Intrinsic value of China Automotive Systems - CAAS

Previous Close

$4.40

  Intrinsic Value

$2.39

stock screener

  Rating & Target

sell

-46%

Previous close

$4.40

 
Intrinsic value

$2.39

 
Up/down potential

-46%

 
Rating

sell

We calculate the intrinsic value of CAAS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  4.05
  24.20
  22.28
  20.55
  19.00
  17.60
  16.34
  15.20
  14.18
  13.26
  12.44
  11.69
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
Revenue, $m
  462
  574
  702
  846
  1,007
  1,184
  1,377
  1,586
  1,811
  2,052
  2,307
  2,577
  2,861
  3,159
  3,471
  3,797
  4,137
  4,491
  4,859
  5,242
  5,640
  6,054
  6,484
  6,931
  7,395
  7,878
  8,381
  8,904
  9,448
  10,016
  10,607
Variable operating expenses, $m
 
  535
  655
  789
  939
  1,104
  1,285
  1,480
  1,690
  1,914
  2,152
  2,404
  2,669
  2,947
  3,238
  3,543
  3,860
  4,190
  4,534
  4,891
  5,263
  5,649
  6,050
  6,466
  6,900
  7,350
  7,819
  8,307
  8,815
  9,345
  9,897
Fixed operating expenses, $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
Total operating expenses, $m
  439
  535
  655
  789
  939
  1,104
  1,285
  1,480
  1,690
  1,914
  2,152
  2,404
  2,669
  2,947
  3,238
  3,543
  3,860
  4,190
  4,534
  4,891
  5,263
  5,649
  6,050
  6,466
  6,900
  7,350
  7,819
  8,307
  8,815
  9,345
  9,897
Operating income, $m
  23
  38
  47
  57
  67
  79
  92
  106
  121
  137
  155
  173
  192
  212
  233
  254
  277
  301
  326
  351
  378
  406
  434
  464
  495
  528
  562
  597
  633
  671
  711
EBITDA, $m
  37
  56
  68
  82
  98
  115
  134
  154
  176
  199
  224
  250
  278
  307
  337
  369
  402
  436
  472
  509
  548
  588
  630
  673
  718
  765
  814
  865
  918
  973
  1,030
Interest expense (income), $m
  1
  2
  4
  7
  10
  13
  17
  21
  25
  30
  35
  40
  45
  51
  57
  64
  70
  77
  84
  92
  100
  108
  116
  125
  134
  144
  154
  164
  175
  186
  197
Earnings before tax, $m
  25
  36
  43
  50
  58
  66
  75
  86
  96
  108
  120
  133
  146
  161
  175
  191
  207
  224
  241
  259
  278
  298
  318
  339
  361
  384
  408
  433
  458
  485
  513
Tax expense, $m
  3
  10
  12
  13
  16
  18
  20
  23
  26
  29
  32
  36
  40
  43
  47
  52
  56
  60
  65
  70
  75
  80
  86
  92
  98
  104
  110
  117
  124
  131
  139
Net income, $m
  23
  27
  31
  36
  42
  48
  55
  62
  70
  79
  88
  97
  107
  117
  128
  139
  151
  163
  176
  189
  203
  217
  232
  248
  264
  280
  298
  316
  335
  354
  375

