DCF Studio

    0960.HK · HKG · Real Estate

    Longfor Group Holdings Limited

    Also onConsensus Drift

    Implied value per share

    HKD -12.00

    Market price

    HKD 5.68

    Implied upside

    -311.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · CNY model at 1.1708

    AdjustedReports in CNY, trades in HKD. Modelled in CNY, converted at the end.
    AdjustedReported capital expenditure averages just 0.23% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.3%. 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 56.0x 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 -12.00-311.3%
    Exit multiple
    HKD -11.08-295.2%
    Market price
    HKD 5.68

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn9bn18bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 71.0bnCNY 51.8bnCNY 37.8bnCNY 27.6bnCNY 20.1bn-27.0%
    EBITCNY 7.1bnCNY 5.2bnCNY 3.8bnCNY 2.7bnCNY 2.0bn-27.0%
    NOPATCNY 5.9bnCNY 4.3bnCNY 3.1bnCNY 2.3bnCNY 1.7bn-27.0%
    Add depreciation & amortisationCNY 198.3mCNY 144.7mCNY 105.6mCNY 77.0mCNY 56.2m-27.0%
    Less capital expenditureCNY -710.0mCNY -518.0mCNY -377.9mCNY -275.7mCNY -201.2m-27.0%
    Less increase in working capitalCNY 12.2bnCNY 8.9bnCNY 6.5bnCNY 4.7bnCNY 3.5bn+27.0%
    Free cashflow to firmCNY 17.6bnCNY 12.8bnCNY 9.4bnCNY 6.8bnCNY 5.0bn-27.0%
    Discount factor0.97570.92900.88450.84210.8017-
    Present valueCNY 17.2bnCNY 11.9bnCNY 8.3bnCNY 5.8bnCNY 4.0bn-30.5%
    Present Value Of The ForecastCNY 47.2bn

    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
    Beta1.693Reported 2.035, pulled toward 1.0 (Blume)
    Cost of equity15.05%Risk-free + beta x equity risk premium
    Cost of debt3.20%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationCNY 39.1bn19.1% of capital
    Total debtCNY 165.9bn80.9% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC5.03%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 shareCNY -10.25

    37% of EV

    Forecast FCFF, final year
    CNY 5.0bn
    Capex at depreciation, working capital in reinvestment
    CNY 1.7bn
    Less reinvestment at g/ROIC (49.7% of NOPAT)
    CNY -842.4m
    Capitalised
    CNY 853.7m
    ROIC (WACC floor)
    5.0%
    Terminal value, undiscounted
    CNY 34.5bn
    Terminal value, discounted
    CNY 27.7bn
    Enterprise value
    CNY 74.9bn
    Less net debt
    CNY 144.7bn
    Equity value
    CNY -69.9bn

    Exit at 20.0x EBITDA

    Value per shareCNY -9.47

    41% of EV

    Terminal value, undiscounted
    CNY 41.2bn
    Terminal value, discounted
    CNY 33.0bn
    Enterprise value
    CNY 80.2bn
    Less net debt
    CNY 144.7bn
    Equity value
    CNY -64.5bn

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    3.03%-5.22-3.640.86139.11—
    4.03%-8.95-8.92-8.90-8.87-8.85
    5.03%-10.29-10.27-10.25-10.23-10.21
    6.03%-11.21-11.20-11.18-11.17-11.15
    7.03%-11.90-11.88-11.87-11.86-11.85

    Outlined: this model. Green text: above today's price of 4.85. 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-27.0%1.9%+28.9pp
    EBIT margin10.0%33.7%+23.8pp
    Discount rate5.0%2.9%-2.1pp
    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.