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Results: West China Cement Limited Exceeded Expectations And The Consensus Has Updated Its Estimates

West China Cement Limited (HKG:2233) just released its full-year report and things are looking bullish. It was overall a positive result, with revenues beating expectations by 4.1% to hit CN¥7.2b. West China Cement reported statutory earnings per share (EPS) CN¥0.33, which was a notable 10% above what the analysts had forecast. 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. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for West China Cement

SEHK:2233 Past and Future Earnings April 2nd 2020
SEHK:2233 Past and Future Earnings April 2nd 2020

Taking into account the latest results, the current consensus, from the three analysts covering West China Cement, is for revenues of CN¥6.99b in 2020, which would reflect a measurable 3.6% reduction in West China Cement's sales over the past 12 months. Statutory per-share earnings are expected to be CN¥0.33, roughly flat on the last 12 months. In the lead-up to this report, the analysts had been modelling revenues of CN¥6.91b and earnings per share (EPS) of CN¥0.30 in 2020. So the consensus seems to have become somewhat more optimistic on West China Cement's earnings potential following these results.

The consensus price target was unchanged at CN¥1.56, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values West China Cement at CN¥1.87 per share, while the most bearish prices it at CN¥1.37. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 3.6%, a significant reduction from annual growth of 16% 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 0.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - West China Cement is expected to lag the wider industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around West China Cement's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that West China Cement's revenues are expected to perform worse than the wider industry. 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.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple West China Cement analysts - going out to 2022, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 2 warning signs for West China Cement (1 is a bit concerning!) that you need to be mindful of.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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