Forecasting in the dark
DISCLOSURE has become a popular buzzword these days as Hong Kong attempts to increase the amount of financial information provided to investors by listed companies.
However, another important issue that must be given closer attention is the way management communicates with analysts and other members of the investment community.
This situation came under the spotlight this week when Fairwood Holding released its results for the year ended March 31. While profits jumped 21.2 per cent to $70.3 million, a consensus among 20 brokerage firms had expected growth of 41 per cent.
After contacting eight analysts, it became clear that some of them had been informed Fairwood's Thousand Island Food Plaza would lose large amounts of money while others had merely been told the business was not doing as well as expected.
According to July's Estimate Directory , only six of the 20 investment houses forecast profits of less than $80 million, which meant the majority were grossly off target.
Ong & Co, for example, optimistically increased its forecast to $90 million from $82 million less than two months ago.
From comments by analysts, Fairwood's management has a good track record in providing them with information. Several analysts said they were impressed by Fairwood's willingness to discuss in-depth financial figures.
As a result, it would be unfair to accuse Fairwood's management of intentionally misleading analysts or withholding information.
If anything, it appears that analysts who followed the company more closely and talked with management on a regular basis were able to get more information than their peers who kept in touch on a less-regular basis.
What this episodes illustrates is that Fairwood and other listed firms should do a better job of circulating important financial information, while analysts must make sure their clients are properly served, by not being hit with ''surprises''.
