Honghua Group Ltd reports 117% CAPEX growth while 46.0% Revenue decline
30/03/2016 • About Honghua Group Ltd (
$196) • By InTwits
Honghua Group Ltd reported 2015 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Honghua Group Ltd doesn't have a profitable business model yet: 2015 ROIC is -0.4%
- EBITDA Margin is declining: 7.4% in 2015 vs. 9.1% in 2014 vs. 9.7% in 2011
- Honghua Group Ltd has high CAPEX intensity: 5 year average CAPEX/Revenue was 14.0%. At the same time it's a lot of higher than industry average of 5.9%.
- CAPEX is quite volatile: 1,153 in 2015, 532 in 2014, 1,177 in 2013, 583 in 2012, 344 in 2011
- The company has unprofitable business model: ROIC is at -0.4%
- It operates with high leverage: Net Debt/EBITDA is 14.2x while industry average is 5.1x
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.
Honghua Group Ltd ($196) key annual financial indicators
| mln. CNY | 2011 | 2012 | 2013 | 2014 | 2015 | 2015/2014 |
|---|
P&L
|
|---|
| Revenue | 3,485 | 5,068 | 8,047 | 7,813 | 4,219 | -46.0% |
| Gross Profit | 970 | 1,747 | 1,905 | 1,630 | 947 | -41.9% |
| SG&A | 794 | 1,080 | 1,120 | 1,326 | 1,057 | -20.3% |
| EBITDA | 337 | 819 | 1,090 | 711 | 312 | -56.2% |
| Net Income | 168 | 529 | 538 | 92 | -252 | -374.8% |
Balance Sheet
|
|---|
| Cash | 861 | 984 | 1,275 | 1,442 | 1,103 | -23.5% |
| Short Term Debt | 500 | 1,246 | 3,274 | 2,807 | 3,190 | 13.6% |
| Long Term Debt | 380 | 738 | 1,458 | 2,320 | 2,332 | 0.5% |
Cash flow
|
|---|
| Capex | 344 | 583 | 1,177 | 532 | 1,153 | 116.7% |
Ratios
|
|---|
| Revenue growth | 85.6% | 45.4% | 58.8% | -2.9% | -46.0% | |
| EBITDA growth | -1,220.1% | 142.8% | 33.0% | -34.8% | -56.2% | |
| Gross Margin | 27.8% | 34.5% | 23.7% | 20.9% | 22.4% | 1.6% |
| EBITDA Margin | 9.7% | 16.2% | 13.5% | 9.1% | 7.4% | -1.7% |
| Net Income Margin | 4.8% | 10.4% | 6.7% | 1.2% | -6.0% | -7.2% |
| SG&A, % of revenue | 22.8% | 21.3% | 13.9% | 17.0% | 25.0% | 8.1% |
| CAPEX, % of revenue | 9.9% | 11.5% | 14.6% | 6.8% | 27.3% | 20.5% |
| ROIC | 4.7% | 11.3% | 10.2% | 4.0% | -0.4% | -4.4% |
| ROE | 4.2% | 12.4% | 11.7% | 1.9% | -5.4% | -7.4% |
| Net Debt/EBITDA | 0.1x | 1.2x | 3.2x | 5.2x | 14.2x | 9.0x |
Revenue and profitability
The company's Revenue dropped on 46.0% in 2015. Revenue decline was worsened by EBITDA margin decline. EBITDA Margin decreased slightly on 1.7 pp from 9.1% to 7.4% in 2015.
Gross Margin increased slightly on 1.6 pp from 20.9% to 22.4% in 2015. SG&A as a % of Revenue increased on 8.1 pp from 17.0% to 25.0% in 2015.
Net Income marign decreased on 7.2 pp from 1.2% to -6.0% in 2015.
Capital expenditures (CAPEX) and working capital investments
The company's CAPEX/Revenue was 27.3% in 2015. Honghua Group Ltd's CAPEX/Revenue jumped on 15.8 pp from 11.5% in 2012 to 27.3% in 2015. It's average CAPEX/Revenue for the last three years was 16.3%.Honghua Group Ltd has spent a lot to CAPEX (370% of EBITDA) which didn't stop revenue from falling.
Return on investment
The company operates at negative ROIC (-0.42%) and ROE (-5.43%). ROIC decreased on 4.4 pp from 4.0% to -0.42% in 2015. ROE decreased on 7.4 pp from 1.9% to -5.4% in 2015.
Leverage (Debt)
Company's Net Debt / EBITDA is 14.2x and Debt / EBITDA is 17.7x. Net Debt / EBITDA jumped on 9.0x from 5.2x to 14.2x in 2015. Debt increased on 7.7% in 2015 while cash dropped on 23.5% in 2015.
Management team
The company's CEO is Zhang Mi. Zhang Mi has 10 years tenure at the company.
