DCF Studio

    3988.HK · HKG · Financial Services

    Bank of China Limited

    Also onConsensus Drift

    Implied value per share

    HKD 29.31

    Market price

    HKD 5.99

    Implied upside

    +389.7%

    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 1.2x 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 29.31+389.7%
    Exit multiple
    HKD 14.07+135.0%
    Market price
    HKD 5.99

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn172bn343bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 683.3bnCNY 710.4bnCNY 738.6bnCNY 767.9bnCNY 798.4bn+4.0%
    EBITCNY 322.4bnCNY 335.2bnCNY 348.5bnCNY 362.4bnCNY 376.8bn+4.0%
    NOPATCNY 272.6bnCNY 283.4bnCNY 294.6bnCNY 306.3bnCNY 318.5bn+4.0%
    Add depreciation & amortisationCNY 32.0bnCNY 33.3bnCNY 34.6bnCNY 36.0bnCNY 37.4bn+4.0%
    Less capital expenditureCNY -36.8bnCNY -38.3bnCNY -39.8bnCNY -41.4bnCNY -43.0bn+4.0%
    Less increase in working capitalCNY 26.1bnCNY 27.1bnCNY 28.2bnCNY 29.3bnCNY 30.5bn-4.0%
    Free cashflow to firmCNY 293.8bnCNY 305.5bnCNY 317.6bnCNY 330.2bnCNY 343.3bn+4.0%
    Discount factor0.97550.92840.88350.84080.8002-
    Present valueCNY 286.6bnCNY 283.6bnCNY 280.6bnCNY 277.7bnCNY 274.7bn-1.1%
    Present Value Of The ForecastCNY 1403.3bn

    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
    Beta0.409Reported 0.118, pulled toward 1.0 (Blume)
    Cost of equity6.06%Risk-free + beta x equity risk premium
    Cost of debt5.20%Implied cost of debt of 21.1% 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 1928.4bn40.9% of capital
    Total debtCNY 2782.4bn59.1% of capital, book value as a proxy
    Tax rate15.5%Effective, capped at statutory
    WACC5.08%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 25.03

    79% of EV

    Forecast FCFF, final year
    CNY 343.3bn
    Capex at depreciation, working capital in reinvestment
    CNY 326.3bn
    Less reinvestment at g/ROIC (49.2% of NOPAT)
    CNY -160.6bn
    Capitalised
    CNY 165.7bn
    ROIC (WACC floor)
    5.1%
    Terminal value, undiscounted
    CNY 6586.2bn
    Terminal value, discounted
    CNY 5270.2bn
    Enterprise value
    CNY 6673.5bn
    Less net debt
    CNY -1548.1bn
    Equity value
    CNY 8221.5bn

    Exit at 3.0x EBITDA

    Value per shareCNY 12.01

    41% of EV

    Terminal value, undiscounted
    CNY 1242.5bn
    Terminal value, discounted
    CNY 994.2bn
    Enterprise value
    CNY 2397.5bn
    Less net debt
    CNY -1548.1bn
    Equity value
    CNY 3945.5bn

    Spread between methods: 70%.

    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%
    3.08%48.4058.7586.84471.69—
    4.08%32.0733.7136.3441.3254.78
    5.08%24.8824.9625.0325.1125.19
    6.08%21.6121.6721.7421.8021.86
    7.08%19.2719.3219.3719.4219.47

    Outlined: this model. Green text: above today's price of 5.11. 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 year4.0%-39.4%-43.4pp
    EBIT margin47.2%-0.7%-47.9pp
    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.