Chongqing Rural Commercial Bank Co., Ltd.'s (HKG:3618) latest earnings update in December 2018 showed that the business experienced a slight tailwind, eventuating to a single-digit earnings growth of 1.4%. Below is my commentary, albeit very simple and high-level, on how market analysts predict Chongqing Rural Commercial Bank's earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts' consensus outlook for the coming year seems rather subdued, with earnings increasing by a single digit 5.3%. The growth outlook in the following year seems much more positive with rates arriving at double digit 13% compared to today’s earnings, and finally hitting CN¥11b by 2022.
Even though it’s informative knowing the growth rate each year relative to today’s value, it may be more valuable to estimate the rate at which the business is rising or falling every year, on average. The pro of this method is that we can get a bigger picture of the direction of Chongqing Rural Commercial Bank's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I've inserted a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 6.8%. This means, we can presume Chongqing Rural Commercial Bank will grow its earnings by 6.8% every year for the next few years.
For Chongqing Rural Commercial Bank, there are three relevant 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 3618 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 3618 is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of 3618? 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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