Intrinsic value of China Automotive Systems - CAAS

Previous Close

$5.17

  Intrinsic Value

$2.37

stock screener

  Rating & Target

str. sell

-54%

Previous close

$5.17

 
Intrinsic value

$2.37

 
Up/down potential

-54%

 
Rating

str. 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

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 0.2

 

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
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  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
Revenue, $m
  462
  540
  624
  715
  812
  915
  1,025
  1,140
  1,262
  1,389
  1,522
  1,661
  1,805
  1,956
  2,112
  2,275
  2,444
  2,619
  2,802
  2,992
  3,189
  3,394
  3,608
  3,830
  4,062
  4,303
  4,554
  4,817
  5,091
  5,377
  5,675
Variable operating expenses, $m
 
  503
  582
  667
  758
  854
  956
  1,064
  1,177
  1,296
  1,420
  1,549
  1,684
  1,825
  1,971
  2,122
  2,280
  2,444
  2,614
  2,791
  2,975
  3,167
  3,366
  3,573
  3,789
  4,015
  4,249
  4,494
  4,750
  5,016
  5,295
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
  503
  582
  667
  758
  854
  956
  1,064
  1,177
  1,296
  1,420
  1,549
  1,684
  1,825
  1,971
  2,122
  2,280
  2,444
  2,614
  2,791
  2,975
  3,167
  3,366
  3,573
  3,789
  4,015
  4,249
  4,494
  4,750
  5,016
  5,295
Operating income, $m
  23
  36
  42
  48
  54
  61
  69
  76
  85
  93
  102
  111
  121
  131
  142
  152
  164
  176
  188
  200
  214
  227
  242
  257
  272
  288
  305
  323
  341
  360
  380
EBITDA, $m
  37
  52
  61
  69
  79
  89
  100
  111
  123
  135
  148
  161
  175
  190
  205
  221
  237
  254
  272
  291
  310
  330
  350
  372
  395
  418
  442
  468
  495
  522
  551
Interest expense (income), $m
  1
  2
  4
  5
  7
  9
  11
  14
  16
  18
  21
  24
  27
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  66
  71
  76
  81
  86
  91
  97
  103
Earnings before tax, $m
  25
  34
  38
  43
  47
  52
  57
  63
  69
  75
  81
  88
  94
  102
  109
  117
  125
  133
  142
  151
  160
  170
  180
  190
  201
  213
  225
  237
  250
  264
  278
Tax expense, $m
  3
  9
  10
  11
  13
  14
  15
  17
  19
  20
  22
  24
  25
  27
  29
  31
  34
  36
  38
  41
  43
  46
  49
  51
  54
  57
  61
  64
  67
  71
  75
Net income, $m
  23
  25
  28
  31
  34
  38
  42
  46
  50
  55
  59
  64
  69
  74
  80
  85
  91
  97
  103
  110
  117
  124
  131
  139
  147
  155
  164
  173
  182
  192
  203

