Intrinsic value of China Telecom ADR - CHA

Previous Close

$49.90

  Intrinsic Value

$19.99

stock screener

  Rating & Target

str. sell

-60%

  Value-price divergence*

-84%

Previous close

$49.90

 
Intrinsic value

$19.99

 
Up/down potential

-60%

 
Rating

str. sell

 
Value-price divergence*

-84%

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

We calculate the intrinsic value of CHA 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 40.8

 

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, %
  6.37
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
Revenue, $m
  50,966
  54,228
  57,622
  61,157
  64,839
  68,677
  72,678
  76,853
  81,210
  85,760
  90,513
  95,481
  100,674
  106,106
  111,789
  117,736
  123,962
  130,482
  137,311
  144,465
  151,961
  159,818
  168,054
  176,688
  185,742
  195,237
  205,195
  215,640
  226,597
  238,093
  250,155
Variable operating expenses, $m
 
  49,862
  52,956
  56,178
  59,534
  63,032
  66,679
  70,485
  74,456
  78,604
  82,936
  87,031
  91,765
  96,716
  101,896
  107,317
  112,993
  118,935
  125,160
  131,681
  138,514
  145,675
  153,182
  161,052
  169,305
  177,959
  187,036
  196,557
  206,545
  217,024
  228,018
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
  47,031
  49,862
  52,956
  56,178
  59,534
  63,032
  66,679
  70,485
  74,456
  78,604
  82,936
  87,031
  91,765
  96,716
  101,896
  107,317
  112,993
  118,935
  125,160
  131,681
  138,514
  145,675
  153,182
  161,052
  169,305
  177,959
  187,036
  196,557
  206,545
  217,024
  228,018
Operating income, $m
  3,935
  4,366
  4,666
  4,979
  5,305
  5,645
  5,999
  6,368
  6,754
  7,156
  7,577
  8,449
  8,909
  9,390
  9,893
  10,419
  10,970
  11,547
  12,151
  12,784
  13,448
  14,143
  14,872
  15,636
  16,437
  17,277
  18,158
  19,083
  20,052
  21,070
  22,137
EBITDA, $m
  13,764
  14,656
  15,574
  16,529
  17,524
  18,562
  19,643
  20,771
  21,949
  23,179
  24,463
  25,806
  27,210
  28,678
  30,214
  31,821
  33,504
  35,266
  37,112
  39,045
  41,071
  43,195
  45,421
  47,754
  50,201
  52,767
  55,459
  58,282
  61,244
  64,351
  67,611
Interest expense (income), $m
  540
  428
  529
  633
  742
  855
  973
  1,096
  1,224
  1,358
  1,498
  1,644
  1,796
  1,956
  2,123
  2,297
  2,480
  2,671
  2,871
  3,081
  3,301
  3,531
  3,773
  4,025
  4,291
  4,569
  4,860
  5,166
  5,487
  5,824
  6,177
Earnings before tax, $m
  3,486
  3,938
  4,137
  4,346
  4,563
  4,790
  5,026
  5,272
  5,530
  5,799
  6,079
  6,806
  7,113
  7,434
  7,770
  8,122
  8,490
  8,876
  9,280
  9,703
  10,147
  10,612
  11,099
  11,610
  12,146
  12,708
  13,298
  13,916
  14,565
  15,246
  15,960
Tax expense, $m
  866
  1,063
  1,117
  1,173
  1,232
  1,293
  1,357
  1,424
  1,493
  1,566
  1,641
  1,838
  1,920
  2,007
  2,098
  2,193
  2,292
  2,396
  2,506
  2,620
  2,740
  2,865
  2,997
  3,135
  3,280
  3,431
  3,590
  3,757
  3,933
  4,116
  4,309
Net income, $m
  2,605
  2,874
  3,020
  3,172
  3,331
  3,496
  3,669
  3,849
  4,037
  4,233
  4,438
  4,968
  5,192
  5,427
  5,672
  5,929
  6,198
  6,479
  6,774
  7,083
  7,407
  7,747
  8,102
  8,476
  8,867
  9,277
  9,708
  10,159
  10,633
  11,130
  11,651

