Heroics or humble pie for analysts

Surprises loom as firm weighs estimates according to accuracy of past forecasts

The Hong Kong stock market will see some surprises - both pleasant and negative - in the coming month, if some top-rated analysts' out-of-the-ordinary calls come true.

According to research firm Starmine's estimates, China's largest cement maker, Anhui Conch Cement, may deliver earnings per share of 32 fen for last year when it announces its results on April 18.

San Francisco-based Starmine compiled the estimates by giving top-ranking analysts' predictions - based on their track records on the specific stock - higher weightings in its consensus estimate.

The analysts are also given ratings, with 'five-star' meaning they rank among the top 10 per cent of analysts tracked by Starmine, based on a set of performance criteria, while 'four-star' refers to the next best 23 per cent. The rankings and ratings are based on two-year track records.

Other consensus numbers compilers such as Thomson First Call use a typical average estimate, giving every analyst an equal weighting regardless of their track record of estimate accuracy.

Thomson's estimate was 28 fen per share for Anhui Conch, 12.5 per cent lower than Starmine's. For this stock, Starmine has given greater weighting on estimates by China International Capital analyst Luo Wei and Credit Suisse's Trina Chen, who were ranked first and second, respectively, on the accuracy of their estimates on the stock. They estimated last year's earnings per share at 36 fen to 37 fen.

The research house gave the two analysts' estimates weighting of 18 to 19.8 per cent, versus 7.7 per cent in Thomson's consensus estimate.

In a research note published last month, Ms Chen raised her estimate of Conch's earnings for last year by 11 per cent and for this year by 2 per cent, citing higher than expected volume growth, cost savings from recycling residual heat and a fall in coal prices.

Mr Luo raised his estimate of last year's net profit by 16.5 per cent and this year's by 22 per cent in a March 13 report.

He cited higher than expected sales volume in the fourth quarter last year and expected recovery of cement prices in the next two years on easing industry overcapacity, on top of lower unit costs from Conch's growing operations.

On potential negative surprises, investors should be wary of Global Bio-Chem Technology and China Travel International Investment Hong Kong, according to Starmine's estimates.

It expects Global Bio-Chem to report earnings per share of 23 cents and China Travel 14 cents, compared with Thomson's consensus of 28 cents for Global Bio-Chem and 13 cents for China Travel.

DBS Vickers analyst Dennis Chung said in a March 7 research report that the company's results for the second half of last year would probably disappoint on the back of lower than expected lysine prices. He cut his earnings estimate by 24.8 per cent for last year and 27.2 per cent for this year.

SBI E2-Capital's Raymond Jook on February 23 downgraded his net profit estimate for China Travel by 15 per cent for last year and 13 per cent this year. The downgrade was due to a $70 million charge on land lease amortisation and higher depreciation on buildings related to its hotel assets after a change in Hong Kong accounting rules.

In addition, a rise in pre-operating expenses and other marketing-related costs on Zhuhai Ocean Resort and online travel portal Mangocity.com would extend from the fourth quarter of last year to the first half of this year, Mr Jook wrote.

China Travel is expected to unveil its annual results next month.

Analysts do miss their forecasts sometimes. CLSA's John Saunders, who had a top ranking and five-star rating from Starmine, estimated Cheung Kong's EPS at $5.18 in a February 15 report. Third-ranked and five-star rated Jonas Kan of Daiwa Securities put it at $4.86. Thomson First Call had a consensus forecast of $5.62. The conglomerate posted an actual figure of $6.04 last Thursday.