Taoping Inc :TAOP-US: Earnings Analysis: For the six months ended December 30, 2017 : June 4, 2018

Taoping Inc reports financial results for the half-year ended December 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 12.46 million, Net Earnings of USD 0.92 million.
  • Gross margins widened from 22.86% to 47.27% compared to the same period last year, operating (EBITDA) margins now 19.58% from -53.91%.
  • Change in operating cash flow of 151.86% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • 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:

2017-12-30 2017-06-29 2016-12-30 2016-06-29 2015-12-30
Relevant Numbers (Semi-Annual)
Revenues 12.46 5.73 7.24 2.96 5.6
Revenue Growth (YOY) 72.12 93.92 29.16 -36.86 -85.5
Earnings 0.92 0.01 -11.29 -7.24 -1.44
Earnings Growth (YOY) 108.2 100.2 -682.1 0.18 94.11
Net Margin 7.42 0.25 -155.93 -244.89 -25.75
EPS 0.02 0 -0.28 -0.18 -0.05
Return on Equity 19.93 0.38 -123.56 -40.66 -6.86
Return on Assets 5.25 0.09 -58 -26.41 -4.37

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, TAOP-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 TAOP-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 117.33% and earnings by 6,309.42% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 22.86% to 47.27% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -53.91% to 19.58% compared to the same period last year. For comparison, gross margins were 42.45% and EBITDA margins were -0.58% 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.

Gross Margin History
Working Capital Days History

TAOP-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently -94.93, compared to last year’s level of -281.07 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.

Cash Versus Earnings – Sustainable Performance?

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

TAOP-US’s year-on-year change in operating cash flow of 151.86% 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

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -118.69% to 7.30% and (2) one-time items. The company’s pretax margins are now 7.22% compared to -152.21% for the same period last year.

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Company Profile

Taoping Inc., formerly China Information Technology, Inc., is a provider of integrated cloud-based platform, exchange and big data solutions. The Company operates through two segments: Cloud-based Technology (CBT) segment and Traditional Information Technology (TIT) segment. The CBT segment is its focus of corporate development. The CBT segment includes its cloud-based products and services sold to private sectors, including new media, healthcare, education and residential community management. In the CBT segment, the Company engages in the sale of hardware and total solutions of hardware, integrated with its software and content. The TIT segment includes its project-based technology products and services sold to the public sector, including geographic information systems (GIS), digital public security technology (DPST), and digital hospital information systems (DHIS). In the TIT segment, the Company engages in the sale of software and systems integration services.

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