Today is shaping up negative for Rhong Khen International Berhad (KLSE:RKI) shareholders, with the covering analyst delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analyst has soured majorly on the business. At RM1.40, shares are up 6.1% in the past 7 days. 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 downgrade, the consensus from one analyst covering Rhong Khen International Berhad is for revenues of RM597m in 2023, implying a sizeable 21% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to plummet 89% to RM0.018 in the same period. Previously, the analyst had been modelling revenues of RM711m and earnings per share (EPS) of RM0.17 in 2023. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.
View our latest analysis for Rhong Khen International Berhad
The analyst made no major changes to their price target of RM1.30, suggesting the downgrades are not expected to have a long-term impact on Rhong Khen International Berhad's valuation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with a forecast 21% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 2.0% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 8.9% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Rhong Khen International Berhad is expected to lag the wider industry.
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 Rhong Khen International Berhad. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that Rhong Khen International Berhad's revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Rhong Khen International Berhad after the downgrade.