Hebron Technology Co., Ltd. :HEBT-US: Earnings Analysis: For the six months ended December 31, 2016 : May 29, 2017

Hebron Technology Co., Ltd. reports financial results for the half-year ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 16.06 million, Net Earnings of USD 3.79 million.
  • Gross margins widened from 38.92% to 39.55% compared to the same period last year, operating (EBITDA) margins now 33.22% from 30.03%.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2016-12-31 2016-06-30 2015-12-31 2015-06-30 N/A
Relevant Numbers (Semi-Annual)
Revenues 16.06 10.59 13.64 8.97 N/A
Revenue Growth (YOY) 17.76 18.02 N/A N/A N/A
Earnings 3.79 2.14 2.84 1.56 N/A
Earnings Growth (YOY) 33.5 37.79 N/A N/A N/A
Net Margin 23.6 20.24 20.82 17.34 N/A
EPS 0.32 0.18 0.24 0.13 N/A
Return on Equity 30.74 24.74 36.46 21.21 N/A
Return on Assets 18.79 13.45 19.82 11.45 N/A

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Market Share Versus Profits

Compared to the same period last year, HEBT-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 HEBT-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 51.69% and earnings by 76.83% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 38.92% to 39.55% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 30.03% to 33.22% compared to the same period last year. For comparison, gross margins were 38.79% and EBITDA margins were 29.85% in the last reporting 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.

HEBT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 277.24, compared to last year’s level of 86.47 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 28.27% to 31.63% and (2) one-time items. The company’s pretax margins are now 31.43% compared to 28.21% for the same period last year.

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Company Profile

Hebron Technology Co. Ltd. manufactures fluid equipment and provides customized installation of valves and pipe fittings. Its products include pneumatic ball valve clamp end, manual ball valve clamp end, pneumatic angle seat valve flange end, reducer clamp end, sloid end cap, stub end, cross weld end, hose adapter, self-priming pump, and return stroke pump. The company was founded on May 29, 2012 and is headquartered in Wenzhou, China.

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