Results: Hua Hong Semiconductor Limited Exceeded Expectations And The Consensus Has Updated Its Estimates
As you might know, Hua Hong Semiconductor Limited (HKG:1347) recently reported its quarterly numbers. It looks like a credible result overall - although revenues of US$203m were in line with what the analysts predicted, Hua Hong Semiconductor surprised by delivering a statutory profit of US$0.016 per share, a notable 18% above expectations. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Check out our latest analysis for Hua Hong Semiconductor
Taking into account the latest results, the most recent consensus for Hua Hong Semiconductor from eleven analysts is for revenues of US$952.9m in 2020 which, if met, would be a reasonable 4.2% increase on its sales over the past 12 months. Statutory earnings per share are expected to nosedive 42% to US$0.061 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$982.0m and earnings per share (EPS) of US$0.073 in 2020. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a real cut to earnings per share estimates.
The analysts made no major changes to their price target of US$2.27, suggesting the downgrades are not expected to have a long-term impact on Hua Hong Semiconductor'svaluation. 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. There are some variant perceptions on Hua Hong Semiconductor, with the most bullish analyst valuing it at US$2.97 and the most bearish at US$1.64 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Hua Hong Semiconductor shareholders.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Hua Hong Semiconductor's revenue growth will slow down substantially, with revenues next year expected to grow 4.2%, compared to a historical growth rate of 8.9% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 15% next year. Factoring in the forecast slowdown in growth, it seems obvious that Hua Hong Semiconductor is also expected to grow slower than other industry participants.
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.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Hua Hong Semiconductor going out to 2022, and you can see them free on our platform here.
And what about risks? Every company has them, and we've spotted 2 warning signs for Hua Hong Semiconductor (of which 1 is significant!) you should know about.
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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