Intrinsic value of China Customer Relations Centers - CCRC

Previous Close

$12.64

  Intrinsic Value

$29.70

stock screener

  Rating & Target

str. buy

+135%

  Value-price divergence*

0%

Previous close

$12.64

 
Intrinsic value

$29.70

 
Up/down potential

+135%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of CCRC 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, %
  23.73
  23.70
  21.83
  20.15
  18.63
  17.27
  16.04
  14.94
  13.94
  13.05
  12.24
  11.52
  10.87
  10.28
  9.75
  9.28
  8.85
  8.47
  8.12
  7.81
  7.53
  7.27
  7.05
  6.84
  6.66
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
Revenue, $m
  73
  90
  110
  132
  157
  184
  213
  245
  279
  316
  355
  395
  438
  484
  531
  580
  631
  685
  740
  798
  858
  921
  985
  1,053
  1,123
  1,196
  1,272
  1,351
  1,433
  1,518
  1,608
Variable operating expenses, $m
 
  64
  78
  94
  112
  131
  152
  175
  199
  225
  252
  282
  312
  344
  378
  413
  449
  487
  527
  568
  611
  655
  702
  750
  800
  851
  905
  962
  1,020
  1,081
  1,145
Fixed operating expenses, $m
 
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
Total operating expenses, $m
  64
  76
  91
  107
  125
  145
  166
  189
  214
  240
  267
  298
  328
  361
  395
  430
  467
  505
  546
  587
  631
  675
  723
  771
  822
  873
  928
  985
  1,044
  1,106
  1,170
Operating income, $m
  9
  14
  19
  25
  32
  39
  48
  56
  66
  76
  87
  98
  110
  123
  136
  150
  164
  179
  194
  211
  227
  245
  263
  282
  302
  322
  343
  366
  389
  413
  438
EBITDA, $m
  11
  15
  20
  27
  34
  41
  50
  59
  69
  79
  91
  102
  115
  128
  142
  156
  171
  186
  203
  219
  237
  255
  274
  294
  314
  335
  357
  380
  404
  429
  456
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
Earnings before tax, $m
  10
  14
  19
  25
  32
  39
  47
  56
  65
  75
  86
  97
  109
  121
  134
  148
  162
  177
  192
  208
  224
  242
  259
  278
  297
  318
  339
  360
  383
  407
  432
Tax expense, $m
  2
  4
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  75
  80
  86
  91
  97
  103
  110
  117
Net income, $m
  8
  10
  14
  18
  23
  28
  34
  41
  48
  55
  63
  71
  79
  88
  98
  108
  118
  129
  140
  152
  164
  176
  189
  203
  217
  232
  247
  263
  280
  297
  315

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16
  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
  38
  27
  33
  40
  47
  55
  64
  74
  84
  95
  107
  119
  132
  146
  160
  175
  190
  206
  223
  241
  259
  277
  297
  317
  338
  360
  383
  407
  432
  458
  485
Adjusted assets (=assets-cash), $m
  22
  27
  33
  40
  47
  55
  64
  74
  84
  95
  107
  119
  132
  146
  160
  175
  190
  206
  223
  241
  259
  277
  297
  317
  338
  360
  383
  407
  432
  458
  485
Revenue / Adjusted assets
  3.318
  3.333
  3.333
  3.300
  3.340
  3.345
  3.328
  3.311
  3.321
  3.326
  3.318
  3.319
  3.318
  3.315
  3.319
  3.314
  3.321
  3.325
  3.318
  3.311
  3.313
  3.325
  3.316
  3.322
  3.322
  3.322
  3.321
  3.319
  3.317
  3.314
  3.315
Average production assets, $m
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
  79
  84
  88
Working capital, $m
  23
  9
  11
  13
  15
  18
  20
  24
  27
  30
  34
  38
  42
  46
  51
  56
  61
  66
  71
  77
  82
  88
  95
  101
  108
  115
  122
  130
  138
  146
  154
Total debt, $m
  0
  2
  5
  7
  10
  14
  17
  21
  25
  30
  35
  40
  45
  51
  56
  62
  69
  75
  82
  89
  97
  104
  112
  121
  129
  138
  148
  157
  168
  178
  189
Total liabilities, $m
  9
  11
  14
  16
  19
  23
  26
  30
  34
  39
  44
  49
  54
  60
  65
  71
  78
  84
  91
  98
  106
  113
  121
  130
  138
  147
  157
  166
  177
  187
  198
Total equity, $m
  29
  16
  20
  24
  28
  33
  38
  44
  50
  56
  63
  70
  78
  86
  95
  103
  112
  122
  132
  142
  153
  164
  176
  188
  200
  213
  227
  241
  255
  270
  286
Total liabilities and equity, $m
  38
  27
  34
  40
  47
  56
  64
  74
  84
  95
  107
  119
  132
  146
  160
  174
  190
  206
  223
  240
  259
  277
  297
  318
  338
  360
  384
  407
  432
  457
  484
Debt-to-equity ratio
  0.000
  0.130
  0.230
  0.310
  0.370
  0.420
  0.460
  0.490
  0.510
  0.530
  0.550
  0.560
  0.580
  0.590
  0.600
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
Adjusted equity ratio
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591
  0.591

