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Investors with a long-term horizong may find it valuable to assess China Development Bank International Investment Limited’s (HKG:1062) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how China Development Bank International Investment is currently performing.
See our latest analysis for China Development Bank International Investment
Despite a decline, did 1062 underperform the long-term trend and the industry?
1062’s trailing twelve-month earnings (from 30 June 2018) of HK$140.5m has declined by -38.9% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 44.2%, indicating the rate at which 1062 is growing has slowed down. Why could this be happening? Well, let’s look at what’s going on with margins and if the whole industry is facing the same headwind.
In the past few years, revenue growth has failed to keep up which indicates that China Development Bank International Investment’s bottom line has been driven by unmaintainable cost-reductions.
Scanning growth from a sector-level, the HK capital markets industry has been growing, albeit, at a unexciting single-digit rate of 2.3% in the previous year, and a substantial 14.9% over the previous five years. This growth is a median of profitable companies of 24 Capital Markets companies in HK including Astrum Financial Holdings, Pinestone Capital and Future World Financial Holdings. This shows that whatever near-term headwind the industry is enduring, it’s hitting China Development Bank International Investment harder than its peers.
In terms of returns from investment, China Development Bank International Investment has fallen short of achieving a 20% return on equity (ROE), recording 8.8% instead. However, its return on assets (ROA) of 7.1% exceeds the HK Capital Markets industry of 2.8%, indicating China Development Bank International Investment has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for China Development Bank International Investment’s debt level, has increased over the past 3 years from 7.5% to 8.8%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors affecting its business. I recommend you continue to research China Development Bank International Investment to get a more holistic view of the stock by looking at: