Intrinsic value of China New Borun ADR - BORN

Previous Close

$1.22

  Intrinsic Value

$2.63

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  Rating & Target

str. buy

+115%

Previous close

$1.22

 
Intrinsic value

$2.63

 
Up/down potential

+115%

 
Rating

str. buy

We calculate the intrinsic value of BORN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -19.53
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  309
  321
  334
  348
  362
  378
  394
  412
  430
  449
  470
  492
  515
  539
  564
  591
  619
  649
  680
  713
  748
  784
  822
  862
  905
  949
  996
  1,045
  1,097
  1,151
  1,208
Variable operating expenses, $m
 
  265
  275
  287
  299
  312
  325
  340
  355
  371
  388
  406
  425
  444
  465
  488
  511
  535
  561
  588
  617
  647
  678
  712
  746
  783
  822
  862
  905
  949
  996
Fixed operating expenses, $m
 
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  50
  51
  52
  53
  55
  56
  58
  59
  60
  62
  64
  65
  67
  68
  70
  72
  74
  76
Total operating expenses, $m
  290
  302
  313
  326
  339
  353
  367
  383
  399
  416
  434
  453
  473
  494
  516
  540
  564
  590
  617
  646
  676
  707
  740
  776
  811
  850
  890
  932
  977
  1,023
  1,072
Operating income, $m
  19
  19
  21
  22
  24
  25
  27
  29
  31
  34
  36
  39
  42
  45
  48
  51
  55
  59
  63
  67
  72
  77
  82
  87
  93
  99
  106
  113
  120
  128
  136
EBITDA, $m
  37
  23
  25
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  55
  59
  63
  67
  71
  76
  81
  87
  92
  98
  105
  111
  118
  126
  134
  142
  151
Interest expense (income), $m
  5
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
Earnings before tax, $m
  12
  17
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  41
  44
  47
  51
  54
  58
  62
  67
  71
  76
  81
  87
  93
  99
  105
  112
  119
  127
Tax expense, $m
  3
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  27
  28
  30
  32
  34
Net income, $m
  9
  13
  13
  14
  16
  17
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  37
  40
  42
  45
  49
  52
  56
  59
  63
  68
  72
  77
  82
  87
  93

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  115
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  456
  354
  369
  384
  400
  417
  435
  454
  475
  496
  519
  543
  568
  595
  623
  652
  683
  716
  751
  787
  825
  865
  908
  952
  999
  1,048
  1,099
  1,153
  1,210
  1,270
  1,333
Adjusted assets (=assets-cash), $m
  341
  354
  369
  384
  400
  417
  435
  454
  475
  496
  519
  543
  568
  595
  623
  652
  683
  716
  751
  787
  825
  865
  908
  952
  999
  1,048
  1,099
  1,153
  1,210
  1,270
  1,333
Revenue / Adjusted assets
  0.906
  0.907
  0.905
  0.906
  0.905
  0.906
  0.906
  0.907
  0.905
  0.905
  0.906
  0.906
  0.907
  0.906
  0.905
  0.906
  0.906
  0.906
  0.905
  0.906
  0.907
  0.906
  0.905
  0.905
  0.906
  0.906
  0.906
  0.906
  0.907
  0.906
  0.906
Average production assets, $m
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
Working capital, $m
  167
  161
  167
  174
  181
  189
  197
  206
  215
  225
  235
  246
  257
  269
  282
  295
  310
  324
  340
  356
  374
  392
  411
  431
  452
  475
  498
  522
  548
  575
  604
Total debt, $m
  173
  61
  64
  67
  70
  74
  77
  81
  86
  90
  95
  100
  105
  111
  117
  123
  129
  136
  143
  151
  159
  167
  176
  185
  195
  205
  216
  227
  239
  251
  264
Total liabilities, $m
  185
  74
  77
  80
  83
  87
  90
  94
  99
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
  229
  240
  252
  264
  277
Total equity, $m
  270
  281
  292
  304
  317
  330
  345
  360
  376
  393
  411
  430
  450
  471
  493
  517
  541
  567
  595
  623
  654
  685
  719
  754
  791
  830
  871
  913
  959
  1,006
  1,056
Total liabilities and equity, $m
  455
  355
  369
  384
  400
  417
  435
  454
  475
  496
  519
  543
  568
  595
  623
  653
  683
  716
  751
  787
  826
  865
  908
  952
  999
  1,048
  1,100
  1,153
  1,211
  1,270
  1,333
Debt-to-equity ratio
  0.641
  0.220
  0.220
  0.220
  0.220
  0.220
  0.220
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
Adjusted equity ratio
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792
  0.792