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,043
  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
  94,379
  96,149
  102,168
  108,434
  114,963
  121,767
  128,862
  136,264
  143,989
  152,057
  160,484
  169,292
  178,500
  188,131
  198,207
  208,752
  219,792
  231,351
  243,459
  256,144
  269,435
  283,366
  297,968
  313,277
  329,330
  346,164
  363,820
  382,340
  401,769
  422,151
  443,537
Adjusted assets (=assets-cash), $m
  90,336
  96,149
  102,168
  108,434
  114,963
  121,767
  128,862
  136,264
  143,989
  152,057
  160,484
  169,292
  178,500
  188,131
  198,207
  208,752
  219,792
  231,351
  243,459
  256,144
  269,435
  283,366
  297,968
  313,277
  329,330
  346,164
  363,820
  382,340
  401,769
  422,151
  443,537
Revenue / Adjusted assets
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
Average production assets, $m
  67,642
  71,960
  76,465
  81,155
  86,041
  91,134
  96,444
  101,984
  107,766
  113,804
  120,111
  126,703
  133,595
  140,803
  148,344
  156,236
  164,498
  173,150
  182,212
  191,705
  201,653
  212,079
  223,008
  234,465
  246,480
  259,079
  272,293
  286,154
  300,695
  315,950
  331,956
Working capital, $m
  -35,448
  -26,138
  -27,774
  -29,478
  -31,252
  -33,102
  -35,031
  -37,043
  -39,143
  -41,336
  -43,627
  -46,022
  -48,525
  -51,143
  -53,882
  -56,749
  -59,750
  -62,892
  -66,184
  -69,632
  -73,245
  -77,032
  -81,002
  -85,164
  -89,528
  -94,104
  -98,904
  -103,938
  -109,220
  -114,761
  -120,575
Total debt, $m
  16,280
  15,114
  18,093
  21,195
  24,427
  27,795
  31,307
  34,971
  38,795
  42,788
  46,960
  51,319
  55,878
  60,645
  65,633
  70,852
  76,317
  82,039
  88,032
  94,311
  100,890
  107,786
  115,014
  122,592
  130,538
  138,871
  147,611
  156,778
  166,395
  176,485
  187,071
Total liabilities, $m
  48,761
  47,594
  50,573
  53,675
  56,907
  60,275
  63,787
  67,451
  71,275
  75,268
  79,440
  83,799
  88,358
  93,125
  98,113
  103,332
  108,797
  114,519
  120,512
  126,791
  133,370
  140,266
  147,494
  155,072
  163,018
  171,351
  180,091
  189,258
  198,875
  208,965
  219,551
Total equity, $m
  45,619
  48,555
  51,595
  54,759
  58,056
  61,492
  65,075
  68,813
  72,715
  76,789
  81,045
  85,492
  90,143
  95,006
  100,095
  105,420
  110,995
  116,832
  122,947
  129,353
  136,065
  143,100
  150,474
  158,205
  166,312
  174,813
  183,729
  193,082
  202,893
  213,186
  223,986
Total liabilities and equity, $m
  94,380
  96,149
  102,168
  108,434
  114,963
  121,767
  128,862
  136,264
  143,990
  152,057
  160,485
  169,291
  178,501
  188,131
  198,208
  208,752
  219,792
  231,351
  243,459
  256,144
  269,435
  283,366
  297,968
  313,277
  329,330
  346,164
  363,820
  382,340
  401,768
  422,151
  443,537
Debt-to-equity ratio
  0.357
  0.310
  0.350
  0.390
  0.420
  0.450
  0.480
  0.510
  0.530
  0.560
  0.580
  0.600
  0.620
  0.640
  0.660
  0.670
  0.690
  0.700
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
Adjusted equity ratio
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505
  0.505

