For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Zhongmin Baihui Retail Group Ltd (SGX:5SR) useful as an attempt to give more color around how Zhongmin Baihui Retail Group is currently performing.

See our latest analysis for Zhongmin Baihui Retail Group

Was 5SR’s recent earnings decline indicative of a tough track record?

5SR’s trailing twelve-month earnings (from 30 June 2018) of CN¥51.6m has declined by -18.7% 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 28.0%, indicating the rate at which 5SR is growing has slowed down. What could be happening here? Let’s examine what’s occurring with margins and if the entire industry is feeling the heat.

In the past few years, revenue growth has failed to keep up which implies that Zhongmin Baihui Retail Group’s bottom line has been propelled by unsustainable cost-reductions. Inspecting growth from a sector-level, the SG multiline retail industry has been growing its average earnings by double-digit 36.4% over the past twelve months, and a more subdued 8.0% over the previous five years. Since the Multiline Retail sector in SG is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as Isetan (Singapore), Metro Holdings and . This shows that any uplift the industry is benefiting from, Zhongmin Baihui Retail Group has not been able to leverage it as much as its average peer.

In terms of returns from investment, Zhongmin Baihui Retail Group has invested its equity funds well leading to a 26.5% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.2% exceeds the SG Multiline Retail industry of 5.8%, indicating Zhongmin Baihui Retail Group has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Zhongmin Baihui Retail Group’s debt level, has declined over the past 3 years from 38.8% to 28.4%.

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 impacting its business. You should continue to research Zhongmin Baihui Retail Group to get a more holistic view of the stock by looking at: