Sunway Construction Group Berhad (KLSE:SUNCON) Analysts Are Reducing Their Forecasts For This Year

The analysts covering Sunway Construction Group Berhad (KLSE:SUNCON) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

Following the downgrade, the latest consensus from Sunway Construction Group Berhad's 14 analysts is for revenues of RM1.8b in 2021, which would reflect a notable 8.3% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to increase 7.4% to RM0.064. Prior to this update, the analysts had been forecasting revenues of RM2.1b and earnings per share (EPS) of RM0.091 in 2021. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.

View our latest analysis for Sunway Construction Group Berhad

Analysts made no major changes to their price target of RM1.84, suggesting the downgrades are not expected to have a long-term impact on Sunway Construction Group Berhad'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. There are some variant perceptions on Sunway Construction Group Berhad, with the most bullish analyst valuing it at RM2.30 and the most bearish at RM1.45 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Sunway Construction Group Berhad shareholders.

Of course, another way to look at these forecasts is to place them into context against the industry itself. For example, we noticed that Sunway Construction Group Berhad's rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 11% growth to the end of 2021 on an annualised basis. That is well above its historical decline of 2.7% a year 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 revenue grow 11% per year. So it looks like Sunway Construction Group Berhad is expected to grow at about the same rate as the wider 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. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as 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 Sunway Construction Group Berhad after the downgrade.

Unfortunately, the earnings downgrade - if accurate - may also place pressure on Sunway Construction Group Berhad's mountain of debt, which could lead to some belt tightening for shareholders. You can learn more about our debt analysis for free on our platform here.

You can also see our analysis of Sunway Construction Group Berhad's Board and CEO remuneration and experience, and whether company insiders have been buying stock.

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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.
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