DCF Studio

    0003.HK · HKG · Utilities

    The Hong Kong and China Gas Company Limited

    Also onConsensus Drift

    Implied value per share

    HKD 1.37

    Market price

    HKD 7.09

    Implied upside

    -80.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 12.4% of revenue against depreciation of 6.4%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: HKD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    HKD 1.37-80.6%
    Exit multiple
    HKD 3.75-47.0%
    Market price
    HKD 7.09

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (HKD). Outflows negative.

    0bn2bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayHKD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueHKD 52.3bnHKD 50.3bnHKD 48.4bnHKD 46.6bnHKD 44.8bn-3.8%
    EBITHKD 7.5bnHKD 7.3bnHKD 7.0bnHKD 6.7bnHKD 6.5bn-3.8%
    NOPATHKD 6.3bnHKD 6.1bnHKD 5.8bnHKD 5.6bnHKD 5.4bn-3.8%
    Add depreciation & amortisationHKD 3.3bnHKD 3.2bnHKD 3.1bnHKD 3.0bnHKD 2.9bn-3.8%
    Less capital expenditureHKD -6.5bnHKD -6.2bnHKD -6.0bnHKD -5.8bnHKD -5.6bn-3.8%
    Less increase in working capitalHKD 300.2mHKD 288.9mHKD 278.0mHKD 267.5mHKD 257.5m+3.8%
    Free cashflow to firmHKD 3.4bnHKD 3.3bnHKD 3.2bnHKD 3.1bnHKD 3.0bn-3.8%
    Discount factor0.96920.91050.85540.80350.7549-
    Present valueHKD 3.3bnHKD 3.0bnHKD 2.7bnHKD 2.5bnHKD 2.2bn-9.6%
    Present Value Of The ForecastHKD 13.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.20%HKD assumption - no free live source available for this market (assumption)
    Equity risk premium7.00%Market assumption
    Beta0.708Reported 0.564, pulled toward 1.0 (Blume)
    Cost of equity8.16%Risk-free + beta x equity risk premium
    Cost of debt3.29%Interest expense / average total debt
    Market capitalisationHKD 132.3bn68.4% of capital
    Total debtHKD 61.0bn31.6% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC6.45%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareHKD 1.37

    82% of EV

    Forecast FCFF, final year
    HKD 3.0bn
    Capex at depreciation, working capital in reinvestment
    HKD 5.4bn
    Less reinvestment at g/ROIC (38.8% of NOPAT)
    HKD -2.1bn
    Capitalised
    HKD 3.3bn
    ROIC (WACC floor)
    6.4%
    Terminal value, undiscounted
    HKD 85.9bn
    Terminal value, discounted
    HKD 64.8bn
    Enterprise value
    HKD 78.6bn
    Less net debt
    HKD 53.0bn
    Equity value
    HKD 25.6bn

    Exit at 15.5x EBITDA

    Value per shareHKD 3.75

    89% of EV

    Terminal value, undiscounted
    HKD 144.7bn
    Terminal value, discounted
    HKD 109.3bn
    Enterprise value
    HKD 123.0bn
    Less net debt
    HKD 53.0bn
    Equity value
    HKD 70.1bn

    Spread between methods: 93%.

    Sensitivity

    Value per share (HKD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.45%3.994.405.016.038.10
    5.45%2.252.312.402.502.66
    6.45%1.341.361.371.391.41
    7.45%0.740.750.770.780.80
    8.45%0.280.300.310.320.33

    Outlined: this model. Green text: above today's price of 7.09. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-3.8%16.8%+20.6pp
    EBIT margin14.4%31.5%+17.1pp
    Discount rate6.4%4.0%-2.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.