Was China Titans Energy Technology Group Co., Limited's (HKG:2188) Earnings Decline Part Of A Broader Industry Downturn?

Increase in profitability and industry-beating performance can be essential considerations in a stock for some investors. In this article, I will take a look at China Titans Energy Technology Group Co., Limited's (SEHK:2188) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.

See our latest analysis for China Titans Energy Technology Group

Was 2188's weak performance lately a part of a long-term decline?

2188 is loss-making, with the most recent trailing twelve-month earnings of -CN¥47.6m (from 31 December 2019), which compared to last year has become more negative. Over the past five years, its average earnings level was positive at CN¥1.9m, which meant its expenses has only exceeded revenues recently, pulling 2188 into the loss-making zone.

Each year, for the past five years 2188 has seen an annual increase in operating expense growth, outpacing revenue growth of 9.4%, on average. This adverse movement is a driver of the company's inability to reach breakeven.

Eyeballing growth from a sector-level, the HK electrical industry has been growing, albeit, at a muted single-digit rate of 6.7% in the previous year, and 7.7% over the last five years. This growth is a median of profitable companies of 19 Electrical companies in HK including Huan Yue Interactive Holdings, Xinyi Automobile Glass Hong Kong Enterprises and Honbridge Holdings. This means whatever uplift the industry is enjoying, China Titans Energy Technology Group has not been able to gain as much as its industry peers.

Since China Titans Energy Technology Group is loss-making, with operating expenses (opex) growing year-on-year at 1.1%, it may need to raise more cash over the next year. It currently has CN¥100m in cash and short-term investments, however, opex (SG&A and one-year R&D) reachedCN¥108m in the latest twelve months. Even though this is analysis is fairly basic, and China Titans Energy Technology Group still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, the analysis still helps us understand how sustainable the China Titans Energy Technology Group’s operation is, and when things may have to change.

What does this mean?

China Titans Energy Technology Group's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Companies that incur net loss is always difficult to forecast what will happen in the future and when. The most valuable step is to assess company-specific issues China Titans Energy Technology Group may be facing and whether management guidance has consistently been met in the past. You should continue to research China Titans Energy Technology Group to get a better picture of the stock by looking at:

1. Financial Health: Are 2188’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.

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