Intrinsic value of China Biologic Products - CBPO

Previous Close

$90.72

  Intrinsic Value

$70.93

stock screener

  Rating & Target

sell

-22%

  Value-price divergence*

+16%

Previous close

$90.72

 
Intrinsic value

$70.93

 
Up/down potential

-22%

 
Rating

sell

 
Value-price divergence*

+16%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CBPO 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 2.2

 

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, %
  15.20
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
Revenue, $m
  341
  361
  381
  403
  425
  449
  474
  499
  526
  554
  584
  614
  647
  681
  716
  753
  792
  833
  875
  920
  967
  1,017
  1,068
  1,123
  1,179
  1,239
  1,302
  1,368
  1,437
  1,509
  1,585
Variable operating expenses, $m
 
  200
  211
  223
  236
  249
  262
  277
  291
  307
  323
  340
  358
  377
  397
  417
  439
  461
  485
  510
  536
  563
  592
  622
  653
  687
  721
  758
  796
  836
  878
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
  197
  200
  211
  223
  236
  249
  262
  277
  291
  307
  323
  340
  358
  377
  397
  417
  439
  461
  485
  510
  536
  563
  592
  622
  653
  687
  721
  758
  796
  836
  878
Operating income, $m
  144
  161
  170
  180
  190
  200
  211
  223
  235
  247
  260
  274
  288
  304
  319
  336
  353
  371
  390
  410
  431
  453
  476
  501
  526
  553
  581
  610
  641
  673
  707
EBITDA, $m
  157
  175
  185
  195
  206
  217
  229
  242
  255
  268
  283
  297
  313
  329
  347
  365
  383
  403
  424
  446
  468
  492
  517
  543
  571
  600
  630
  662
  696
  731
  767
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
Earnings before tax, $m
  154
  161
  170
  179
  189
  199
  210
  221
  232
  244
  257
  270
  284
  299
  314
  330
  347
  365
  383
  403
  423
  444
  467
  490
  515
  540
  567
  596
  626
  657
  690
Tax expense, $m
  25
  43
  46
  48
  51
  54
  57
  60
  63
  66
  69
  73
  77
  81
  85
  89
  94
  98
  103
  109
  114
  120
  126
  132
  139
  146
  153
  161
  169
  177
  186
Net income, $m
  105
  117
  124
  131
  138
  145
  153
  161
  170
  178
  188
  197
  208
  218
  229
  241
  253
  266
  280
  294
  309
  324
  341
  358
  376
  394
  414
  435
  457
  480
  504

