China Power International Development Limited Just Missed EPS By 31%: Here's What Analysts Think Will Happen Next
Shareholders of China Power International Development Limited (HKG:2380) will be pleased this week, given that the stock price is up 11% to HK$1.38 following its latest full-year results. Statutory earnings per share fell badly short of expectations, coming in at CN¥0.13, some 31% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at CN¥28b. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on China Power International Development after the latest results.
See our latest analysis for China Power International Development
Taking into account the latest results, China Power International Development's seven analysts currently expect revenues in 2020 to be CN¥28.4b, approximately in line with the last 12 months. Per-share earnings are expected to bounce 75% to CN¥0.23. Yet prior to the latest earnings, the analysts had been anticipated revenues of CN¥29.4b and earnings per share (EPS) of CN¥0.21 in 2020. If anything, the analysts look to have become slightly more optimistic overall; while they decreased their revenue forecasts, EPS predictions increased and ultimately earnings are more important.
The analysts have cut their price target 5.1% to CN¥1.67 per share, suggesting that the declining revenue was a more crucial indicator than the expected improvement in earnings. 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 China Power International Development, with the most bullish analyst valuing it at CN¥2.04 and the most bearish at CN¥1.19 per share. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
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. It's pretty clear that there is an expectation that China Power International Development's revenue growth will slow down substantially, with revenues next year expected to grow 1.7%, compared to a historical growth rate of 6.4% over the past five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 3.2% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than China Power International Development.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards China Power International Development following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Still, earnings 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 forecasts for China Power International Development going out to 2024, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for China Power International Development (1 is concerning!) that you should be aware of.
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