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After reading Tai Sin Electric Limited’s (SGX:500) most recent earnings announcement (31 March 2018), 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. Check out our latest analysis for Tai Sin Electric
Was 500 weak performance lately part of a long-term decline?
For the purpose of this commentary, 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 technique allows me to examine different stocks on a similar basis, using new information. For Tai Sin Electric, its latest earnings (trailing twelve month) is S$11.92M, which, in comparison to the previous year’s level, has fallen by a non-trivial -51.98%. Given that these values may be relatively short-term thinking, I’ve created an annualized five-year figure for 500’s net income, which stands at S$18.80M This doesn’t look much better, as earnings seem to have consistently been declining over the longer term.
Why could this be happening? Well, let’s take a look at what’s transpiring with margins and if the whole industry is feeling the heat. Over the last couple of years, revenue growth has fallen behind which indicates that Tai Sin Electric’s bottom line has been propelled by unsustainable cost-reductions. Viewing growth from a sector-level, the SG electrical industry has been enduring some headwinds over the past year, leading to average earnings dropping by more than half. This is a a notable change, given that the industry has been delivering a relatively flat growth rate over the past couple of years. This means whatever near-term headwind the industry is facing, it’s hitting Tai Sin Electric harder than its peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Typically companies that experience a drawn out period of diminishing earnings are going through some sort of reinvestment phase Though if the whole industry is struggling to grow over time, it may be a indicator of a structural shift, which makes Tai Sin Electric and its peers a higher risk investment. You should continue to research Tai Sin Electric to get a more holistic view of the stock by looking at: