DCF Studio

    1044.HK · HKG · Consumer Defensive

    Hengan International Group Company Limited

    Also onConsensus Drift

    Implied value per share

    HKD 51.70

    Market price

    HKD 19.70

    Implied upside

    +162.5%

    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.
    AdjustedCapital expenditure runs at 5.8% of revenue against depreciation of 4.2%. 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 51.70+162.5%
    Exit multiple
    HKD 30.22+53.4%
    Market price
    HKD 19.70

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 23.2bnCNY 23.4bnCNY 23.5bnCNY 23.7bnCNY 23.8bn+0.7%
    EBITCNY 3.1bnCNY 3.1bnCNY 3.1bnCNY 3.1bnCNY 3.1bn+0.7%
    NOPATCNY 2.6bnCNY 2.6bnCNY 2.6bnCNY 2.6bnCNY 2.6bn+0.7%
    Add depreciation & amortisationCNY 964.7mCNY 971.1mCNY 977.6mCNY 984.0mCNY 990.6m+0.7%
    Less capital expenditureCNY -1.4bnCNY -1.4bnCNY -1.4bnCNY -1.4bnCNY -1.4bn+0.7%
    Less increase in working capitalCNY 37.2mCNY 37.5mCNY 37.7mCNY 38.0mCNY 38.2m-0.7%
    Free cashflow to firmCNY 2.2bnCNY 2.2bnCNY 2.2bnCNY 2.2bnCNY 2.3bn+0.7%
    Discount factor0.97200.91820.86740.81950.7742-
    Present valueCNY 2.1bnCNY 2.0bnCNY 1.9bnCNY 1.8bnCNY 1.8bn-4.9%
    Present Value Of The ForecastCNY 9.7bn

    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
    Beta0.695Reported 0.545, pulled toward 1.0 (Blume)
    Cost of equity8.07%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 22.7bn59.0% of capital
    Total debtCNY 15.8bn41.0% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC5.85%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 44.16

    81% of EV

    Forecast FCFF, final year
    CNY 2.3bn
    Capex at depreciation, working capital in reinvestment
    CNY 2.7bn
    Less reinvestment at g/ROIC (35.2% of NOPAT)
    CNY -932.2m
    Capitalised
    CNY 1.7bn
    ROIC (reported)
    7.1%
    Terminal value, undiscounted
    CNY 52.6bn
    Terminal value, discounted
    CNY 40.7bn
    Enterprise value
    CNY 50.4bn
    Less net debt
    CNY 145.3m
    Equity value
    CNY 50.3bn

    Exit at 6.2x EBITDA

    Value per shareCNY 25.81

    67% of EV

    Terminal value, undiscounted
    CNY 25.6bn
    Terminal value, discounted
    CNY 19.8bn
    Enterprise value
    CNY 29.5bn
    Less net debt
    CNY 145.3m
    Equity value
    CNY 29.4bn

    Spread between methods: 52%.

    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%
    3.85%75.7086.56105.34145.97301.21
    4.85%53.5756.9861.7869.0981.72
    5.85%41.5942.7344.1646.0548.70
    6.85%34.0934.3434.6234.9435.32
    7.85%29.4729.5729.6829.7829.89

    Outlined: this model. Green text: above today's price of 16.83. 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 year0.7%-16.1%-16.7pp
    EBIT margin13.2%5.2%-8.0pp
    Discount rate5.9%13.7%+7.9pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.