SINOPEC Engineering (Group) Co., Ltd. (HKG:2386) shareholders are probably feeling a little disappointed, since its shares fell 8.1% to HK$2.82 in the week after its latest full-year results. It looks like the results were a bit of a negative overall. While revenues of CN¥52b were in line with analyst predictions, statutory earnings were less than expected, missing estimates by 9.9% to hit CN¥0.49 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. 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 most recent consensus for SINOPEC Engineering (Group) from seven analysts is for revenues of CN¥55.3b in 2020 which, if met, would be an okay 5.9% increase on its sales over the past 12 months. Statutory earnings per share are predicted to accumulate 8.5% to CN¥0.54. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥54.4b and earnings per share (EPS) of CN¥0.63 in 2020. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a real cut to EPS estimates.
The average price target fell 19% to CN¥5.43, with reduced earnings forecasts clearly tied to a lower valuation estimate. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values SINOPEC Engineering (Group) at CN¥8.00 per share, while the most bearish prices it at CN¥3.79. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It’s clear from the latest estimates that SINOPEC Engineering (Group)’s rate of growth is expected to accelerate meaningfully, with the forecast 5.9% revenue growth noticeably faster than its historical growth of 1.1%p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to see revenue growth of 9.7% next year. It seems obvious that, while the future growth outlook is brighter than the recent past, SINOPEC Engineering (Group) is expected to grow slower than 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 SINOPEC Engineering (Group). Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that SINOPEC Engineering (Group)’s revenues are expected to perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for SINOPEC Engineering (Group) going out to 2022, and you can see them free on our platform here..
Even so, be aware that SINOPEC Engineering (Group) is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable…
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