The projected fair value for Jonjee Hi-Tech Industrial and Commercial HoldingLtd is CN¥29.23 based on 2 Stage Free Cash Flow to Equity
Jonjee Hi-Tech Industrial and Commercial HoldingLtd's CN¥17.16 share price signals that it might be 41% undervalued
Our fair value estimate is 18% higher than Jonjee Hi-Tech Industrial and Commercial HoldingLtd's analyst price target of CN¥24.70
Does the August share price for Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd (SHSE:600872) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.
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.
Step By Step Through The Calculation
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. 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 (CN¥, Millions)
CN¥696.3m
CN¥846.3m
CN¥897.6m
CN¥943.3m
CN¥985.0m
CN¥1.02b
CN¥1.06b
CN¥1.10b
CN¥1.13b
CN¥1.17b
Growth Rate Estimate Source
Analyst x2
Analyst x2
Est @ 6.06%
Est @ 5.09%
Est @ 4.42%
Est @ 3.95%
Est @ 3.62%
Est @ 3.39%
Est @ 3.23%
Est @ 3.11%
Present Value (CN¥, Millions) Discounted @ 6.8%
CN¥652
CN¥742
CN¥736
CN¥724
CN¥708
CN¥689
CN¥668
CN¥646
CN¥625
CN¥603
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = CN¥6.8b
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 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 6.8%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥30b÷ ( 1 + 6.8%)10= CN¥16b
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¥22b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of CN¥17.2, the company appears quite undervalued at a 41% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
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. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own 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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd 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 6.8%, which is based on a levered beta of 0.800. 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 Jonjee Hi-Tech Industrial and Commercial HoldingLtd
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for 600872.
Weakness
Dividend is low compared to the top 25% of dividend payers in the Food market.
Opportunity
Annual revenue is forecast to grow faster than the Chinese market.
Good value based on P/E ratio and estimated fair value.
Threat
Annual earnings are forecast to decline for the next 3 years.
What else are analysts forecasting for 600872?
Looking Ahead:
Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Why is the intrinsic value higher than the current share price? For Jonjee Hi-Tech Industrial and Commercial HoldingLtd, there are three fundamental items you should further research:
Risks: For instance, we've identified 3 warning signs for Jonjee Hi-Tech Industrial and Commercial HoldingLtd (2 shouldn't be ignored) you should be aware of.
Future Earnings: How does 600872'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.
主要见解
中炬高新(Jonjee Hi-Tech Industrial and Commercial HoldingLtd)预计的公允价值为29.23人民币,基于2阶段自由现金流对股权
中炬高新(Jonjee Hi-Tech Industrial and Commercial HoldingLtd)的17.16人民币股价表明它可能被低估了41%
我们的公允价值估计比中炬高新(Jonjee Hi-Tech Industrial and Commercial HoldingLtd)的分析师目标价24.70人民币高18%
今年8月份中炬高新(Jonjee Hi-Tech Industrial and Commercial Holding Co.,Ltd)的股价是否反映了其真实价值?今天,我们将通过预期未来现金流量并将其贴现到今天的价值来估计该股票的内在价值。其中一种实现这一目标的方法是采用贴现现金流量(DCF)模型。实际上,尽管可能看起来相当复杂,但这并不是很复杂。