DCF Studio

    1378.HK · HKG · Basic Materials

    China Hongqiao Group Limited

    Also onConsensus Drift

    Implied value per share

    HKD 51.32

    Market price

    HKD 22.12

    Implied upside

    +132.0%

    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 7.1% of revenue against depreciation of 4.8%. 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 51.32+132.0%
    Exit multiple
    HKD 33.23+50.2%
    Market price
    HKD 22.12

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn13bn26bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 174.1bnCNY 186.7bnCNY 200.1bnCNY 214.6bnCNY 230.1bn+7.2%
    EBITCNY 31.2bnCNY 33.4bnCNY 35.8bnCNY 38.4bnCNY 41.2bn+7.2%
    NOPATCNY 26.0bnCNY 27.9bnCNY 29.9bnCNY 32.1bnCNY 34.4bn+7.2%
    Add depreciation & amortisationCNY 8.4bnCNY 9.0bnCNY 9.6bnCNY 10.3bnCNY 11.0bn+7.2%
    Less capital expenditureCNY -12.3bnCNY -13.2bnCNY -14.2bnCNY -15.2bnCNY -16.3bn+7.2%
    Less increase in working capitalCNY -2.3bnCNY -2.5bnCNY -2.7bnCNY -2.9bnCNY -3.1bn+7.2%
    Free cashflow to firmCNY 19.7bnCNY 21.1bnCNY 22.7bnCNY 24.3bnCNY 26.1bn+7.2%
    Discount factor0.96080.88690.81870.75580.6977-
    Present valueCNY 19.0bnCNY 18.8bnCNY 18.6bnCNY 18.4bnCNY 18.2bn-1.0%
    Present Value Of The ForecastCNY 92.8bn

    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
    Beta0.938Reported 0.907, pulled toward 1.0 (Blume)
    Cost of equity9.76%Risk-free + beta x equity risk premium
    Cost of debt4.83%Interest expense / average total debt
    Market capitalisationCNY 217.2bn75.0% of capital
    Total debtCNY 72.5bn25.0% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC8.33%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 43.83

    78% of EV

    Forecast FCFF, final year
    CNY 26.1bn
    Capex at depreciation, working capital in reinvestment
    CNY 34.4bn
    Less reinvestment at g/ROIC (20.2% of NOPAT)
    CNY -7.0bn
    Capitalised
    CNY 27.4bn
    ROIC (reported)
    12.4%
    Terminal value, undiscounted
    CNY 482.7bn
    Terminal value, discounted
    CNY 336.8bn
    Enterprise value
    CNY 429.6bn
    Less net debt
    CNY 13.5bn
    Equity value
    CNY 416.2bn

    Exit at 5.2x EBITDA

    Value per shareCNY 28.38

    67% of EV

    Terminal value, undiscounted
    CNY 272.4bn
    Terminal value, discounted
    CNY 190.1bn
    Enterprise value
    CNY 282.9bn
    Less net debt
    CNY 13.5bn
    Equity value
    CNY 269.4bn

    Spread between methods: 43%.

    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%
    6.33%59.6163.1467.5673.2780.96
    7.33%48.9350.8953.2456.1059.68
    8.33%41.3842.5243.8345.3847.22
    9.33%35.7836.4437.1938.0539.03
    10.33%31.4531.8432.2532.7233.23

    Outlined: this model. Green text: above today's price of 18.89. 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 year7.2%-12.7%-19.9pp
    EBIT margin17.9%8.7%-9.2pp
    Discount rate8.3%15.9%+7.6pp
    Download as Excel

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