It's been a good week for Tongwei Co.,Ltd (SHSE:600438) shareholders, because the company has just released its latest first-quarter results, and the shares gained 2.1% to CN¥21.70. It was a pretty bad result overall, with revenues coming in 38% lower than the analysts predicted. Statutory earnings correspondingly nosedived, with TongweiLtd reporting a loss of CN¥0.17 per share, where the analysts were expecting a profit. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on TongweiLtd after the latest results.
Taking into account the latest results, the consensus forecast from TongweiLtd's 23 analysts is for revenues of CN¥150.8b in 2024. This reflects a huge 20% improvement in revenue compared to the last 12 months. Statutory per share are forecast to be CN¥0.93, approximately in line with the last 12 months. In the lead-up to this report, the analysts had been modelling revenues of CN¥157.5b and earnings per share (EPS) of CN¥2.50 in 2024. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a large cut to earnings per share estimates.
The consensus price target fell 5.5% to CN¥30.01, with the weaker earnings outlook clearly leading valuation estimates. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic TongweiLtd analyst has a price target of CN¥58.60 per share, while the most pessimistic values it at CN¥16.00. 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. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that TongweiLtd's revenue growth is expected to slow, with the forecast 28% annualised growth rate until the end of 2024 being well below the historical 35% p.a. growth over the last five years. Compare this to the 213 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 23% per year. Factoring in the forecast slowdown in growth, it looks like TongweiLtd is forecast to grow at about the same rate as 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. They also downgraded their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of TongweiLtd's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on TongweiLtd. Long-term earnings power is much more important than next year's profits. We have forecasts for TongweiLtd going out to 2026, and you can see them free on our platform here.
Even so, be aware that TongweiLtd is showing 3 warning signs in our investment analysis , and 1 of those is concerning...
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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.