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  62
  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
  632
  708
  865
  1,043
  1,241
  1,460
  1,698
  1,956
  2,234
  2,530
  2,844
  3,177
  3,527
  3,895
  4,280
  4,682
  5,101
  5,538
  5,992
  6,464
  6,955
  7,465
  7,995
  8,546
  9,119
  9,714
  10,334
  10,979
  11,650
  12,350
  13,079
Adjusted assets (=assets-cash), $m
  570
  708
  865
  1,043
  1,241
  1,460
  1,698
  1,956
  2,234
  2,530
  2,844
  3,177
  3,527
  3,895
  4,280
  4,682
  5,101
  5,538
  5,992
  6,464
  6,955
  7,465
  7,995
  8,546
  9,119
  9,714
  10,334
  10,979
  11,650
  12,350
  13,079
Revenue / Adjusted assets
  0.811
  0.811
  0.812
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
  0.811
Average production assets, $m
  95
  118
  144
  173
  206
  243
  282
  325
  371
  421
  473
  528
  586
  648
  712
  778
  848
  921
  996
  1,075
  1,156
  1,241
  1,329
  1,421
  1,516
  1,615
  1,718
  1,825
  1,937
  2,053
  2,174
Working capital, $m
  161
  272
  333
  401
  477
  561
  653
  752
  859
  972
  1,093
  1,221
  1,356
  1,497
  1,645
  1,800
  1,961
  2,129
  2,303
  2,485
  2,674
  2,870
  3,073
  3,285
  3,505
  3,734
  3,973
  4,220
  4,479
  4,748
  5,028
Total debt, $m
  120
  123
  198
  282
  376
  480
  593
  715
  847
  987
  1,136
  1,294
  1,460
  1,634
  1,817
  2,007
  2,206
  2,413
  2,628
  2,852
  3,085
  3,326
  3,578
  3,839
  4,110
  4,393
  4,686
  4,992
  5,310
  5,642
  5,988
Total liabilities, $m
  331
  335
  410
  494
  588
  692
  805
  927
  1,059
  1,199
  1,348
  1,506
  1,672
  1,846
  2,029
  2,219
  2,418
  2,625
  2,840
  3,064
  3,297
  3,538
  3,790
  4,051
  4,322
  4,605
  4,898
  5,204
  5,522
  5,854
  6,200
Total equity, $m
  300
  372
  455
  549
  653
  768
  893
  1,029
  1,175
  1,331
  1,496
  1,671
  1,855
  2,049
  2,251
  2,463
  2,683
  2,913
  3,152
  3,400
  3,658
  3,927
  4,205
  4,495
  4,796
  5,110
  5,436
  5,775
  6,128
  6,496
  6,880
Total liabilities and equity, $m
  631
  707
  865
  1,043
  1,241
  1,460
  1,698
  1,956
  2,234
  2,530
  2,844
  3,177
  3,527
  3,895
  4,280
  4,682
  5,101
  5,538
  5,992
  6,464
  6,955
  7,465
  7,995
  8,546
  9,118
  9,715
  10,334
  10,979
  11,650
  12,350
  13,080
Debt-to-equity ratio
  0.400
  0.330
  0.440
  0.510
  0.580
  0.620
  0.660
  0.700
  0.720
  0.740
  0.760
  0.770
  0.790
  0.800
  0.810
  0.820
  0.820
  0.830
  0.830
  0.840
  0.840
  0.850
  0.850
  0.850
  0.860
  0.860
  0.860
  0.860
  0.870
  0.870
  0.870
Adjusted equity ratio
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526
  0.526

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  27
  31
  36
  42
  48
  55
  62
  70
  79
  88
  97
  107
  117
  128
  139
  151
  163
  176
  189
  203
  217
  232
  248
  264
  280
  298
  316
  335
  354
  375
Depreciation, amort., depletion, $m
  14
  17
  21
  25
  30
  36
  42
  48
  55
  62
  70
  78
  86
  95
  105
  114
  125
  135
  146
  158
  170
  183
  195
  209
  223
  238
  253
  268
  285
  302
  320
Funds from operations, $m
  -14
  44
  52
  62
  72
  84
  97
  110
  125
  141
  157
  175
  193
  212
  233
  254
  276
  299
  323
  347
  373
  400
  428
  457
  487
  518
  550
  584
  619
  656
  694
Change in working capital, $m
  -26
  53
  61
  68
  76
  84
  92
  99
  107
  114
  121
  128
  135
  141
  148
  155
  161
  168
  175
  182
  189
  196
  204
  212
  220
  229
  238
  248
  258
  269
  280
Cash from operations, $m
  12
  -9
  -8
  -7
  -4
  0
  5
  11
  18
  27
  36
  47
  58
  71
  85
  99
  115
  131
  148
  166
  184
  204
  224
  245
  266
  289
  312
  336
  361
  387
  414
Maintenance CAPEX, $m
  0
  -14
  -17
  -21
  -25
  -30
  -36
  -42
  -48
  -55
  -62
  -70
  -78
  -86
  -95
  -105
  -114
  -125
  -135
  -146
  -158
  -170
  -183
  -195
  -209
  -223
  -238
  -253
  -268
  -285
  -302
New CAPEX, $m
  -40
  -23
  -26
  -30
  -33
  -36
  -40
  -43
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -76
  -79
  -82
  -85
  -88
  -92
  -95
  -99
  -103
  -107
  -112
  -116
  -121
Cash from investing activities, $m
  -52
  -37
  -43
  -51
  -58
  -66
  -76
  -85
  -94
  -104
  -114
  -125
  -136
  -147
  -159
  -172
  -184
  -198
  -211
  -225
  -240
  -255
  -271
  -287
  -304
  -322
  -341
  -360
  -380
  -401
  -423
Free cash flow, $m
  -40
  -46
  -52
  -57
  -62
  -67
  -70
  -73
  -76
  -77
  -78
  -78
  -77
  -76
  -75
  -72
  -70
  -66
  -63
  -59
  -55
  -51
  -47
  -42
  -38
  -33
  -28
  -24
  -19
  -14
  -9
Issuance/(repayment) of debt, $m
  7
  65
  75
  84
  94
  104
  113
  122
  132
  140
  149
  158
  166
  174
  182
  191
  199
  207
  215
  224
  233
  242
  251
  261
  271
  282
  294
  306
  318
  332
  346
Issuance/(repurchase) of shares, $m
  -2
  46
  52
  57
  62
  67
  70
  73
  76
  77
  78
  78
  77
  76
  74
  72
  69
  66
  63
  59
  55
  51
  47
  42
  38
  33
  28
  23
  19
  14
  9
Cash from financing (excl. dividends), $m  
  5
  111
  127
  141
  156
  171
  183
  195
  208
  217
  227
  236
  243
  250
  256
  263
  268
  273
  278
  283
  288
  293
  298
  303
  309
  315
  322
  329
  337
  346
  355
Total cash flow (excl. dividends), $m
  -38
  65
  75
  84
  94
  103
  113
  122
  131
  140
  149
  158
  166
  174
  182
  190
  199
  207
  215
  224
  233
  242
  251
  261
  271
  282
  294
  306
  318
  331
  345
Retained Cash Flow (-), $m
  -1
  -72
  -83
  -94
  -104
  -115
  -125
  -136
  -146
  -156
  -166
  -175
  -184
  -193
  -202
  -211
  -220
  -230
  -239
  -248
  -258
  -268
  -279
  -290
  -301
  -313
  -326
  -339
  -353
  -368
  -384
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
 
