Intrinsic value of China Automotive Systems - CAAS

Previous Close

$4.07

  Intrinsic Value

$12.67

stock screener

  Rating & Target

str. buy

+211%

Previous close

$4.07

 
Intrinsic value

$12.67

 
Up/down potential

+211%

 
Rating

str. buy

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
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
Revenue, $m
  462
  539
  580
  624
  668
  715
  763
  814
  866
  921
  977
  1,036
  1,098
  1,162
  1,229
  1,299
  1,372
  1,448
  1,528
  1,611
  1,698
  1,789
  1,885
  1,984
  2,089
  2,198
  2,313
  2,433
  2,559
  2,691
  2,829
Variable operating expenses, $m
 
  512
  551
  592
  635
  679
  725
  773
  823
  874
  928
  984
  1,043
  1,104
  1,167
  1,234
  1,303
  1,375
  1,451
  1,530
  1,613
  1,699
  1,790
  1,885
  1,984
  2,088
  2,197
  2,311
  2,431
  2,556
  2,687
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
  512
  551
  592
  635
  679
  725
  773
  823
  874
  928
  984
  1,043
  1,104
  1,167
  1,234
  1,303
  1,375
  1,451
  1,530
  1,613
  1,699
  1,790
  1,885
  1,984
  2,088
  2,197
  2,311
  2,431
  2,556
  2,687
Operating income, $m
  23
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  110
  116
  122
  128
  135
  142
EBITDA, $m
  37
  39
  42
  46
  49
  52
  56
  59
  63
  67
  71
  76
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  153
  161
  169
  178
  187
  197
  207
Interest expense (income), $m
  1
  4
  6
  8
  10
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  40
  43
  47
  50
  54
  58
  62
  67
  71
  76
  81
  86
  91
  97
  103
Earnings before tax, $m
  25
  23
  23
  24
  24
  24
  25
  25
  25
  26
  26
  26
  27
  27
  28
  28
  29
  29
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  39
Tax expense, $m
  3
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
Net income, $m
  23
  17
  17
  17
  17
  18
  18
  18
  18
  19
  19
  19
  20
  20
  20
  21
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  28
  28