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  184
  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
  605
  445
  471
  497
  525
  554
  585
  616
  649
  684
  721
  759
  798
  840
  884
  930
  978
  1,028
  1,081
  1,136
  1,194
  1,255
  1,319
  1,386
  1,456
  1,530
  1,607
  1,688
  1,774
  1,863
  1,957
Adjusted assets (=assets-cash), $m
  421
  445
  471
  497
  525
  554
  585
  616
  649
  684
  721
  759
  798
  840
  884
  930
  978
  1,028
  1,081
  1,136
  1,194
  1,255
  1,319
  1,386
  1,456
  1,530
  1,607
  1,688
  1,774
  1,863
  1,957
Revenue / Adjusted assets
  0.810
  0.811
  0.809
  0.811
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.809
  0.811
  0.811
  0.810
  0.810
  0.810
  0.810
  0.809
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Average production assets, $m
  142
  150
  159
  168
  177
  187
  197
  208
  219
  231
  243
  256
  269
  283
  298
  313
  329
  346
  364
  383
  402
  423
  444
  467
  491
  515
  542
  569
  598
  628
  659
Working capital, $m
  316
  140
  148
  156
  165
  174
  183
  193
  204
  214
  226
  238
  250
  263
  277
  291
  306
  322
  339
  356
  374
  393
  413
  434
  456
  480
  504
  529
  556
  584
  613
Total debt, $m
  0
  8
  17
  26
  36
  45
  56
  67
  78
  90
  102
  115
  128
  143
  158
  173
  189
  207
  224
  243
  263
  284
  305
  328
  352
  377
  403
  431
  460
  490
  522
Total liabilities, $m
  143
  151
  160
  169
  179
  188
  199
  210
  221
  233
  245
  258
  271
  286
  301
  316
  332
  350
  367
  386
  406
  427
  448
  471
  495
  520
  546
  574
  603
  633
  665
Total equity, $m
  462
  294
  311
  328
  347
  366
  386
  407
  429
  452
  476
  501
  527
  554
  583
  614
  645
  678
  713
  750
  788
  828
  870
  915
  961
  1,010
  1,061
  1,114
  1,171
  1,230
  1,292
Total liabilities and equity, $m
  605
  445
  471
  497
  526
  554
  585
  617
  650
  685
  721
  759
  798
  840
  884
  930
  977
  1,028
  1,080
  1,136
  1,194
  1,255
  1,318
  1,386
  1,456
  1,530
  1,607
  1,688
  1,774
  1,863
  1,957
Debt-to-equity ratio
  0.000
  0.030
  0.060
  0.080
  0.100
  0.120
  0.140
  0.160
  0.180
  0.200
  0.210
  0.230
  0.240
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.370
  0.380
  0.390
  0.390
  0.400
  0.400
Adjusted equity ratio
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  105
  117
  124
  131
  138
  145
  153
  161
  170
  178
  188
  197
  208
  218
  229
  241
  253
  266
  280
  294
  309
  324
  341
  358
  376
  394
  414
  435
  457
  480
  504
Depreciation, amort., depletion, $m
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
Funds from operations, $m
  86
  131
  139
  146
  154
  162
  171
  180
  190
  200
  210
  221
  232
  244
  257
  270
  284
  298
  313
  329
  346
  363
  381
  401
  421
  442
  464
  487
  512
  537
  564
Change in working capital, $m
  -37
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
Cash from operations, $m
  123
  124
  131
  138
  145
  153
  162
  170
  179
  189
  199
  209
  220
  231
  243
  256
  269
  282
  297
  312
  327
  344
  361
  380
  399
  419
  440
  462
  485
  509
  535
Maintenance CAPEX, $m
  0
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
New CAPEX, $m
  -51
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
Cash from investing activities, $m
  -53
  -21
  -23
  -24
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -39
  -41
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -85
  -90
Free cash flow, $m
  70
  102
  108
  114
  121
  127
  134
  141
  149
  157
  165
  174
  183
  192
  202
  213
  224
  235
  247
  260
  273
  287
  301
  316
  332
  349
  366
  385
  404
  424
  445
Issuance/(repayment) of debt, $m
  38
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
Issuance/(repurchase) of shares, $m
  4
  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  
  -22
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
Total cash flow (excl. dividends), $m
  39
  111
  117
  123
  130
  137
  145
  152
  160
  169
  178
  187
  196
  207
  217
  228
  240
  252
  265
  278
  292
  307
  323
  339
  356
  374
  393
  412
  433
  455
  477
Retained Cash Flow (-), $m
  -80
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
Prev. year cash balance distribution, $m
 
  184
  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
 
  279
  100
  106
  112
  118
  125
  131
  138
  146
  154
  162
  170
  179
  188
  198
  208
  219
  230
  242
  254
  267
  281
  295
  310
  325
  342
  359
  377
  396
  415
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
 
