As you might know, Beijing Tong Ren Tang Chinese Medicine Company Limited (HKG:3613) last week released its latest annual, and things did not turn out so great for shareholders. Results look to have been somewhat negative – revenue fell 6.0% short of analyst estimates at HK$1.4b, and statutory earnings of HK$0.66 per share missed forecasts by 8.3%. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. We’ve gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Beijing Tong Ren Tang Chinese Medicine from three analysts is for revenues of HK$1.46b in 2020 which, if met, would be a modest 2.1% increase on its sales over the past 12 months. Statutory earnings per share are predicted to increase 7.7% to HK$0.72. In the lead-up to this report, the analysts had been modelling revenues of HK$1.72b and earnings per share (EPS) of HK$0.82 in 2020. It looks like sentiment has declined substantially in the aftermath of these results, with a substantial drop in revenue estimates and a substantial drop in earnings per share numbers as well.
It’ll come as no surprise then, to learn thatthe analysts have cut their price target 6.7% to HK$15.00. 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 Beijing Tong Ren Tang Chinese Medicine, with the most bullish analyst valuing it at HK$15.50 and the most bearish at HK$14.50 per share. This is a very narrow spread of estimates, implying either that Beijing Tong Ren Tang Chinese Medicine is an easy company to value, or – more likely – the analysts are relying heavily on some key assumptions.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Beijing Tong Ren Tang Chinese Medicine’s past performance and to peers in the same industry. We would highlight that Beijing Tong Ren Tang Chinese Medicine’s revenue growth is expected to slow, with forecast 2.1% increase next year well below the historical 13%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 17% per year. Factoring in the forecast slowdown in growth, it seems obvious that Beijing Tong Ren Tang Chinese Medicine 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 revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple Beijing Tong Ren Tang Chinese Medicine analysts – going out to 2022, and you can see them free on our platform here.
Before you take the next step you should know about the 1 warning sign for Beijing Tong Ren Tang Chinese Medicine that we have uncovered.
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