Shanxi Coal International Energy GroupLtd's estimated fair value is CN¥10.53 based on 2 Stage Free Cash Flow to Equity
Current share price of CN¥11.56 suggests Shanxi Coal International Energy GroupLtd is potentially trading close to its fair value
The CN¥21.00 analyst price target for 600546 is 99% more than our estimate of fair value
How far off is Shanxi Coal International Energy Group Co.,Ltd (SHSE:600546) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by estimating the company's future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. 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.
What's The Estimated Valuation?
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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.
Generally we assume that a dollar today is more valuable than a dollar in the future, 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 (CN¥, Millions)
CN¥2.76b
CN¥2.07b
CN¥1.72b
CN¥1.54b
CN¥1.43b
CN¥1.38b
CN¥1.35b
CN¥1.35b
CN¥1.36b
CN¥1.37b
Growth Rate Estimate Source
Est @ -36.97%
Est @ -25.03%
Est @ -16.66%
Est @ -10.81%
Est @ -6.71%
Est @ -3.84%
Est @ -1.84%
Est @ -0.43%
Est @ 0.55%
Est @ 1.24%
Present Value (CN¥, Millions) Discounted @ 9.0%
CN¥2.5k
CN¥1.7k
CN¥1.3k
CN¥1.1k
CN¥934
CN¥824
CN¥742
CN¥678
CN¥626
CN¥582
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = CN¥11b
After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. 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 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 9.0%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥23b÷ ( 1 + 9.0%)10= CN¥9.8b
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 CN¥21b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of CN¥11.6, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
Important Assumptions
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. 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 Shanxi Coal International Energy GroupLtd 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 9.0%, which is based on a levered beta of 1.227. 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 Shanxi Coal International Energy GroupLtd
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend is in the top 25% of dividend payers in the market.
Dividend information for 600546.
Weakness
Earnings declined over the past year.
Opportunity
Annual earnings are forecast to grow for the next 3 years.
Good value based on P/E ratio compared to estimated Fair P/E ratio.
Threat
Annual earnings are forecast to grow slower than the Chinese market.
What else are analysts forecasting for 600546?
Moving On:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Shanxi Coal International Energy GroupLtd, there are three additional elements you should explore:
Risks: For example, we've discovered 2 warning signs for Shanxi Coal International Energy GroupLtd that you should be aware of before investing here.
Future Earnings: How does 600546'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 High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St updates its DCF calculation for every Chinese 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.
主要见解
山煤国际(Shanxi Coal International Energy GroupLtd)根据两阶段自由现金流股本估算的公允价值约为人民币10.53元。
目前人民币11.56元的股价表明山煤国际(Shanxi Coal International Energy GroupLtd)可能接近其公允价值。
Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St updates its DCF calculation for every Chinese stock every day, so if you want to find the intrinsic value of any other stock just search here.
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.
Est @ -3.84%
预计减少1.84%后的金额。
估计@-0.43%。
估值在0.55%。
1.24%的估值
现值(人民币,百万) 折现率为9.0%
CN¥2.5千
人民币1.7k
人民币1.3千元
人民币1.1千元
CN¥824
CN¥742
人民币678元
人民币626元。
CN¥582
("Est" = Simply Wall St 估计的自由现金流增长率) 10年现金流的现值(PVCF)=人民币110亿元