Does China Resources Power Holdings Company Limited's (HKG:836) Past Performance Indicate A Weaker Future?

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For investors, increase in profitability and industry-beating performance can be essential considerations in an investment. Below, I will examine China Resources Power Holdings Company Limited's (HKG:836) track record on a high level, to give you some insight into how the company has been performing against its long term trend and its industry peers.

See our latest analysis for China Resources Power Holdings

Commentary On 836's Past Performance

836's trailing twelve-month earnings (from 31 December 2018) of HK$4.0b has declined by -15% 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 -20%, indicating the rate at which 836 is growing has slowed down. What could be happening here? Let's examine what's occurring with margins and whether the rest of the industry is facing the same headwind.

SEHK:836 Income Statement, May 15th 2019

In terms of returns from investment, China Resources Power Holdings has fallen short of achieving a 20% return on equity (ROE), recording 6.5% instead. Furthermore, its return on assets (ROA) of 3.6% is below the HK Renewable Energy industry of 4.3%, indicating China Resources Power Holdings's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for China Resources Power Holdings’s debt level, has declined over the past 3 years from 16% to 9.1%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 110% to 125% over the past 5 years.

What does this mean?

Though China Resources Power Holdings's past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that endure a drawn out period of decline in earnings are going through some sort of reinvestment phase Though if the entire industry is struggling to grow over time, it may be a indicator of a structural change, which makes China Resources Power Holdings and its peers a riskier investment. I suggest you continue to research China Resources Power Holdings to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 836’s future growth? Take a look at our free research report of analyst consensus for 836’s outlook.
  2. Financial Health: Are 836’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 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.