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  10
  14
  18
  23
  28
  34
  41
  48
  55
  63
  71
  79
  88
  98
  108
  118
  129
  140
  152
  164
  176
  189
  203
  217
  232
  247
  263
  280
  297
  315
Depreciation, amort., depletion, $m
  2
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
Funds from operations, $m
  1
  11
  15
  20
  25
  31
  37
  43
  51
  58
  66
  75
  84
  94
  104
  114
  125
  136
  148
  160
  173
  186
  200
  215
  229
  245
  261
  278
  295
  314
  333
Change in working capital, $m
  -5
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  6
  9
  13
  18
  22
  28
  34
  40
  47
  55
  63
  71
  80
  89
  99
  109
  120
  131
  143
  155
  167
  180
  194
  208
  223
  238
  254
  270
  288
  306
  324
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from investing activities, $m
  -1
  -2
  -2
  -2
  -2
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -14
  -15
  -16
  -16
  -17
  -18
  -20
  -21
  -22
Free cash flow, $m
  5
  8
  11
  15
  20
  25
  30
  36
  43
  50
  57
  65
  73
  82
  91
  101
  111
  121
  132
  144
  155
  168
  180
  194
  207
  222
  237
  252
  268
  285
  303
Issuance/(repayment) of debt, $m
  -2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
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  
  -2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
Total cash flow (excl. dividends), $m
  2
  10
  14
  18
  23
  28
  34
  40
  47
  54
  62
  70
  79
  88
  97
  107
  117
  128
  139
  151
  163
  175
  188
  202
  216
  231
  246
  262
  278
  296
  314
Retained Cash Flow (-), $m
  -7
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
Prev. year cash balance distribution, $m
 
  16
  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
 
  23
  10
  14
  18
  23
  29
  34
  41
  48
  55
  63
  71
  80
  89
  98
  108
  118
  129
  140
  152
  164
  177
  190
  203
  218
  232
  248
  264
  280
  298
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
 
  22
  9
  12
  15
  18
  21
  23
  26
  27
  29
  30
  30
  30
  30
  29
  27
  26
  24
  22
  19
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
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
  100.0
  100.0
  100.0
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China Customer Relations Centers, Inc. is a business process outsourcing (BPO) service provider focusing on the complex, voice-based segment of customer care services, including customer relationship management, technical support, sales, customer retention, marketing surveys and research for certain major enterprises in the People's Republic of China (PRC). The Company's customers are the provincial subsidiaries of various telecommunications carriers in the PRC. It also provides outsourcing services to its clients whereby they can lease its employees to work at their offices. The Company operates its business through contractual arrangements between its subsidiary, wholly foreign owned enterprise (WFOE) and its variable interest entity, Shandong Taiying Technology Co., Ltd (Taiying). Its line of services includes Inbound Customer Care Service and Outbound Customer Care Service. The Company's inbound customer support service offers answering service hotlines in China, round the clock.

FINANCIAL RATIOS  of  China Customer Relations Centers (CCRC)

Valuation Ratios
P/E Ratio 29
Price to Sales 3.2
Price to Book 8
Price to Tangible Book
Price to Cash Flow 38.6
Price to Free Cash Flow 38.6
Growth Rates
Sales Growth Rate 23.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 23.2%
Ret/ On Assets - 3 Yr. Avg. 19.7%
Return On Total Capital 30.2%
Ret/ On T. Cap. - 3 Yr. Avg. 24.2%
Return On Equity 31.4%
Return On Equity - 3 Yr. Avg. 32.3%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 27.4%
Gross Margin - 3 Yr. Avg. 21.3%
EBITDA Margin 16.4%
EBITDA Margin - 3 Yr. Avg. 12.5%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 13.7%
Pre-Tax Margin - 3 Yr. Avg. 9.5%
Net Profit Margin 11%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. 12.2%
Payout Ratio 0%

CCRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CCRC stock intrinsic value calculation we used $73 million for the last fiscal year's total revenue generated by China Customer Relations Centers. The default revenue input number comes from 2016 income statement of China Customer Relations Centers. 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 CCRC stock valuation model: a) initial revenue growth rate of 23.7% 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 CCRC is calculated based on our internal credit rating of China Customer Relations Centers, 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 Customer Relations Centers.
    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 CCRC stock the variable cost ratio is equal to 71.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12 million in the base year in the intrinsic value calculation for CCRC 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 Customer Relations Centers.

Corporate tax rate of 27% is the nominal tax rate for China Customer Relations Centers. 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 CCRC 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 CCRC are equal to 5.5%.

Life of production assets of 2 years is the average useful life of capital assets used in China Customer Relations Centers 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 CCRC is equal to 9.6%. 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 - $29 million for China Customer Relations Centers - 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 18.794 million for China Customer Relations Centers 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 Customer Relations Centers at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ LD Micro Index Reconstitution as of August 1, 2017   [Aug-01-17 09:40AM  ACCESSWIRE]
Financial statements of CCRC
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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