APT Medical's estimated fair value is CN¥484 based on 2 Stage Free Cash Flow to Equity
APT Medical's CN¥477 share price indicates it is trading at similar levels as its fair value estimate
Analyst price target for 688617 is CN¥450 which is 7.0% below our fair value estimate
How far off is APT Medical Inc. (SHSE:688617) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected 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!
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
Is APT Medical Fairly Valued?
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. 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
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF (CN¥, Millions)
CN¥699.4m
CN¥960.2m
CN¥1.22b
CN¥1.46b
CN¥1.68b
CN¥1.86b
CN¥2.03b
CN¥2.17b
CN¥2.29b
CN¥2.40b
Growth Rate Estimate Source
Est @ 52.01%
Est @ 37.29%
Est @ 26.98%
Est @ 19.77%
Est @ 14.72%
Est @ 11.19%
Est @ 8.71%
Est @ 6.98%
Est @ 5.77%
Est @ 4.92%
Present Value (CN¥, Millions) Discounted @ 8.1%
CN¥647
CN¥821
CN¥965
CN¥1.1k
CN¥1.1k
CN¥1.2k
CN¥1.2k
CN¥1.2k
CN¥1.1k
CN¥1.1k
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = CN¥10b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.9%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.1%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥48b÷ ( 1 + 8.1%)10= CN¥22b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CN¥32b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of CN¥477, the company appears about fair value at a 1.6% 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.
SHSE:688617 Discounted Cash Flow April 16th 2024
The 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 APT Medical 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 0.921. 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 APT Medical
Strength
Earnings growth over the past year exceeded the industry.
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for 688617.
Weakness
Dividend is low compared to the top 25% of dividend payers in the Medical Equipment market.
What are analysts forecasting for 688617?
Opportunity
Annual earnings are forecast to grow faster than the Chinese market.
Current share price is below our estimate of fair value.
Threat
No apparent threats visible for 688617.
Moving On:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or 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. For APT Medical, we've compiled three important elements you should further examine:
Financial Health: Does 688617 have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does 688617'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SHSE every day. If you want to find the calculation for other stocks 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.
關鍵見解
根據兩階段自由現金流向股本計算,APT Medical的估計公允價值爲484元人民幣
APT Medical的477元人民幣股價表明其交易價格與其公允價值估計相似
分析師對688617的目標股價爲450元人民幣,比我們的公允價值估計低7.0%
APT Medical Inc.(上海證券交易所代碼:688617)距離其內在價值有多遠?我們將使用最新的財務數據,通過計算預期的未來現金流並將其折現爲現值,來研究股票的定價是否合理。折扣現金流(DCF)模型是我們將應用的工具。聽起來可能很複雜,但實際上很簡單!
我們要提醒的是,對公司進行估值的方法有很多,就像DCF一樣,每種技術在某些情況下都有優點和缺點。任何有興趣進一步了解內在價值的人都應該讀一讀 Simply Wall St 分析模型。