Time To Worry? Analysts Are Downgrading Their Sheng Ye Capital Limited (HKG:6069) Outlook

The latest analyst coverage could presage a bad day for Sheng Ye Capital Limited (HKG:6069), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After this downgrade, Sheng Ye Capital's dual analysts are now forecasting revenues of CN¥674m in 2021. This would be an okay 6.3% improvement in sales compared to the last 12 months. Per-share earnings are expected to expand 14% to CN¥0.42. Before this latest update, the analysts had been forecasting revenues of CN¥901m and earnings per share (EPS) of CN¥0.54 in 2021. Indeed, we can see that the analysts are a lot more bearish about Sheng Ye Capital's prospects, administering a sizeable cut to revenue estimates and slashing their EPS estimates to boot.

Check out our latest analysis for Sheng Ye Capital

Analysts made no major changes to their price target of CN¥6.96, suggesting the downgrades are not expected to have a long-term impact on Sheng Ye Capital's valuation. 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. Currently, the most bullish analyst values Sheng Ye Capital at CN¥8.60 per share, while the most bearish prices it at CN¥8.00. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

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. We would highlight that Sheng Ye Capital's revenue growth is expected to slow, with the forecast 6.3% annualised growth rate until the end of 2021 being well below the historical 39% p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 13% annually. Factoring in the forecast slowdown in growth, it seems obvious that Sheng Ye Capital is also expected to grow slower than other industry participants.

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. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Sheng Ye Capital after the downgrade.

Worse, Sheng Ye Capital is labouring under a substantial debt burden, which - if today's forecasts prove accurate - the forecast downgrade could potentially exacerbate. See why we're concerned about Sheng Ye Capital's balance sheet by visiting our risks dashboard for free on our platform here.

Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.

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