Today is shaping up negative for Shanghai Mechanical & Electrical Industry Co.,Ltd. (SHSE:600835) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as the analyst factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following this downgrade, Shanghai Mechanical & Electrical IndustryLtd's one analyst are forecasting 2024 revenues to be CN¥22b, approximately in line with the last 12 months. Per-share earnings are expected to increase 2.3% to CN¥1.00. Prior to this update, the analyst had been forecasting revenues of CN¥25b and earnings per share (EPS) of CN¥1.19 in 2024. Indeed, we can see that the analyst is a lot more bearish about Shanghai Mechanical & Electrical IndustryLtd's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
The analyst made no major changes to their price target of CN¥14.00, suggesting the downgrades are not expected to have a long-term impact on Shanghai Mechanical & Electrical IndustryLtd's valuation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. It's pretty clear that there is an expectation that Shanghai Mechanical & Electrical IndustryLtd's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 0.1% growth on an annualised basis. This is compared to a historical growth rate of 2.3% 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 19% annually. Factoring in the forecast slowdown in growth, it seems obvious that Shanghai Mechanical & Electrical IndustryLtd is also expected to grow slower than other industry participants.
The Bottom Line
The biggest issue in the new estimates is that the analyst has reduced their earnings per share estimates, suggesting business headwinds lay ahead for Shanghai Mechanical & Electrical IndustryLtd. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Shanghai Mechanical & Electrical IndustryLtd.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have analyst estimates for Shanghai Mechanical & Electrical IndustryLtd going out as far as 2026, and you can see them free on our platform here.
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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.