DCF Studio

    0316.HK · HKG · Industrials

    Orient Overseas (International) Limited

    Also onConsensus Drift

    Implied value per share

    HKD 141.52

    Market price

    HKD 146.30

    Implied upside

    -3.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 7.8441

    AdjustedReports in USD, trades in HKD. Modelled in USD, converted at the end.
    AdjustedCapital expenditure runs at 12.9% of revenue against depreciation of 8.3%. 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.

    Current EV/EBITDA of 42.5x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    HKD 141.52-3.3%
    Exit multiple
    HKD 232.27+58.8%
    Market price
    HKD 146.30

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn1bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 7.7bnUSD 6.0bnUSD 4.8bnUSD 3.8bnUSD 3.0bn-21.1%
    EBITUSD 1.8bnUSD 1.4bnUSD 1.1bnUSD 872.2mUSD 687.8m-21.1%
    NOPATUSD 1.8bnUSD 1.4bnUSD 1.1bnUSD 864.3mUSD 681.6m-21.1%
    Add depreciation & amortisationUSD 635.4mUSD 501.1mUSD 395.2mUSD 311.7mUSD 245.8m-21.1%
    Less capital expenditureUSD -990.3mUSD -781.0mUSD -616.0mUSD -485.8mUSD -383.1m-21.1%
    Less increase in working capitalUSD -191.9mUSD -151.4mUSD -119.4mUSD -94.1mUSD -74.3m-21.1%
    Free cashflow to firmUSD 1.2bnUSD 958.3mUSD 755.8mUSD 596.0mUSD 470.1m-21.1%
    Discount factor0.94600.84650.75750.67780.6065-
    Present valueUSD 1.1bnUSD 811.2mUSD 572.5mUSD 404.0mUSD 285.1m-29.4%
    Present Value Of The ForecastUSD 3.2bn

    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
    Beta1.238Reported 1.355, pulled toward 1.0 (Blume)
    Cost of equity11.86%Risk-free + beta x equity risk premium
    Cost of debt3.20%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 96.6bn98.7% of capital
    Total debtUSD 1.3bn1.3% of capital, book value as a proxy
    Tax rate0.9%Effective, capped at statutory
    WACC11.75%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 shareUSD 18.04

    53% of EV

    Forecast FCFF, final year
    USD 470.1m
    Capex at depreciation, working capital in reinvestment
    USD 682.8m
    Less reinvestment at g/ROIC (19.7% of NOPAT)
    USD -134.3m
    Capitalised
    USD 548.5m
    ROIC (reported)
    12.7%
    Terminal value, undiscounted
    USD 6.1bn
    Terminal value, discounted
    USD 3.7bn
    Enterprise value
    USD 6.9bn
    Less net debt
    USD -5.0bn
    Equity value
    USD 11.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 29.61

    78% of EV

    Terminal value, undiscounted
    USD 18.7bn
    Terminal value, discounted
    USD 11.3bn
    Enterprise value
    USD 14.5bn
    Less net debt
    USD -5.0bn
    Equity value
    USD 19.6bn

    Spread between methods: 49%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    9.75%20.0120.1720.3520.5520.79
    10.75%18.8618.9519.0619.1719.30
    11.75%17.9417.9918.0418.1018.16
    12.75%17.1817.2017.2217.2517.27
    13.75%16.5816.6016.6216.6416.66

    Outlined: this model. Green text: above today's price of 18.65. 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-21.1%-20.0%+1.1pp
    EBIT margin23.2%24.3%+1.1pp
    Discount rate11.8%11.1%-0.6pp
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    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

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