One Analyst Just Shaved Their Rhong Khen International Berhad (KLSE:RKI) Forecasts Dramatically

Today is shaping up negative for Rhong Khen International Berhad (KLSE:RKI) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously. The stock price has risen 6.1% to RM1.40 over the past week. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the latest downgrade, the current consensus, from the one analyst covering Rhong Khen International Berhad, is for revenues of RM597m in 2023, which would reflect a disturbing 21% reduction in Rhong Khen International Berhad's sales over the past 12 months. Statutory earnings per share are anticipated to plunge 89% to RM0.018 in the same period. Prior to this update, the analyst had been forecasting revenues of RM711m and earnings per share (EPS) of RM0.17 in 2023. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.

Check out our latest analysis for Rhong Khen International Berhad

The analyst made no major changes to their price target of RM1.30, suggesting the downgrades are not expected to have a long-term impact on Rhong Khen International Berhad's valuation.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 21% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 2.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 8.9% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Rhong Khen International Berhad is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that the analyst cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Rhong Khen International Berhad's revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Rhong Khen International Berhad.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2025, which can be seen for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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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.