Things Look Grim For Hong Leong Financial Group Berhad (KLSE:HLFG) After Today’s Downgrade

The analysts covering Hong Leong Financial Group Berhad (KLSE:HLFG) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. Investors however, have been notably more optimistic about Hong Leong Financial Group Berhad recently, with the stock price up a worthy 12% to RM15.00 in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

After the downgrade, the consensus from Hong Leong Financial Group Berhad’s five analysts is for revenues of RM4.6b in 2020, which would reflect a definite 8.3% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to reduce 6.7% to RM1.48 in the same period. Prior to this update, the analysts had been forecasting revenues of RM5.5b and earnings per share (EPS) of RM1.69 in 2020. Indeed, we can see that the analysts are a lot more bearish about Hong Leong Financial Group Berhad’s prospects, administering a substantial drop in revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for Hong Leong Financial Group Berhad

KLSE:HLFG Past and Future Earnings June 3rd 2020
KLSE:HLFG Past and Future Earnings June 3rd 2020

It’ll come as no surprise then, to learn that the analysts have cut their price target 11% to RM15.37. The consensus price target is just an average of individual analyst targets, so – it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Hong Leong Financial Group Berhad, with the most bullish analyst valuing it at RM17.20 and the most bearish at RM14.00 per share. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 8.3% revenue decline a notable change from historical growth of 4.1% 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 4.3% annually for the foreseeable future. It’s pretty clear that Hong Leong Financial Group Berhad’s revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of Hong Leong Financial Group Berhad.

Still, the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple Hong Leong Financial Group Berhad analysts – going out to 2022, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.