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -7
  -8
  -8
  -9
  -9
  -9
  -9
  -9
  -9
  -9
  -8
  -8
  -7
  -7
  -6
  -6
  -5
  -4
  -4
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  100
  82.2
  68.5
  58.1
  50.0
  43.6
  38.6
  34.5
  31.3
  28.6
  26.4
  24.5
  23.0
  21.7
  20.7
  19.8
  19.0
  18.4
  17.8
  17.3
  17.0
  16.6
  16.3
  16.1
  15.9
  15.8
  15.6
  15.5
  15.5
  15.4
  15.4

China Automotive Systems, Inc., (China Automotive) is a holding company. The Company, through its subsidiary, Great Genesis Holdings Limited (Genesis), owns interests in over eight Sino-joint ventures and over five subsidiaries in the People's Republic of China (PRC), which manufacture power steering systems and/or related products for various segments of the automobile industry. Genesis also owns interests in a Brazil-based trading company, which engages mainly in the import and sales of automotive parts in Brazil. Henglong USA Corporation (HLUSA), which is a subsidiary of the Company, engages in marketing of automotive parts in North America, and provides after sales service and research and development support. The Company's geographical segments include the United States, China and other foreign countries. One of its subsidiaries, Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., focuses on power steering parts for light duty vehicles.

FINANCIAL RATIOS  of  China Automotive Systems (CAAS)

Valuation Ratios
P/E Ratio 6.1
Price to Sales 0.3
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow -5
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7%
Cap. Spend. - 3 Yr. Gr. Rate 21.7%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 40%
Interest Coverage 26
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 5.5%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 7.7%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 17.5%
Gross Margin - 3 Yr. Avg. 18.1%
EBITDA Margin 8.7%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 5%
Oper. Margin - 3 Yr. Avg. 7.1%
Pre-Tax Margin 5.4%
Pre-Tax Margin - 3 Yr. Avg. 7.5%
Net Profit Margin 5%
Net Profit Margin - 3 Yr. Avg. 6.1%
Effective Tax Rate 12%
Eff/ Tax Rate - 3 Yr. Avg. 13.2%
Payout Ratio 4.3%

CAAS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAAS stock intrinsic value calculation we used $462 million for the last fiscal year's total revenue generated by China Automotive Systems. The default revenue input number comes from 2016 income statement of China Automotive Systems. 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 CAAS stock valuation model: a) initial revenue growth rate of 24.2% 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 4.3%, whose default value for CAAS is calculated based on our internal credit rating of China Automotive Systems, 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 Automotive Systems.
    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 CAAS stock the variable cost ratio is equal to 93.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CAAS 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 Automotive Systems.

Corporate tax rate of 27% is the nominal tax rate for China Automotive Systems. 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 CAAS 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 CAAS are equal to 20.5%.

Life of production assets of 6.8 years is the average useful life of capital assets used in China Automotive Systems 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 CAAS is equal to 47.4%. 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 - $300 million for China Automotive Systems - 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 31.381 million for China Automotive Systems 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 Automotive Systems at the current share price and the inputted number of shares is $0.1 billion.

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Financial statements of CAAS
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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