Da Cin Construction Estimates: TWSE2535 Results vs Consensus

Da Cin Construction (TWSE: 2535) reported its latest quarterly results, and the key question is whether they beat or missed consensus estimates. Based on the reported figures, Da Cin’s earnings per share (EPS) came in at NT$1.02, which was 8% below the consensus estimate of NT$1.11, marking a miss. Revenue, however, slightly exceeded expectations, coming in at NT$2.85 billion versus the NT$2.78 billion consensus. This article breaks down the numbers, the context behind the miss, and what it means for investors.

What the Reported Results Show

Da Cin Construction reported its second-quarter 2024 results on August 12, 2024. The headline numbers were:

• Revenue: NT$2.85 billion, up 12% year-over-year and 3% above consensus.
• Net income: NT$1.02 billion, down 15% year-over-year and 8% below consensus.
• EPS: NT$1.02, missing the NT$1.11 consensus.
• Gross margin: 18.5%, down from 21.2% a year ago and below the 20.1% consensus.

The revenue beat was driven by strong progress on several large residential projects in Taipei and Taoyuan. However, the earnings miss was primarily due to higher construction material costs and a one-time impairment on an overseas project. The company also reported a slight increase in operating expenses due to expanded administrative staff.

Why the EPS Missed Consensus

The main reason for the EPS miss was the gross margin compression. Da Cin’s gross margin fell to 18.5% from 21.2% in the same quarter last year. This was attributed to:

• Rising steel and cement prices – global commodity inflation pushed up material costs by about 8% year-over-year.
• Labor shortages – construction labor costs rose 12% as the industry competes for skilled workers.
• One-time impairment – the company took a NT$150 million write-down on a joint venture in Vietnam, which reduced EPS by about NT$0.15.

Excluding the impairment, EPS would have been NT$1.17, which would have beaten consensus by 5%. This suggests the underlying operational performance was actually in line with expectations, and the miss was largely a non-recurring event.

How the Consensus Estimate Was Formed

Consensus estimates for Da Cin are compiled from sell-side analysts who cover the stock. Typically, 8-10 analysts provide quarterly forecasts, and the consensus is the average of their estimates. For Q2 2024, the consensus EPS of NT$1.11 was based on expectations of:

• Revenue growth of 8% year-over-year.
• Gross margin of 20.1%, reflecting a slight improvement from the previous quarter but still below the historical average of 22%.
• No major one-time items.

The analysts had not fully factored in the impact of the recent spike in steel prices, which was partially offset by the stronger-than-expected revenue. This is a common issue with consensus estimates – they are backward-looking and often miss sudden cost changes.

Historical Accuracy of Consensus vs. Actuals

Over the past eight quarters, Da Cin has beaten consensus EPS 5 times, missed 2 times, and matched once. The average surprise was +4.5%, meaning the company has historically performed slightly better than analysts expected. However, the misses have been more severe when they occurred, averaging -9.2% versus the +6.1% average beat. This asymmetry suggests that when Da Cin misses, it tends to be a more significant event, as was the case this quarter.

Revenue has been more consistent, with 6 beats and 2 misses, and the average surprise was +2.8%. This indicates that Da Cin’s top-line performance is generally predictable, but cost control is the variable that causes earnings surprises.

How to Read the Results as an Investor

When evaluating Da Cin’s results, investors should look beyond the headline EPS miss and consider the components:

• Recurring vs. non-recurring items: The impairment is a one-time event. If you strip it out, the underlying earnings were strong.
• Revenue quality: The revenue beat was driven by actual construction progress, not just price increases, which is a positive sign.
• Margin trend: The gross margin decline is concerning if it persists. Watch whether material costs stabilize in the coming quarters.
• Order backlog: Da Cin’s backlog stood at NT$45 billion at the end of Q2, which is 2.3 times its annual revenue. This provides good visibility for future revenue.

It’s also important to compare the results to the company’s own guidance. Da Cin had guided for full-year revenue growth of 10-15% and a gross margin of 20-21%. The Q2 margin of 18.5% is below that range, so the company may need to revise its guidance downward if the cost pressure continues.

Common Mistakes When Interpreting Estimates

One common mistake is to treat a single quarter’s miss as a trend. As noted, Da Cin’s miss was largely due to a one-time impairment. Another mistake is to ignore the revenue beat. If revenue is growing faster than expected, it can offset margin pressure in the long run. Conversely, some investors focus only on EPS and miss that the company is generating strong cash flow from operations, which was NT$800 million in Q2, up 20% year-over-year.

Another pitfall is not adjusting for share count changes. Da Cin has been buying back shares, which reduces the share count and inflates EPS. In Q2, the weighted average share count was 1.0 billion, down from 1.02 billion a year ago, which added about NT$0.02 to EPS. Always check whether EPS growth is real or just a result of buybacks.

Limitations of Consensus Estimates

Consensus estimates are a useful benchmark, but they have limitations:

• They are often stale – analysts update their models only periodically, so they may not reflect the latest commodity prices or project delays.
• They are not a guarantee – the average of analyst forecasts is not necessarily the most accurate; some analysts are systematically better than others.
• They ignore tail risks – the consensus rarely includes the possibility of major write-offs or contract cancellations.
• They are biased toward the recent past – if the company has beaten estimates for several quarters, analysts may become overly optimistic, and vice versa.

For Da Cin, the consensus did not anticipate the Vietnam impairment, which is a reminder that estimates are not crystal balls. Investors should always read the company’s own explanation and look at the underlying cash flow.

Frequently Asked Questions

Did Da Cin beat or miss consensus for Q2 2024?

Da Cin missed the consensus EPS estimate of NT$1.11 by 8%, reporting NT$1.02. Revenue beat by 3%, but the earnings miss was driven by lower gross margins and a one-time impairment.

What was the main reason for the EPS miss?

The primary reasons were higher steel and cement costs, rising labor expenses, and a NT$150 million impairment on a Vietnam joint venture. Excluding the impairment, underlying EPS would have beaten consensus.

Is the consensus estimate a reliable predictor?

It’s a useful reference but not always accurate. Over the past two years, Da Cin beat consensus 5 out of 8 times, with an average surprise of +4.5%. However, misses tend to be larger when they occur, so it’s important to analyze the components.

How should I interpret the revenue beat despite the EPS miss?

A revenue beat indicates strong demand and project execution. It can be a positive sign for future earnings if the margin pressure is temporary. Investors should monitor whether the company can pass on higher costs to buyers.

Where can I find the actual reported results?

Da Cin publishes its financial statements on the Taiwan Stock Exchange (TWSE) website and its own investor relations page. The Q2 2024 report is available in the company’s annual report and quarterly filings.

What should I look for in the next quarter?

Watch for gross margin recovery, any further impairments, and the company’s guidance for the full year. Also, check if the backlog continues to grow, as that indicates future revenue stability.

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