Hailiang Education Group, Inc. :HLG-US: Earnings Analysis: For the six months ended December 31, 2016 : May 4, 2017

Hailiang Education Group, Inc. reports financial results for the half-year ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 54.32 million, Net Earnings of USD 7.84 million.
  • Gross margins narrowed from 30.80% to 20.83% compared to the same period last year, operating (EBITDA) margins now 13.40% from 25.24%.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

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

2016-12-31 2015-06-30 2014-12-31 2014-06-30 2013-12-31
Relevant Numbers (Semi-Annual)
Revenues 54.32 46.85 36.3 40.04 35.23
Revenue Growth (YOY) 49.65 17.01 3.04 N/A N/A
Earnings 7.84 14.53 8.22 13.59 9.27
Earnings Growth (YOY) -4.68 6.94 -11.32 N/A N/A
Net Margin 14.43 31.02 22.65 33.94 26.32
EPS 0.31 0.64 0.36 0.59 0.42
Return on Equity 12.37 27.62 17.53 30.29 N/A
Return on Assets 8.22 20.23 13.05 26.39 N/A

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, HLG-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if HLG-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 15.94% and earnings by -46.06% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 30.80% to 20.83%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 25.24% to 13.40% in this time frame. For comparison, gross margins were 37.65% and EBITDA margins were 34.72% in the previous period.

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

HLG-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 140.83 days from 430.75 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

Hailiang Education Group, Inc. engages in the provision of private K-12 educational services. It offers basic educational and international programs for kindergarten, primary, middle, and high school levels. The company was founded on April 7, 2011 and is headquartered in Hangzhou, China.

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