PAX Global Technology's estimated fair value is HK$9.58 based on 2 Stage Free Cash Flow to Equity
PAX Global Technology is estimated to be 48% undervalued based on current share price of HK$5.00
The average premium for PAX Global Technology's competitorsis currently 115%
How far off is PAX Global Technology Limited (HKG:327) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple!
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.
The Calculation
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF (HK$, Millions)
HK$1.20b
HK$943.0m
HK$802.1m
HK$723.4m
HK$678.3m
HK$653.2m
HK$640.4m
HK$635.8m
HK$636.6m
HK$641.4m
Growth Rate Estimate Source
Analyst x2
Analyst x2
Est @ -14.94%
Est @ -9.81%
Est @ -6.23%
Est @ -3.71%
Est @ -1.95%
Est @ -0.72%
Est @ 0.14%
Est @ 0.74%
Present Value (HK$, Millions) Discounted @ 8.1%
HK$1.1k
HK$806
HK$634
HK$529
HK$459
HK$408
HK$370
HK$340
HK$315
HK$293
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = HK$5.3b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.2%. We discount the terminal cash flows to today's value at a cost of equity of 8.1%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= HK$11b÷ ( 1 + 8.1%)10= HK$5.0b
The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is HK$10b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of HK$5.0, the company appears quite undervalued at a 48% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
The Assumptions
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at PAX Global Technology as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.1%, which is based on a levered beta of 1.093. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for PAX Global Technology
Strength
Currently debt free.
Dividend is in the top 25% of dividend payers in the market.
Dividend information for 327.
Weakness
Earnings declined over the past year.
Opportunity
Annual earnings are forecast to grow faster than the Hong Kong market.
Good value based on P/E ratio and estimated fair value.
Threat
Dividends are not covered by cash flow.
See 327's dividend history.
Moving On:
Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For PAX Global Technology, we've put together three relevant factors you should further examine:
Risks: To that end, you should learn about the 2 warning signs we've spotted with PAX Global Technology (including 1 which shouldn't be ignored) .
Future Earnings: How does 327's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. Simply Wall St updates its DCF calculation for every Hong Kong stock every day, so if you want to find the intrinsic value of any other stock just search here.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
现金流折现的最重要输入是贴现率和实际现金流。 您不必同意这些输入,我建议重新计算自己对此进行修正。DCF还不考虑一个行业的可能循环性或公司未来的资本需求,因此它无法给出公司潜在绩效的完整画面。鉴于我们正在将PAX Global Technology作为潜在股东,因此使用权益成本作为折现率,而不是考虑债务的资本成本(或加权平均资本成本,WACC)。在此计算中,我们使用8.1%,这基于1.093的杠杆收益率。Beta是股票相对于整个市场的波动性的一种度量。我们从与全球可比公司的行业平均Beta获取我们的beta,其强制范围为0.8至2.0,这是一个稳定业务的合理范围。
百富环球科技SWOT分析
优势
目前无债务。
股息在市场上支付的股息的前25%。
327分红信息。
弱点
过去一年的收益下降了。
机会
预计年度收益增长速度将快于香港市场。
基于市盈率和预估公平价值,出现良好的价值。
威胁
股息不被现金流覆盖。
请查看327的分红记录。
接下来:
尽管DCF计算很重要,但对于一家公司的评估,它只是需要评估的众多因素之一。DCF模型并非投资估值的全部,而应视为指导“这只股票的估值假设需要成立” 的指南。如果一家公司的增长速度不同,或者其权益成本或无风险利率发生急剧变化,结果可能会有很大不同。PAX Global Technology为何股价低于内在价值?我们已经整理了3个相关因素,供您进一步研究:
风险:为此,您应该了解我们发现的PAX Global Technology的2个警告信号(包括1个不应忽视的警告信号)。