DCF Studio

    2015.HK · HKG · Consumer Cyclical

    Li Auto Inc.

    Also onConsensus Drift

    Implied value per share

    HKD 121.08

    Market price

    HKD 47.56

    Implied upside

    +154.6%

    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 6.4% of revenue against depreciation of 2.6%. 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 2.4x 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 121.08+154.6%
    Exit multiple
    HKD 124.65+162.1%
    Market price
    HKD 47.56

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn23bn45bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 152.0bnCNY 205.8bnCNY 278.5bnCNY 377.0bnCNY 510.3bn+35.4%
    EBITCNY 876.0mCNY 1.2bnCNY 1.6bnCNY 2.2bnCNY 2.9bn+35.4%
    NOPATCNY 763.0mCNY 1.0bnCNY 1.4bnCNY 1.9bnCNY 2.6bn+35.4%
    Add depreciation & amortisationCNY 3.9bnCNY 5.3bnCNY 7.2bnCNY 9.8bnCNY 13.2bn+35.4%
    Less capital expenditureCNY -9.8bnCNY -13.2bnCNY -17.9bnCNY -24.2bnCNY -32.8bn+35.4%
    Less increase in working capitalCNY 18.5bnCNY 25.0bnCNY 33.9bnCNY 45.9bnCNY 62.1bn-35.4%
    Free cashflow to firmCNY 13.5bnCNY 18.2bnCNY 24.7bnCNY 33.4bnCNY 45.2bn+35.4%
    Discount factor0.96590.90110.84070.78440.7318-
    Present valueCNY 13.0bnCNY 16.4bnCNY 20.7bnCNY 26.2bnCNY 33.1bn+26.3%
    Present Value Of The ForecastCNY 109.4bn

    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
    Beta0.690Reported 0.537, pulled toward 1.0 (Blume)
    Cost of equity8.03%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 93.0bn83.9% of capital
    Total debtCNY 17.8bn16.1% of capital, book value as a proxy
    Tax rate12.9%Effective, capped at statutory
    WACC7.19%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 103.41

    21% of EV

    Forecast FCFF, final year
    CNY 45.2bn
    Capex at depreciation, working capital in reinvestment
    CNY 2.6bn
    Less reinvestment at g/ROIC (29.3% of NOPAT)
    CNY -749.9m
    Capitalised
    CNY 1.8bn
    ROIC (reported)
    8.5%
    Terminal value, undiscounted
    CNY 39.6bn
    Terminal value, discounted
    CNY 29.0bn
    Enterprise value
    CNY 138.4bn
    Less net debt
    CNY -83.2bn
    Equity value
    CNY 221.6bn

    Exit at 3.0x EBITDA

    Value per shareCNY 106.46

    25% of EV

    Terminal value, undiscounted
    CNY 48.6bn
    Terminal value, discounted
    CNY 35.5bn
    Enterprise value
    CNY 144.9bn
    Less net debt
    CNY -83.2bn
    Equity value
    CNY 228.1bn

    Spread between methods: 3%.

    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%
    5.19%114.44116.17118.52121.93127.32
    6.19%107.61108.35109.27110.46112.07
    7.19%102.75103.06103.41103.84104.38
    8.19%99.0099.1099.2099.3199.44
    9.19%96.0896.1296.1696.2196.25

    Outlined: this model. Green text: above today's price of 40.62. 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 year35.4%5.7%-29.7pp
    EBIT margin0.6%-9.2%-9.8pp
    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.