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
  774
  834
  896
  960
  1,027
  1,097
  1,169
  1,244
  1,323
  1,404
  1,489
  1,577
  1,670
  1,766
  1,866
  1,971
  2,081
  2,195
  2,315
  2,440
  2,571
  2,708
  2,851
  3,001
  3,159
  3,323
  3,496
  3,677
  3,866
  4,065
Adjusted assets (=assets-cash), $m
  570
  774
  834
  896
  960
  1,027
  1,097
  1,169
  1,244
  1,323
  1,404
  1,489
  1,577
  1,670
  1,766
  1,866
  1,971
  2,081
  2,195
  2,315
  2,440
  2,571
  2,708
  2,851
  3,001
  3,159
  3,323
  3,496
  3,677
  3,866
  4,065
Revenue / Adjusted assets
  0.811
  0.696
  0.695
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
Average production assets, $m
  95
  123
  133
  143
  153
  164
  175
  186
  198
  211
  224
  237
  251
  266
  281
  297
  314
  332
  350
  369
  389
  410
  432
  454
  478
  503
  530
  557
  586
  616
  648
Working capital, $m
  161
  -175
  -188
  -202
  -217
  -232
  -247
  -264
  -281
  -298
  -317
  -336
  -356
  -377
  -398
  -421
  -445
  -469
  -495
  -522
  -550
  -580
  -611
  -643
  -677
  -712
  -749
  -788
  -829
  -872
  -917
Total debt, $m
  120
  106
  141
  177
  214
  254
  294
  336
  380
  426
  473
  523
  574
  628
  684
  743
  804
  868
  934
  1,004
  1,077
  1,153
  1,233
  1,317
  1,404
  1,496
  1,592
  1,693
  1,798
  1,909
  2,025
Total liabilities, $m
  331
  451
  486
  522
  560
  599
  639
  682
  725
  771
  819
  868
  920
  973
  1,030
  1,088
  1,149
  1,213
  1,280
  1,350
  1,422
  1,499
  1,579
  1,662
  1,750
  1,841
  1,937
  2,038
  2,144
  2,254
  2,370
Total equity, $m
  300
  323
  348
  374
  400
  428
  457
  488
  519
  552
  586
  621
  658
  696
  736
  778
  822
  868
  915
  965
  1,017
  1,072
  1,129
  1,189
  1,252
  1,317
  1,386
  1,458
  1,533
  1,612
  1,695
Total liabilities and equity, $m
  631
  774
  834
  896
  960
  1,027
  1,096
  1,170
  1,244
  1,323
  1,405
  1,489
  1,578
  1,669
  1,766
  1,866
  1,971
  2,081
  2,195
  2,315
  2,439
  2,571
  2,708
  2,851
  3,002
  3,158
  3,323
  3,496
  3,677
  3,866
  4,065
Debt-to-equity ratio
  0.400
  0.330
  0.400
  0.470
  0.540
  0.590
  0.640
  0.690
  0.730
  0.770
  0.810
  0.840
  0.870
  0.900
  0.930
  0.950
  0.980
  1.000
  1.020
  1.040
  1.060
  1.080
  1.090
  1.110
  1.120
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
Adjusted equity ratio
  0.526
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  17
  17
  17
  17
  18
  18
  18
  18
  19
  19
  19
  20
  20
  20
  21
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  28
  28
Depreciation, amort., depletion, $m
  14
  12
  13
  14
  15
  16
  18
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
Funds from operations, $m
  -14
  29
  30
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  48
  50
  52
  55
  57
  59
  62
  64
  67
  70
  72
  76
  79
  82
  86
  89
  93
Change in working capital, $m
  -26
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
Cash from operations, $m
  12
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
New CAPEX, $m
  -40
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
Cash from investing activities, $m
  -52
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -81
  -85
  -89
  -94
Free cash flow, $m
  -40
  22
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  35
  36
  37
  38
  39
  41
  42
  43
  45
Issuance/(repayment) of debt, $m
  7
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
  105
  111
  116
Issuance/(repurchase) of shares, $m
  -2
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  30
  31
  34
  36
  38
  40
  43
  46
  48
  51
  54
Cash from financing (excl. dividends), $m  
  5
  40
  43
  45
  47
  49
  52
  54
  57
  60
  63
  65
  69
  73
  76
  80
  84
  88
  93
  98
  103
  107
  114
  120
  126
  132
  139
  147
  153
  162
  170
Total cash flow (excl. dividends), $m
  -38
  62
  65
  67
  70
  73
  75
  78
  82
  85
  88
  92
  96
  100
  104
  109
  113
  119
  124
  129
  135
  142
  148
  155
  162
  170
  178
  187
  196
  205
  215
Retained Cash Flow (-), $m
  -1
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
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
 
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
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
 
  36
  36
  36
  35
  35
  34
  33
  31
  30
  28
  27
  25
  23
  21
  20
  18
  16
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  96.7
  93.5
  90.3
  87.2
  84.1
  81.1
  78.1
  75.3
  72.5
  69.8
  67.2
  64.6
  62.1
  59.7
  57.3
  55.0
  52.8
  50.6
  48.5
  46.5
  44.5
  42.6
  40.8
  39.0
  37.3
  35.6
  34.0
  32.5
  31.0
  29.6

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 5.6
Price to Sales 0.3
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 10.7
Price to Free Cash Flow -4.6
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 $499 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 8% 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 95%.

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 5.4% 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 22.9%.

Life of production assets of 10 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 -32.4%. 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 - $299 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 32 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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COMPANY NEWS

▶ China Automotive Systems: 1Q Earnings Snapshot   [May-10-18 06:40AM  Associated Press]
▶ China Automotive Systems posts 4Q loss   [Mar-29-18 06:45AM  Associated Press]
▶ New Strong Sell Stocks for December 15th   [Dec-15-17 08:29AM  Zacks]
▶ New Strong Sell Stocks for December 8th   [Dec-08-17 06:08AM  Zacks]
▶ China Automotive Systems posts 3Q profit   [Nov-09-17 06:17AM  Associated Press]
▶ Top Ranked Value Stocks to Buy for October 2nd   [Oct-02-17 08:21AM  Zacks]
▶ China Automotive Systems posts 2Q profit   [Aug-10-17 09:26PM  Associated Press]
▶ China Automotive Systems posts 1Q profit   [May-11-17 06:40AM  Associated Press]
▶ China Automotive Systems posts 4Q profit   [06:18AM  Associated Press]
▶ 5 Top China Stocks to Buy for 2017   [Dec-29-16 05:19PM  Zacks]
▶ China Automotive Systems Announces Share Repurchase   [Jan-07-16 06:05AM  PR Newswire]
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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