DCF Studio

    1398.HK · HKG · Financial Services

    Industrial and Commercial Bank of China Limited

    Also onConsensus Drift

    Implied value per share

    HKD 31.45

    Market price

    HKD 7.50

    Implied upside

    +319.4%

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

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReports in CNY, trades in HKD. Modelled in CNY, converted at the end.
    NoteRisk-free rate is an assumption: HKD assumption - no free live source available for this market.

    Current EV/EBITDA of 0.3x sits outside a defensible 3-20x band, so the exit multiple is capped at 3.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    HKD 31.45+319.4%
    Exit multiple
    HKD 16.35+118.0%
    Market price
    HKD 7.50

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn190bn380bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 821.3bnCNY 809.2bnCNY 797.3bnCNY 785.6bnCNY 774.0bn-1.5%
    EBITCNY 414.0bnCNY 407.9bnCNY 401.9bnCNY 396.0bnCNY 390.2bn-1.5%
    NOPATCNY 359.2bnCNY 353.9bnCNY 348.7bnCNY 343.6bnCNY 338.5bn-1.5%
    Add depreciation & amortisationCNY 33.7bnCNY 33.2bnCNY 32.7bnCNY 32.2bnCNY 31.8bn-1.5%
    Less capital expenditureCNY -25.1bnCNY -24.8bnCNY -24.4bnCNY -24.0bnCNY -23.7bn-1.5%
    Less increase in working capitalCNY 12.2bnCNY 12.1bnCNY 11.9bnCNY 11.7bnCNY 11.5bn+1.5%
    Free cashflow to firmCNY 380.0bnCNY 374.4bnCNY 368.9bnCNY 363.5bnCNY 358.1bn-1.5%
    Discount factor0.97440.92500.87820.83370.7915-
    Present valueCNY 370.2bnCNY 346.3bnCNY 323.9bnCNY 303.0bnCNY 283.4bn-6.5%
    Present Value Of The ForecastCNY 1626.9bn

    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
    Beta0.426Reported 0.143, pulled toward 1.0 (Blume)
    Cost of equity6.18%Risk-free + beta x equity risk premium
    Cost of debt5.20%Implied cost of debt of 26.0% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationCNY 2673.0bn49.3% of capital
    Total debtCNY 2751.4bn50.7% of capital, book value as a proxy
    Tax rate13.2%Effective, capped at statutory
    WACC5.33%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 26.87

    78% of EV

    Forecast FCFF, final year
    CNY 358.1bn
    Capex at depreciation, working capital in reinvestment
    CNY 338.5bn
    Less reinvestment at g/ROIC (40.6% of NOPAT)
    CNY -137.4bn
    Capitalised
    CNY 201.1bn
    ROIC (reported)
    6.2%
    Terminal value, undiscounted
    CNY 7274.1bn
    Terminal value, discounted
    CNY 5757.3bn
    Enterprise value
    CNY 7384.2bn
    Less net debt
    CNY -2517.3bn
    Equity value
    CNY 9901.6bn

    Exit at 3.0x EBITDA

    Value per shareCNY 13.96

    38% of EV

    Terminal value, undiscounted
    CNY 1265.8bn
    Terminal value, discounted
    CNY 1001.9bn
    Enterprise value
    CNY 2628.8bn
    Less net debt
    CNY -2517.3bn
    Equity value
    CNY 5146.2bn

    Spread between methods: 63%.

    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%
    3.33%44.6352.3769.31136.80—
    4.33%31.9033.7436.5441.4052.01
    5.33%25.8026.2626.8727.7028.96
    6.33%22.3122.3722.4222.4822.53
    7.33%20.3020.3420.3920.4320.48

    Outlined: this model. Green text: above today's price of 6.41. 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
    EBIT margin50.4%-8.0%-58.5pp
    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.