Hongfa Technology Co., Ltd. (SHSE:600885) Analysts Are Cutting Their Estimates: Here's What You Need To Know

Investors in Hongfa Technology Co., Ltd. (SHSE:600885) had a good week, as its shares rose 7.2% to close at CN¥26.90 following the release of its full-year results. It was a credible result overall, with revenues of CN¥13b and statutory earnings per share of CN¥1.34 both in line with analyst estimates, showing that Hongfa Technology is executing in line with expectations. 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.

See our latest analysis for Hongfa Technology

Taking into account the latest results, the most recent consensus for Hongfa Technology from 15 analysts is for revenues of CN¥14.4b in 2024. If met, it would imply a notable 11% increase on its revenue over the past 12 months. Per-share earnings are expected to ascend 13% to CN¥1.51. Before this earnings report, the analysts had been forecasting revenues of CN¥15.3b and earnings per share (EPS) of CN¥1.65 in 2024. It's pretty clear that pessimism has reared its head after the latest results, leading to a weaker revenue outlook and a small dip in earnings per share estimates.

The consensus price target fell 7.7% to CN¥35.97, with the weaker earnings outlook clearly leading valuation estimates. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Hongfa Technology, with the most bullish analyst valuing it at CN¥48.30 and the most bearish at CN¥23.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that Hongfa Technology's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 11% growth on an annualised basis. This is compared to a historical growth rate of 15% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 18% annually. Factoring in the forecast slowdown in growth, it seems obvious that Hongfa Technology is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates underperformance compared to 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 Hongfa Technology's future valuation.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Hongfa Technology going out to 2026, 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 1 warning sign for Hongfa Technology that you need to be mindful of.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.