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  9
  13
  13
  14
  16
  17
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  37
  40
  42
  45
  49
  52
  56
  59
  63
  68
  72
  77
  82
  87
  93
Depreciation, amort., depletion, $m
  18
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
Funds from operations, $m
  19
  17
  18
  19
  20
  21
  23
  25
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  62
  66
  70
  75
  80
  85
  90
  96
  102
  108
Change in working capital, $m
  -4
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
Cash from operations, $m
  23
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  41
  44
  47
  50
  54
  57
  61
  65
  70
  75
  79
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from investing activities, $m
  0
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
Free cash flow, $m
  23
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  27
  30
  32
  34
  37
  40
  43
  46
  50
  53
  57
  61
Issuance/(repayment) of debt, $m
  20
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  20
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Total cash flow (excl. dividends), $m
  43
  9
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  21
  22
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  50
  53
  57
  61
  65
  70
  74
Retained Cash Flow (-), $m
  -9
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -2
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  0
  0
  0
  1
  2
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  14
  16
  18
  20
  22
  25
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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China New Borun Corporation (New Borun) is a producer and distributor of corn-based edible alcohol in the People's Republic of China. The Company also produces Distillers Dried Grains with Solubles high-protein feed (DDGS Feed), liquid carbon dioxide and crude corn oil as by-products of edible alcohol production and chlorinated polyethylene (CPE) and foam insulation that are used in a range of industries. The Company's segments include Corn-base edible alcohol and its by-products, CPE and Foam insulation. The Company's edible alcohol products are primarily sold as an ingredient to producers of baijiu who further blend its products into finished products sold under various brand names throughout China. The Company's facilities are located in Shouguang, Shandong Province and the other in Daqing, Heilongjiang Province.

FINANCIAL RATIOS  of  China New Borun ADR (BORN)

Valuation Ratios
P/E Ratio 3.5
Price to Sales 0.1
Price to Book 0.1
Price to Tangible Book
Price to Cash Flow 1.4
Price to Free Cash Flow 1.4
Growth Rates
Sales Growth Rate -19.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate -48.6%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 15.6%
Total Debt to Equity 64.1%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 3.4%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 8.4%
Gross Margin - 3 Yr. Avg. 9.9%
EBITDA Margin 11.3%
EBITDA Margin - 3 Yr. Avg. 12.9%
Operating Margin 6.1%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 4.9%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 25.2%
Payout Ratio 0%

BORN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BORN stock intrinsic value calculation we used $309 million for the last fiscal year's total revenue generated by China New Borun ADR. The default revenue input number comes from 2016 income statement of China New Borun ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BORN stock valuation model: a) initial revenue growth rate of 3.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.4%, whose default value for BORN is calculated based on our internal credit rating of China New Borun ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of China New Borun ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BORN stock the variable cost ratio is equal to 82.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $36 million in the base year in the intrinsic value calculation for BORN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for China New Borun ADR.

Corporate tax rate of 27% is the nominal tax rate for China New Borun ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BORN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BORN are equal to 6.3%.

Life of production assets of 1.1 years is the average useful life of capital assets used in China New Borun ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BORN is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $270 million for China New Borun ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 25.705 million for China New Borun ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of China New Borun ADR at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Baijiu Regains Its Investment Palate   [Oct-11-16 01:30AM  Bloomberg]
▶ Baijiu Regains Its Investment Palate   [01:30AM  at Bloomberg]
▶ CHINA NEW BORUN CORP Financials   [01:04PM  EDGAR Online Financials]
▶ Klarifikasi atas Pemberitaan Media Massa   [Jan-12  05:53AM  at noodls]
▶ China New Borun (BORN) Downgraded From Buy to Hold   [Sep-23  08:57AM  at TheStreet]
▶ 3 Stocks Under $10 Making Big Moves   [Jul-02  08:29AM  at TheStreet]
▶ China New Borun Corp Stock Upgraded (BORN)   [May-26  11:21AM  at TheStreet]
▶ China New Borun falls 10.7%   [May-23  12:00PM  at theflyonthewall.com]
▶ China New Borun rises 6.9%   [09:00AM  at theflyonthewall.com]
▶ Why China New Borun (BORN) Is Soaring Today   [Mar-06  11:11AM  at TheStreet]
Financial statements of BORN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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