  267
  92
  92
  92
  91
  90
  89
  87
  84
  81
  77
  73
  68
  63
  58
  53
  48
  42
  37
  32
  28
  23
  19
  16
  13
  10
  8
  6
  4
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
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China Biologic Products, Inc. engages in the research, development, manufacture, and sale of human plasma-based biopharmaceutical products to hospitals and inoculation centers in the People’s Republic of China. It offers human albumin for treating shock caused by blood loss trauma or burn; raised intracranial pressure caused by hydrocephalus or trauma; oedema or ascites caused by hepatocirrhosis and nephropathy; and neonatal hyperbilirubinemia, as well as for the prevention and treatment of low-density-lipoproteinemia. The company also provides human immunoglobulin and immunoglobulin for intravenous injection products for original and secondary immunoglobulin deficiency, and auto-immune deficiency diseases; human hepatitis B immunoglobulin for the prevention of measles and contagious hepatitis; human rabies immunoglobulin primarily for passive immunity from bites or claws by rabies or other infected animals; and human tetanus immunoglobulin for the prevention and therapy of tetanus. In addition, it offers placenta polypeptide for the treatment of cell immunity deficiency diseases, viral infection, and leucopenia, as well as assists in postoperative healing; factor VIII for treating coagulopathies; and human prothrombin complex concentrate for treating congenital and acquired clotting factor II, VII, IX, X deficiency, as well as excessive anticoagulant, vitamin K deficiency, etc. Further, the company is developing human hepatitis B immunoglobulin (pH4) for intravenous injection; human fibrinogen; immune globulin intravenous; human antithrombin III; human cytomegalovirus immunoglobulin; human coagulation factor IX; and human fibrin sealant products. The company sells its products directly, as well as through distributors. China Biologic Products, Inc. is headquartered in Beijing, the People’s Republic of China.

FINANCIAL RATIOS  of  China Biologic Products (CBPO)

Valuation Ratios
P/E Ratio 23.5
Price to Sales 7.2
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 34.2
Growth Rates
Sales Growth Rate 15.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.9%
Cap. Spend. - 3 Yr. Gr. Rate 18.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 18.2%
Ret/ On Assets - 3 Yr. Avg. 17.9%
Return On Total Capital 24.9%
Ret/ On T. Cap. - 3 Yr. Avg. 24.9%
Return On Equity 24.9%
Return On Equity - 3 Yr. Avg. 28.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 63.6%
Gross Margin - 3 Yr. Avg. 65%
EBITDA Margin 49%
EBITDA Margin - 3 Yr. Avg. 51.1%
Operating Margin 42.2%
Oper. Margin - 3 Yr. Avg. 44.2%
Pre-Tax Margin 45.2%
Pre-Tax Margin - 3 Yr. Avg. 47.1%
Net Profit Margin 30.8%
Net Profit Margin - 3 Yr. Avg. 30%
Effective Tax Rate 16.2%
Eff/ Tax Rate - 3 Yr. Avg. 17.9%
Payout Ratio 0%

CBPO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CBPO stock intrinsic value calculation we used $341 million for the last fiscal year's total revenue generated by China Biologic Products. The default revenue input number comes from 2016 income statement of China Biologic Products. 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 CBPO stock valuation model: a) initial revenue growth rate of 5.8% 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 CBPO is calculated based on our internal credit rating of China Biologic Products, 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 Biologic Products.
    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 CBPO stock the variable cost ratio is equal to 55.4%.

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 CBPO 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 Biologic Products.

Corporate tax rate of 27% is the nominal tax rate for China Biologic Products. 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 CBPO 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 CBPO are equal to 41.6%.

Life of production assets of 10.9 years is the average useful life of capital assets used in China Biologic Products 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 CBPO is equal to 38.7%. 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 - $462 million for China Biologic Products - 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 24.7 million for China Biologic Products 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 Biologic Products at the current share price and the inputted number of shares is $2.2 billion.

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COMPANY NEWS

▶ China Biologic Products posts 2Q profit   [Aug-04-17 02:36AM  Associated Press]
▶ This Chinese Pharma Stock Has 20% Upside   [May-04-17 10:29PM  Barrons.com]
▶ China Biologic Products posts 1Q profit   [05:02AM  Associated Press]
▶ China Biologic Products posts 4Q profit   [Feb-23-17 07:53PM  Associated Press]
▶ New Strong Sell Stocks for January 30th   [Jan-30-17 09:20AM  Zacks]
▶ 3 Biotech Stocks That Turned $10,000 Into Over $100,000   [Jan-01-17 07:22AM  at Motley Fool]
▶ China Biologic Announces Change to Board of Directors   [Aug-15-16 08:30AM  PR Newswire]
Stock chart of CBPO Financial statements of CBPO
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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