holdings to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1064’s future growth? Take a look at our free research report of analyst consensus for 1064’s outlook.

2. Financial Health: Is 1064’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.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.