China International Capital Corporation Limited (HKG:3908) Analysts Just Trimmed Their Revenue Forecasts By 15%

Today is shaping up negative for China International Capital Corporation Limited (HKG:3908) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the downgrade, the latest consensus from China International Capital's 16 analysts is for revenues of CN¥33b in 2022, which would reflect a credible 2.4% improvement in sales compared to the last 12 months. Per-share earnings are expected to climb 10% to CN¥2.33. Before this latest update, the analysts had been forecasting revenues of CN¥39b and earnings per share (EPS) of CN¥2.44 in 2022. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a measurable cut to revenue estimates and a minor downgrade to EPS estimates to boot.

View our latest analysis for China International Capital

Analysts made no major changes to their price target of CN¥22.06, suggesting the downgrades are not expected to have a long-term impact on China International Capital's valuation. 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. The most optimistic China International Capital analyst has a price target of CN¥31.07 per share, while the most pessimistic values it at CN¥21.54. 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. It's pretty clear that there is an expectation that China International Capital's revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 3.2% growth on an annualised basis. This is compared to a historical growth rate of 27% 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 16% annually. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than China International Capital.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for China International Capital. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on China International Capital after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple China International Capital analysts - going out to 2024, and you can see them free on our platform here.

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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.