China Literature Limited (HKG:772) last week reported its latest half-yearly results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Statutory earnings per share fell badly short of expectations, coming in at CN¥0.22, some 63% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at CN¥4.1b. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

See our latest analysis for China Literature

Taking into account the latest results, China Literature's 18 analysts currently expect revenues in 2022 to be CN¥8.28b, approximately in line with the last 12 months. Statutory earnings per share are expected to reduce 9.5% to CN¥0.88 in the same period. Before this earnings report, the analysts had been forecasting revenues of CN¥9.27b and earnings per share (EPS) of CN¥1.25 in 2022. It looks like sentiment has declined substantially in the aftermath of these results, with a substantial drop in revenue estimates and a large cut to earnings per share numbers as well.

Despite the cuts to forecast earnings, there was no real change to the HK$44.10 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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 China Literature at HK$87.40 per share, while the most bearish prices it at HK$29.95. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 3.2% by the end of 2022. This indicates a significant reduction from annual growth of 19% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 18% per year. It's pretty clear that China Literature's revenues are expected to perform substantially worse than the wider industry.

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. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple China Literature analysts - going out to 2024, and you can see them free on our platform here.

We also provide an overview of the China Literature Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.

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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.