Daphne International Holdings Limited (HKG:210): Does The Earnings Decline Make It An Underperformer?

Simply Wall St

For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on Daphne International Holdings Limited (SEHK:210) useful as an attempt to give more color around how Daphne International Holdings is currently performing.

View our latest analysis for Daphne International Holdings

Despite a decline, did 210 underperform the long-term trend and the industry?

210 is loss-making, with the most recent trailing twelve-month earnings of -HK$1.1b (from 31 December 2019), which compared to last year has become more negative. Furthermore, the company's loss seem to be growing over time, with the five-year earnings average of -HK$380.2m. Each year, for the past five years 210 has seen an annual decline in revenue of -25%, on average. This adverse movement is a driver of the company's inability to reach breakeven.

Eyeballing growth from a sector-level, the HK luxury industry has been relatively flat in terms of earnings growth over the last couple of years. This growth is a median of profitable companies of 25 Luxury companies in HK including Yangtzekiang Garment, Citychamp Watch & Jewellery Group and Li & Fung. This means any near-term headwind the industry is facing, it’s hitting Daphne International Holdings harder than its peers.

SEHK:210 Income Statement March 30th 2020

Given that Daphne International Holdings is not profitable, even if operating expenses (SG&A and one-year R&D) continues to fall at previous year’s rate of -19%, the company’s current cash level (HK$182m) will still be insufficient to cover its expenses in the upcoming year. This is not a great sign in terms of operations and cash management. Even though this is analysis is fairly basic, and Daphne International Holdings still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.

What does this mean?

While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to forecast what will occur going forward, and when. The most useful step is to assess company-specific issues Daphne International Holdings may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Daphne International Holdings to get a better picture of the stock by looking at:

  1. Financial Health: Are 210’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.
  2. 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 2019. This may not be consistent with full year annual report figures.

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.

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. Thank you for reading.