After China Communications Services Corporation Limited's (HKG:552) earnings announcement in December 2018, analysts seem fairly confident, as a 10% increase in profits is expected in the upcoming year, against the past 5-year average growth rate of 6.4%. By 2020, we can expect China Communications Services’s bottom line to reach CN¥3.2b, a jump from the current trailing-twelve-month of CN¥2.9b. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.
How is China Communications Services going to perform in the near future?
Over the next three years, it seems the consensus view of the 10 analysts covering 552 is skewed towards the positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of 552's earnings growth over these next few years.
From the current net income level of CN¥2.9b and the final forecast of CN¥4.3b by 2022, the annual rate of growth for 552’s earnings is 13%. This leads to an EPS of CN¥0.60 in the final year of projections relative to the current EPS of CN¥0.42. This high rate of growth of revenue squeezes margins, as analysts predict an upcoming margin contraction from the current 2.7% to 2.7% by the end of 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For China Communications Services, there are three pertinent factors you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is China Communications Services worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether China Communications Services is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of China Communications Services? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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