Market forces rained on the parade of YiChang HEC ChangJiang Pharmaceutical Co., Ltd. (HKG:1558) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.
After the downgrade, the four analysts covering YiChang HEC ChangJiang Pharmaceutical are now predicting revenues of CN¥3.2b in 2021. If met, this would reflect a sizeable 38% improvement in sales compared to the last 12 months. Statutory earnings per share are anticipated to nosedive 20% to CN¥0.76 in the same period. Before this latest update, the analysts had been forecasting revenues of CN¥4.5b and earnings per share (EPS) of CN¥1.24 in 2021. Indeed, we can see that the analysts are a lot more bearish about YiChang HEC ChangJiang Pharmaceutical's prospects, administering a pretty serious reduction to revenue estimates and slashing their EPS estimates to boot.
The consensus price target fell 5.7% to CN¥10.19, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on YiChang HEC ChangJiang Pharmaceutical, with the most bullish analyst valuing it at CN¥18.10 and the most bearish at CN¥8.19 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.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We can infer from the latest estimates that forecasts expect a continuation of YiChang HEC ChangJiang Pharmaceutical'shistorical trends, as the 38% annualised revenue growth to the end of 2021 is roughly in line with the 37% annual revenue growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 18% per year. So it's pretty clear that YiChang HEC ChangJiang Pharmaceutical is forecast to grow substantially faster than its 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. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
There might be good reason for analyst bearishness towards YiChang HEC ChangJiang Pharmaceutical, like a weak balance sheet. For more information, you can click here to discover this and the 1 other warning sign we've identified.
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