Appendix 1: Peers in Machinery-Diversified
Below you can find Honghua Group Ltd benchmarking vs. other companies in Machinery-Diversified industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Sun East Technology Holdings Ltd ($365) | | -25.1% | -10.7% | 39.3% | 6.4% |
| Shanghai Prime Machinery Co Ltd ($2345) | | 2.6% | -8.9% | 37.3% | 52.8% |
| Sinoref Holdings Ltd ($1020) | 1.5% | -0.2% | -42.2% | 29.2% | |
| North Asia Strategic Holdings Ltd ($8080) | | -52.2% | -29.1% | 23.7% | 42.6% |
| Huazhang Technology Holding Ltd ($1673) | | 131.6% | 9.5% | 22.9% | 23.5% |
| |
|---|
| Median (23 companies) | 19.3% | -6.8% | -4.2% | 1.1% | -3.0% |
|---|
| Honghua Group Ltd ($196) | | 45.4% | 58.8% | -2.9% | -46.0% |
Top companies by Gross margin, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Jingwei Textile Machinery ($350) | 38.3% | 49.1% | 51.7% | 54.9% | 65.5% |
| Wuxi Sunlit Science and Technology Co Ltd ($1289) | 45.5% | 59.7% | 58.3% | 48.6% | 26.7% |
| Renheng Enterprise Holdings Ltd ($3628) | 36.4% | 44.3% | 44.8% | 45.4% | |
| Haitian International Holdings Ltd ($1882) | 29.7% | 30.1% | 31.6% | 32.4% | 33.0% |
| CHTC Fong's Industries Co Ltd ($641) | 26.5% | 24.4% | 30.0% | 32.3% | 31.2% |
| |
|---|
| Median (23 companies) | 23.8% | 23.8% | 21.5% | 18.7% | 20.9% |
|---|
| Honghua Group Ltd ($196) | 27.8% | 34.5% | 23.7% | 20.9% | 22.4% |
Top companies by EBITDA margin, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Wuxi Sunlit Science and Technology Co Ltd ($1289) | 31.1% | 46.8% | 48.7% | 46.6% | -134.1% |
| Jingwei Textile Machinery ($350) | 18.5% | 24.0% | 26.9% | 28.0% | 28.5% |
| Haitian International Holdings Ltd ($1882) | 20.5% | 19.7% | 20.7% | 21.9% | 22.8% |
| Renheng Enterprise Holdings Ltd ($3628) | 22.9% | 24.7% | 23.9% | 20.7% | |
| Good Friend International Holdings Inc ($2398) | 11.7% | 6.7% | 9.1% | 12.9% | |
| |
|---|
| Median (23 companies) | 9.6% | 8.7% | 8.6% | 8.5% | 5.7% |
|---|
| Honghua Group Ltd ($196) | 9.7% | 16.2% | 13.5% | 9.1% | 7.4% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| China High Precision Automation Group Ltd ($591) | 33.0% | 20.5% | 9.1% | 18.4% | 0.6% |
| Shandong Molong Petroleum Machinery Co Ltd ($568) | 14.9% | 20.5% | 20.3% | 11.6% | 15.6% |
| LK Technology Holdings Ltd ($558) | 7.6% | 9.3% | 10.2% | 9.1% | 5.6% |
| Wuxi Sunlit Science and Technology Co Ltd ($1289) | 1.3% | 2.3% | 10.1% | 7.8% | 31.9% |
| First Tractor Co Ltd ($38) | 6.3% | 4.9% | 4.3% | 7.3% | 4.3% |
| |
|---|
| Median (23 companies) | 5.3% | 4.2% | 3.6% | 4.2% | 2.4% |
|---|
| Honghua Group Ltd ($196) | 9.9% | 11.5% | 14.6% | 6.8% | 27.3% |
Top companies by ROIC, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Wuxi Sunlit Science and Technology Co Ltd ($1289) | | 52.8% | 28.7% | 20.8% | -14.5% |
| Haitian International Holdings Ltd ($1882) | 26.8% | 19.8% | 21.2% | 19.4% | 16.3% |
| Jingwei Textile Machinery ($350) | 23.3% | 19.4% | 20.9% | 17.4% | 14.9% |
| Huazhang Technology Holding Ltd ($1673) | | 29.6% | 16.2% | 16.3% | 16.2% |
| Good Friend International Holdings Inc ($2398) | 20.0% | 6.5% | 8.7% | 12.1% | |
| |
|---|
| Median (23 companies) | 9.9% | 7.1% | 4.0% | 2.6% | 1.9% |
|---|
| Honghua Group Ltd ($196) | 4.7% | 11.3% | 10.2% | 4.0% | -0.4% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| First Tractor Co Ltd ($38) | 1.1x | 0.5x | 2.5x | 9.2x | 6.3x |
| Shanghai Prime Machinery Co Ltd ($2345) | -0.0x | -0.6x | 0.3x | 6.0x | 3.2x |
| Shandong Molong Petroleum Machinery Co Ltd ($568) | 1.9x | 3.0x | 11.4x | 5.6x | 129.4x |
| LK Technology Holdings Ltd ($558) | 0.9x | 2.5x | 5.1x | 4.9x | 4.6x |
| CHTC Fong's Industries Co Ltd ($641) | 3.4x | | 2.2x | 2.5x | 3.5x |
| |
|---|
| Median (19 companies) | -0.5x | -1.1x | -1.0x | -0.6x | -0.4x |
|---|
| Honghua Group Ltd ($196) | 0.1x | 1.2x | 3.2x | 5.2x | 14.2x |
