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
現金流折現的最重要輸入是貼現率和實際現金流。 您不必同意這些輸入,我建議重新計算自己對此進行修正。DCF還不考慮一個行業的可能循環性或公司未來的資本需求,因此它無法給出公司潛在績效的完整畫面。鑑於我們正在將PAX Global Technology作爲潛在股東,因此使用權益成本作爲折現率,而不是考慮債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用8.1%,這基於1.093的槓桿收益率。Beta是股票相對於整個市場的波動性的一種度量。我們從與全球可比公司的行業平均Beta獲取我們的beta,其強制範圍爲0.8至2.0,這是一個穩定業務的合理範圍。
百富環球科技SWOT分析
優勢
目前無債務。
股息在市場上支付的股息的前25%。
327分紅信息。
弱點
過去一年的收益下降了。
機會
預計年度收益增長速度將快於香港市場。
基於市盈率和預估公平價值,出現良好的價值。
威脅
股息不被現金流覆蓋。
請查看327的分紅記錄。
接下來:
儘管DCF計算很重要,但對於一家公司的評估,它只是需要評估的衆多因素之一。DCF模型並非投資估值的全部,而應視爲指導“這隻股票的估值假設需要成立” 的指南。如果一家公司的增長速度不同,或者其權益成本或無風險利率發生急劇變化,結果可能會有很大不同。PAX Global Technology爲何股價低於內在價值?我們已經整理了3個相關因素,供您進一步研究:
風險:爲此,您應該了解我們發現的PAX Global Technology的2個警告信號(包括1個不應忽視的警告信號)。