DCF Studio

    3968.HK · HKG · Financial Services

    China Merchants Bank Co., Ltd.

    Also onConsensus Drift

    Implied value per share

    HKD 143.99

    Market price

    HKD 51.20

    Implied upside

    +181.2%

    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.
    AdjustedCapital expenditure runs at 9.5% of revenue against depreciation of 4.5%. 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 1.9x 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 143.99+181.2%
    Exit multiple
    HKD 82.57+61.3%
    Market price
    HKD 51.20

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn65bn131bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 328.7bnCNY 325.4bnCNY 322.2bnCNY 318.9bnCNY 315.7bn-1.0%
    EBITCNY 170.9bnCNY 169.2bnCNY 167.5bnCNY 165.8bnCNY 164.2bn-1.0%
    NOPATCNY 143.7bnCNY 142.3bnCNY 140.8bnCNY 139.4bnCNY 138.0bn-1.0%
    Add depreciation & amortisationCNY 14.9bnCNY 14.8bnCNY 14.6bnCNY 14.5bnCNY 14.3bn-1.0%
    Less capital expenditureCNY -31.3bnCNY -31.0bnCNY -30.7bnCNY -30.3bnCNY -30.0bn-1.0%
    Less increase in working capitalCNY 3.3bnCNY 3.3bnCNY 3.3bnCNY 3.2bnCNY 3.2bn+1.0%
    Free cashflow to firmCNY 130.7bnCNY 129.4bnCNY 128.1bnCNY 126.8bnCNY 125.5bn-1.0%
    Discount factor0.96720.90490.84660.79210.7410-
    Present valueCNY 126.4bnCNY 117.1bnCNY 108.4bnCNY 100.4bnCNY 93.0bn-7.4%
    Present Value Of The ForecastCNY 545.3bn

    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
    Beta0.640Reported 0.462, pulled toward 1.0 (Blume)
    Cost of equity7.68%Risk-free + beta x equity risk premium
    Cost of debt5.20%Implied cost of debt of 31.0% 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 1291.3bn76.1% of capital
    Total debtCNY 405.4bn23.9% of capital, book value as a proxy
    Tax rate15.9%Effective, capped at statutory
    WACC6.89%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 122.98

    77% of EV

    Forecast FCFF, final year
    CNY 125.5bn
    Capex at depreciation, working capital in reinvestment
    CNY 138.8bn
    Less reinvestment at g/ROIC (26.0% of NOPAT)
    CNY -36.0bn
    Capitalised
    CNY 102.8bn
    ROIC (reported)
    9.6%
    Terminal value, undiscounted
    CNY 2400.7bn
    Terminal value, discounted
    CNY 1779.0bn
    Enterprise value
    CNY 2324.3bn
    Less net debt
    CNY -916.1bn
    Equity value
    CNY 3240.3bn

    Exit at 3.0x EBITDA

    Value per shareCNY 70.52

    42% of EV

    Terminal value, undiscounted
    CNY 535.4bn
    Terminal value, discounted
    CNY 396.8bn
    Enterprise value
    CNY 942.0bn
    Less net debt
    CNY -916.1bn
    Equity value
    CNY 1858.1bn

    Spread between methods: 54%.

    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%
    4.89%163.92175.36191.51216.10258.26
    5.89%135.46140.59147.16155.94168.31
    6.89%117.55120.01122.99126.67131.39
    7.89%105.24106.40107.75109.33111.23
    8.89%96.2496.7397.2697.8498.51

    Outlined: this model. Green text: above today's price of 43.73. 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 margin52.0%6.2%-45.8pp
    Discount rate6.9%72.4%+65.5pp
    Download as Excel

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