5 Companies with Net Earnings CAGR above 40% for the Past 3 Years

The Net Earnings Compound Annual Growth Rate (“CAGR”) measures the rate of growth in each company's net earnings.

It indicates the growth in earnings across a specific period. The formula to derive the Net Earnings CAGR is as follow:

(Current year's value / Value X years ago) ^ (1/X) - 1

The growth in net earnings is an important aspect because it helps in determining whether companies have been consistent in growing their net earnings over the long run.

A Net Earnings CAGR of 40% and above demonstrates the capability of the company to grow its profits across the period.

With that said, 5 such companies which have managed to achieve this strong growth in the past 3 years include:

• Avarga Limited (SGX: U09)

• Cortina Holdings Limited (SGX: C41)

• Fu Yu Corporation Limited (SGX: F13)

• Riverstone Holdings Limited (SGX: AP4)

• UG Healthcare Corporation Limited (SGX: 8K7)

Note: CAGR calculations are based on the Full Year financial results announcements over the past few years.

1) Avarga Limited (SGX: U09)

Avarga Limited (“Avarga”) is engaged in the trading of paper products, investment holding and providing management services.

It operates through 3 segments: paper mill division, power division and others. The paper mill division manufactures and sells industrial-grade paper products, and collects and trades in waste paper products.

Its power division operates an approximately 50-megawatt (“MW”) gas-fired generating plant in Ywama, Myanmar. Under the ‘Others’ segment, the company focuses on identifying new investment opportunities locally and overseas.

For the past 3 financial years, Avarga’s Net Earning CAGR stands at 49.71%. Despite the fluctuation in its revenue (Blue Bar), the growth in Net Earnings was due to the higher gross profit and a better net earnings margin (Blue Line) achieved across the years.

Avarga’s share price last traded at S$0.31, with a market capitalization of S$286.06 million.

2) Cortina Holdings Limited (SGX: C41)

Cortina Holdings Limited (“Cortina”) is focused on the retail and distribution of luxury watches. Some of the brands it carries include Audemars Piguet, Baume & Mercier, Blancpain, Bvlgari, Cartier, Chopard, Chronoswiss, Corum, Gucci, Omega, Patek Philippe and Piaget.

The Company's retail operations commenced in 1972. Since then, its retail business has grown from a single retail outlet in Colombo Court to 4 outlets in Singapore.

For the past 3 financial years, Cortina’s Net Earnings CAGR stands at 49.35% despite the flat top-line. This is largely due to higher gross margins due to a steady decline in its Cost of Revenue.

Cortina’s share price last traded at S$2.26, with a market capitalization of S$374.20 million.

3) Fu Yu Corporation Limited (SGX: F13)

Fu Yu Corporation Limited (“Fu Yu”) provides vertically integrated services for the manufacture of precision plastic components and the fabrication of precision moulds and dies.

Since its inception in 1978, the Group has grown to become one of the largest manufacturers of high precision plastic parts and moulds in Asia. Today, the Group has established a strong presence in the region with manufacturing facilities located in Singapore, Malaysia and China.

For the past 3 financial years, Fu Yu’s Net Earnings CAGR stands at 55.75%. Despite the declining revenue (Blue Bar) across the years, its earnings continue its upward momentum during the period. This was largely attributed to a series of cost-reduction measures, which resulted in the improvement in its Net Earnings’ margin (Blue Line).

Fu Yu’s share price last traded at S$0.295, with a market capitalization of S$222.13 million.

4) Riverstone Holdings Limited (SGX: AP4)

Malaysia-based Riverstone Holdings Limited (“Riverstone”) is listed on the Mainboard of Singapore Exchange since 2006 and is a global market leader in the manufacturing of nitrile and natural rubber cleanroom gloves used in highly controlled and critical environments as well as premium nitrile gloves used in the healthcare industry.

For the past 3 financial years, Riverstone’s Net Earnings CAGR stands at an incredible 71.14%.

With the strong demand for gloves and higher average selling prices (ASPs) amid the COVID-19 pandemic, Riverstone witnessed accelerated growth in its revenue (Blue Bar) and net earnings in its latest financial year. In fact, its net profit margins jumped from 13.2% in FY2019 to an eye-popping 35.3% in FY2020.

Riverstone's share price last traded at S$1.42, with a market capitalization of S$2.10 billion.

5) UG Healthcare Corporation Limited (SGX: 8K7)

UG Healthcare Corporation Limited (“UG Healthcare”) is a disposable gloves manufacturer with its own established global downstream distribution that markets and sells disposable glove products under its proprietary “Unigloves” brand.

It operates an extensive distribution network with a local presence in Europe, United Kingdom, the USA, China, Africa and South America. The Group also distributes ancillary products including surgical gloves, vinyl and cleanroom disposable gloves, face masks and other medical disposables.

For the past 3 financial years, UG Healthcare’s Net Earnings CAGR stands at 76.34%. Similar to Riverstone, UG Healthcare's glove-making operations has been a strong beneficiary of the pandemic with its revenue escalating from S$91.7 million in FY2019 to S$250.4 million in trailing 12M Dec 2020. Furthermore, the improvement in net earnings margin (Blue Line) also contributed to the substantial run-up in its financial performance in the latest financial year.

UG Healthcare's share price last traded at S$0.71, with a market capitalization of S$437.54 million.

Conclusion

In summary, a company’s net income may fluctuate on a year-to-year basis because of the timing differences and how the earnings are accounted for.

On that note, investors can utilize the compounded annual growth rate (CAGR) of a company's net earnings over a period of time to better gauge how the firm is performing.

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