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
  665
  769
  881
  1,001
  1,129
  1,264
  1,406
  1,556
  1,713
  1,877
  2,048
  2,226
  2,411
  2,604
  2,805
  3,013
  3,230
  3,455
  3,689
  3,932
  4,185
  4,448
  4,723
  5,008
  5,306
  5,616
  5,939
  6,277
  6,630
  6,998
Adjusted assets (=assets-cash), $m
  570
  665
  769
  881
  1,001
  1,129
  1,264
  1,406
  1,556
  1,713
  1,877
  2,048
  2,226
  2,411
  2,604
  2,805
  3,013
  3,230
  3,455
  3,689
  3,932
  4,185
  4,448
  4,723
  5,008
  5,306
  5,616
  5,939
  6,277
  6,630
  6,998
Revenue / Adjusted assets
  0.811
  0.812
  0.811
  0.812
  0.811
  0.810
  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
  111
  128
  147
  166
  188
  210
  234
  259
  285
  312
  340
  370
  401
  433
  466
  501
  537
  574
  613
  654
  696
  740
  785
  833
  882
  934
  987
  1,044
  1,102
  1,163
Working capital, $m
  161
  256
  296
  339
  385
  434
  486
  541
  598
  658
  721
  787
  856
  927
  1,001
  1,078
  1,158
  1,242
  1,328
  1,418
  1,512
  1,609
  1,710
  1,815
  1,925
  2,040
  2,159
  2,283
  2,413
  2,549
  2,690
Total debt, $m
  120
  103
  153
  206
  263
  323
  387
  455
  526
  600
  678
  759
  843
  931
  1,022
  1,118
  1,216
  1,319
  1,426
  1,537
  1,652
  1,772
  1,897
  2,026
  2,162
  2,303
  2,450
  2,603
  2,763
  2,930
  3,105
Total liabilities, $m
  331
  315
  365
  418
  475
  535
  599
  667
  738
  812
  890
  971
  1,055
  1,143
  1,234
  1,330
  1,428
  1,531
  1,638
  1,749
  1,864
  1,984
  2,109
  2,238
  2,374
  2,515
  2,662
  2,815
  2,975
  3,142
  3,317
Total equity, $m
  300
  350
  405
  464
  527
  594
  665
  740
  818
  901
  987
  1,077
  1,171
  1,268
  1,370
  1,475
  1,585
  1,699
  1,817
  1,940
  2,068
  2,201
  2,340
  2,484
  2,634
  2,791
  2,954
  3,124
  3,302
  3,487
  3,681
Total liabilities and equity, $m
  631
  665
  770
  882
  1,002
  1,129
  1,264
  1,407
  1,556
  1,713
  1,877
  2,048
  2,226
  2,411
  2,604
  2,805
  3,013
  3,230
  3,455
  3,689
  3,932
  4,185
  4,449
  4,722
  5,008
  5,306
  5,616
  5,939
  6,277
  6,629
  6,998
Debt-to-equity ratio
  0.400
  0.300
  0.380
  0.440
  0.500
  0.540
  0.580
  0.610
  0.640
  0.670
  0.690
  0.700
  0.720
  0.730
  0.750
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.800
  0.810
  0.820
  0.820
  0.830
  0.830
  0.830
  0.840
  0.840
  0.840
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
  25
  28
  31
  34
  38
  42
  46
  50
  55
  59
  64
  69
  74
  80
  85
  91
  97
  103
  110
  117
  124
  131
  139
  147
  155
  164
  173
  182
  192
  203
Depreciation, amort., depletion, $m
  14
  16
  19
  22
  24
  28
  31
  34
  38
  42
  46
  50
  54
  59
  64
  69
  74
  79
  84
  90
  96
  102
  109
  115
  122
  130
  137
  145
  153
  162
  171
Funds from operations, $m
  -14
  41
  47
  53
  59
  66
  73
  80
  88
  96
  105
  114
  123
  133
  143
  154
  165
  176
  188
  200
  213
  226
  240
  254
  269
  285
  301
  318
  336
  354
  374
Change in working capital, $m
  -26
  37
  40
  43
  46
  49
  52
  55
  58
  60
  63
  66
  69
  71
  74
  77
  80
  83
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  130
  136
  142
Cash from operations, $m
  12
  4
  7
  10
  13
  17
  21
  26
  31
  36
  42
  48
  55
  62
  69
  77
  85
  93
  101
  110
  119
  129
  139
  149
  160
  171
  182
  194
  206
  219
  232
Maintenance CAPEX, $m
  0
  -14
  -16
  -19
  -22
  -24
  -28
  -31
  -34
  -38
  -42
  -46
  -50
  -54
  -59
  -64
  -69
  -74
  -79
  -84
  -90
  -96
  -102
  -109
  -115
  -122
  -130
  -137
  -145
  -153
  -162
New CAPEX, $m
  -40
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -47
  -49
  -52
  -54
  -56
  -59
  -61
Cash from investing activities, $m
  -52
  -30
  -33
  -38
  -42
  -45
  -50
  -55
  -59
  -64
  -69
  -74
  -80
  -85
  -91
  -97
  -104
  -110
  -116
  -123
  -130
  -138
  -146
  -155
  -162
  -171
  -182
  -191
  -201
  -212
  -223
Free cash flow, $m
  -40
  -26
  -27
  -28
  -29
  -29
  -29
  -29
  -29
  -28
  -27
  -26
  -25
  -23
  -22
  -20
  -19
  -17
  -15
  -13
  -11
  -9
  -7
  -5
  -3
  -1
  1
  3
  5
  7
  9
Issuance/(repayment) of debt, $m
  7
  45
  49
  53
  57
  60
  64
  68
  71
  74
  78
  81
  84
  88
  91
  95
  99
  103
  107
  111
  115
  120
  125
  130
  135
  141
  147
  153
  160
  167
  175
Issuance/(repurchase) of shares, $m
  -2
  25
  27
  28
  29
  29
  29
  29
  29
  28
  27
  26
  25
  23
  22
  20
  19
  17
  15
  13
  11
  9
  7
  5
  3
  1
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  5
  70
  76
  81
  86
  89
  93
  97
  100
  102
  105
  107
  109
  111
  113
  115
  118
  120
  122
  124
  126
  129
  132
  135
  138
  142
  147
  153
  160
  167
  175
Total cash flow (excl. dividends), $m
  -38
  45
  49
  53
  57
  60
  64
  67
  71
  74
  78
  81
  84
  88
  91
  95
  99
  103
  107
  111
  115
  120
  125
  130
  135
  141
  148
  156
  165
  174
  183
Retained Cash Flow (-), $m
  -1
  -50
  -55
  -59
  -63
  -67
  -71
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -101
  -105
  -110
  -114
  -118
  -123
  -128
  -133
  -138
  -144
  -150
  -157
  -163
  -170
  -178
  -185
  -194
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
 
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -15
  -14
  -13
  -12
  -10
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
 
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -4
  -4
  -4
  -4
  -3
  -3
  -3
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  89.3
  80.5
  73.3
  67.4
  62.5
  58.4
  54.9
  52.1
  49.6
  47.6
  45.9
  44.4
  43.2
  42.1
  41.2
  40.5
  39.9
  39.4
  39.0
  38.7
  38.4
  38.3
  38.1
  38.1
  38.0
  38.0
  38.0
  38.0
  38.0
  38.0

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 7.1
Price to Sales 0.4
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow -5.8
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 16.8% 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 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 31.644 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 $0.2 billion.

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COMPANY NEWS

▶ 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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