China Lilang Limited (HKG:1234) shareholders are probably feeling a little disappointed, since its shares fell 4.6% to HK$4.58 in the week after its latest full-year results. Revenues of CN¥3.7b were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at CN¥0.68, missing estimates by 4.6%. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the four analysts covering China Lilang provided consensus estimates of CN¥3.56b revenue in 2020, which would reflect a perceptible 2.7% decline on its sales over the past 12 months. Statutory earnings per share are expected to drop 10% to CN¥0.61 in the same period. Before this earnings report, the analysts had been forecasting revenues of CN¥4.20b and earnings per share (EPS) of CN¥0.81 in 2020. It looks like sentiment has declined substantially in the aftermath of these results, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.
The consensus price target fell 17% to CN¥6.55, with the weaker earnings outlook clearly leading valuation estimates. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic China Lilang analyst has a price target of CN¥8.18 per share, while the most pessimistic values it at CN¥4.97. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 2.7%, a significant reduction from annual growth of 7.2% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 14% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – China Lilang is expected to lag the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for China Lilang. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of China Lilang’s future valuation.
With that in mind, we wouldn’t be too quick to come to a conclusion on China Lilang. Long-term earnings power is much more important than next year’s profits. We have estimates – from multiple China Lilang analysts – going out to 2022, and you can see them free on our platform here.
We don’t want to rain on the parade too much, but we did also find 2 warning signs for China Lilang that you need to be mindful of.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.