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After reading Duty Free International Limited’s (SGX:5SO) most recent earnings announcement (30 November 2017), I found it useful to look back at how the company has performed in the past 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 a crucial aspect. Below is a brief commentary on my key takeaways. See our latest analysis for Duty Free International
Was 5SO’s recent earnings decline worse than the long-term trend and the industry?
I like to use the ‘latest twelve-month’ data, 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 method allows me to analyze different companies on a similar basis, using new information. For Duty Free International, its latest trailing-twelve-month earnings is RM50.19M, which compared to the prior year’s level, has declined by a substantial -33.84%. Given that these figures may be relatively short-term, I have computed an annualized five-year value for 5SO’s earnings, which stands at RM56.70M This doesn’t seem to paint a better picture, as earnings seem to have steadily been declining over the longer term.
Why is this? Well, let’s take a look at what’s going on with margins and whether the whole industry is experiencing the hit as well. In the last couple of years, revenue growth has not been able to catch up, which implies that Duty Free International’s bottom line has been propelled by unsustainable cost-reductions. Scanning growth from a sector-level, the SG specialty retail industry has been growing its average earnings by double-digit 38.54% in the past twelve months, . This is a turnaround from a volatile drop of -6.71% in the last few years. This shows that, in the recent industry expansion, Duty Free International has not been able to realize the gains unlike its average peer.
What does this mean?
Duty Free International’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that face a prolonged period of decline in earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry disruption and growth. I recommend you continue to research Duty Free International to get a more holistic view of the stock by looking at: