CNinsure, Inc. :CISG-US: Earnings Analysis: Q3, 2016 By the Numbers : November 28, 2016

CNinsure, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of CNinsure, Inc. – Willis Towers Watson Public Limited Company, CorVel Corporation and Crawford & Company Class B (WLTW-US, CRVL-US and CRD.B-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 178.81 million, Net Earnings of USD 4.81 million.
  • Gross margins narrowed from 24.09% to 23.47% compared to the same period last year, operating (EBITDA) margins now 1.67% from 4.00%.
  • Year-on-year change in operating cash flow of -49.36% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 178.81 162.25 139.01 134.32 113.53
Revenue Growth (%YOY) 57.51 49.7 49.68 30.66 28.78
Earnings (mil) 4.81 4.72 2.96 8.6 6.63
Earnings Growth (%YOY) -27.43 -63.48 -43.95 95.62 17.3
Net Margin (%) 2.69 2.91 2.13 6.41 5.84
EPS 0.09 0.09 0.06 0.16 0.1
Return on Equity (%) 3.58 3.4 2.07 6.05 4.66
Return on Assets (%) 2.96 2.84 1.78 5.29 4.11

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Market Share Versus Profits

Revenues History
Earnings History

CISG-US‘s change in revenue this period compared to the same period last year of 57.51% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CISG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 10.21% and earnings by 2.02% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 24.09% to 23.47%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 4.00% to 1.67% in this time frame. For comparison, gross margins were 23.08% and EBITDA margins were -0.33% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CISG-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 217.55 days from 375.53 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

CISG-US‘s change in operating cash flow of -49.36% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 3.15% to 0.63% and (2) one-time items that contributed to a decrease in pretax margins from 6.82% to 2.39%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

CNinsure, Inc. is an independent insurance intermediary company that distributes a wide variety of property, casualty, and life insurance products underwritten by domestic and foreign insurance companies in China. The company also offers insurance claims adjusting services such as assessment, survey, authentication, loss estimation, as well as other insurance-related services to individuals and institutions. CNinsure was founded by Yin An Hu and Qiu Ping Lai in 1998 and is headquartered in Guangzhou, China.

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