Investors in Nine Dragons Paper (Holdings) Limited (HKG:2689) had a good week, as its shares rose 4.1% to close at HK$9.16 following the release of its half-year results. It looks like a credible result overall - although revenues of CN¥29b were what analysts expected, Nine Dragons Paper (Holdings) surprised by delivering a (statutory) profit of CN¥0.49 per share, an impressive 48% above what analysts had forecast. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the latest consensus from Nine Dragons Paper (Holdings)'s 16 analysts is for revenues of CN¥55.6b in 2020, which would reflect a modest 4.6% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to swell 12% to CN¥0.93. Yet prior to the latest earnings, analysts had been forecasting revenues of CN¥56.5b and earnings per share (EPS) of CN¥0.89 in 2020. So the consensus seems to have become somewhat more optimistic on Nine Dragons Paper (Holdings)'s earnings potential following these results.
The consensus price target rose 14% to CN¥8.36, suggesting that higher earnings estimates flow through to the stock's valuation as well. 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 Nine Dragons Paper (Holdings), with the most bullish analyst valuing it at CN¥10.80 and the most bearish at CN¥4.47 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Nine Dragons Paper (Holdings)'s past performance and to peers in the same market. It's pretty clear that analysts expect Nine Dragons Paper (Holdings)'s revenue growth will slow down substantially, with revenues next year expected to grow 4.6%, compared to a historical growth rate of 16% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 8.0% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Nine Dragons Paper (Holdings) to grow slower than the wider market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Nine Dragons Paper (Holdings) following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Nine Dragons Paper (Holdings)'s revenues are expected to perform worse than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Nine Dragons Paper (Holdings) going out to 2022, and you can see them free on our platform here..
It might also be worth considering whether Nine Dragons Paper (Holdings)'s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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