Today is shaping up negative for Hangzhou First Applied Material Co., Ltd. (SHSE:603806) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Shares are up 4.6% to CN¥14.80 in the past week. Investors could be forgiven for changing their mind on the business following the downgrade; but it's not clear if the revised forecasts will lead to selling activity.

Following the latest downgrade, Hangzhou First Applied Material's 16 analysts currently expect revenues in 2024 to be CN¥23b, approximately in line with the last 12 months. Statutory earnings per share are presumed to surge 23% to CN¥0.89. Prior to this update, the analysts had been forecasting revenues of CN¥26b and earnings per share (EPS) of CN¥0.93 in 2024. It looks like analyst sentiment has fallen somewhat in this update, with a substantial drop in revenue estimates and a minor downgrade to earnings per share numbers as well.

The consensus price target fell 7.0% to CN¥19.31, with the weaker earnings outlook clearly leading analyst valuation estimates.

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 Hangzhou First Applied Material's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 0.3% growth on an annualised basis. This is compared to a historical growth rate of 30% 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 22% 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 Hangzhou First Applied Material.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Hangzhou First Applied Material. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Hangzhou First Applied Material's revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Hangzhou First Applied Material's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Hangzhou First Applied Material after today.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Hangzhou First Applied Material analysts - going out to 2026, and you can see them free on our platform here.

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