Jupai Holdings Ltd. :JP-US: Earnings Analysis: 2016 By the Numbers : April 24, 2017

Jupai Holdings Ltd. reports financial results for the year ended December 31, 2016.

Highlights

  • Gross margins narrowed from 60.35% to 57.70% compared to the same period last year, operating (EBITDA) margins now 28.77% from 32.47%.
  • Change in operating cash flow of -49.94% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • 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 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 169.4 94.29 38.76 22.46 8.27
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 31.18 24.32 14.32 9.17 3.99
Earnings Growth (YOY) 28.21 69.89 56.2 129.91 N/A
Net Margin 18.41 25.79 36.94 40.82 48.18
EPS 0.93 0.96 0.18 0.3 0.12
Return on Equity 15.88 17.72 14.15 38.03 N/A
Return on Assets 11.38 15.77 28.82 28.11 N/A

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Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 57.70% to 60.35% for the same period last year, while operating margins (EBITDA margins) went from 28.77% to 32.47% over the same time frame.

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

JP-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 257.06 days, compared to last year’s level of 249.14 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

JP-US‘s year-on-year change in operating cash flow of -49.94% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

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

Jupai Holdings Ltd. is engaged in the third party wealth management services provider focusing on distributing wealth management products and providing quality product advisory services to high-net-worth individuals. The company was founded in July 2010 and is headquartered in Shanghai, China.

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