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,605
  2,874
  3,020
  3,172
  3,331
  3,496
  3,669
  3,849
  4,037
  4,233
  4,438
  4,968
  5,192
  5,427
  5,672
  5,929
  6,198
  6,479
  6,774
  7,083
  7,407
  7,747
  8,102
  8,476
  8,867
  9,277
  9,708
  10,159
  10,633
  11,130
  11,651
Depreciation, amort., depletion, $m
  9,829
  10,290
  10,908
  11,550
  12,219
  12,917
  13,644
  14,403
  15,195
  16,022
  16,886
  17,357
  18,301
  19,288
  20,321
  21,402
  22,534
  23,719
  24,960
  26,261
  27,624
  29,052
  30,549
  32,119
  33,764
  35,490
  37,300
  39,199
  41,191
  43,281
  45,473
Funds from operations, $m
  14,864
  13,165
  13,928
  14,723
  15,550
  16,413
  17,313
  18,252
  19,232
  20,255
  21,324
  22,325
  23,493
  24,715
  25,993
  27,331
  28,732
  30,198
  31,735
  33,344
  35,031
  36,798
  38,651
  40,594
  42,631
  44,767
  47,008
  49,358
  51,824
  54,410
  57,124
Change in working capital, $m
  233
  -1,572
  -1,636
  -1,704
  -1,775
  -1,850
  -1,929
  -2,012
  -2,100
  -2,193
  -2,291
  -2,394
  -2,503
  -2,618
  -2,739
  -2,867
  -3,001
  -3,143
  -3,291
  -3,448
  -3,613
  -3,787
  -3,970
  -4,162
  -4,364
  -4,576
  -4,800
  -5,035
  -5,282
  -5,541
  -5,814
Cash from operations, $m
  14,631
  14,737
  15,564
  16,426
  17,325
  18,263
  19,242
  20,264
  21,332
  22,448
  23,615
  24,719
  25,996
  27,333
  28,732
  30,198
  31,733
  33,341
  35,026
  36,793
  38,644
  40,585
  42,621
  44,756
  46,995
  49,344
  51,808
  54,393
  57,105
  59,951
  62,938
Maintenance CAPEX, $m
  0
  -9,266
  -9,858
  -10,475
  -11,117
  -11,786
  -12,484
  -13,211
  -13,970
  -14,762
  -15,590
  -16,454
  -17,357
  -18,301
  -19,288
  -20,321
  -21,402
  -22,534
  -23,719
  -24,960
  -26,261
  -27,624
  -29,052
  -30,549
  -32,119
  -33,764
  -35,490
  -37,300
  -39,199
  -41,191
  -43,281
New CAPEX, $m
  -14,000
  -4,319
  -4,505
  -4,690
  -4,886
  -5,092
  -5,310
  -5,540
  -5,782
  -6,038
  -6,307
  -6,592
  -6,892
  -7,208
  -7,541
  -7,892
  -8,262
  -8,652
  -9,062
  -9,493
  -9,948
  -10,426
  -10,929
  -11,458
  -12,014
  -12,599
  -13,214
  -13,861
  -14,541
  -15,255
  -16,006
Cash from investing activities, $m
  -14,328
  -13,585
  -14,363
  -15,165
  -16,003
  -16,878
  -17,794
  -18,751
  -19,752
  -20,800
  -21,897
  -23,046
  -24,249
  -25,509
  -26,829
  -28,213
  -29,664
  -31,186
  -32,781
  -34,453
  -36,209
  -38,050
  -39,981
  -42,007
  -44,133
  -46,363
  -48,704
  -51,161
  -53,740
  -56,446
  -59,287
Free cash flow, $m
  303
  1,152
  1,202
  1,261
  1,322
  1,384
  1,448
  1,513
  1,580
  1,648
  1,718
  1,674
  1,748
  1,824
  1,903
  1,984
  2,068
  2,155
  2,245
  2,339
  2,435
  2,536
  2,640
  2,749
  2,862
  2,980
  3,103
  3,231
  3,365
  3,505
  3,651
Issuance/(repayment) of debt, $m
  -431
  2,877
  2,979
  3,102
  3,232
  3,368
  3,512
  3,664
  3,824
  3,993
  4,172
  4,360
  4,558
  4,767
  4,988
  5,220
  5,464
  5,722
  5,993
  6,279
  6,579
  6,896
  7,228
  7,578
  7,946
  8,333
  8,740
  9,167
  9,617
  10,089
  10,586
Issuance/(repurchase) of shares, $m
  0
  62
  19
  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  
  -443
  2,939
  2,998
  3,102
  3,232
  3,368
  3,512
  3,664
  3,824
  3,993
  4,172
  4,360
  4,558
  4,767
  4,988
  5,220
  5,464
  5,722
  5,993
  6,279
  6,579
  6,896
  7,228
  7,578
  7,946
  8,333
  8,740
  9,167
  9,617
  10,089
  10,586
Total cash flow (excl. dividends), $m
  -110
  4,091
  4,200
  4,363
  4,554
  4,752
  4,960
  5,177
  5,404
  5,642
  5,890
  6,034
  6,306
  6,592
  6,891
  7,204
  7,533
  7,877
  8,239
  8,617
  9,015
  9,431
  9,869
  10,327
  10,808
  11,313
  11,843
  12,399
  12,982
  13,595
  14,237
Retained Cash Flow (-), $m
  -1,670
  -2,936
  -3,040
  -3,165
  -3,297
  -3,436
  -3,583
  -3,738
  -3,901
  -4,074
  -4,256
  -4,448
  -4,650
  -4,864
  -5,088
  -5,325
  -5,575
  -5,838
  -6,114
  -6,406
  -6,712
  -7,035
  -7,374
  -7,731
  -8,107
  -8,501
  -8,916
  -9,353
  -9,811
  -10,293
  -10,800
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
 
  1,154
  1,161
  1,199
  1,257
  1,316
  1,377
  1,439
  1,503
  1,568
  1,634
  1,586
  1,656
  1,728
  1,802
  1,879
  1,958
  2,040
  2,124
  2,212
  2,302
  2,397
  2,494
  2,596
  2,702
  2,812
  2,927
  3,046
  3,171
  3,301
  3,438
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
 
  1,107
  1,063
  1,043
  1,035
  1,020
  999
  972
  939
  900
  857
  753
  707
  657
  605
  552
  498
  444
  391
  341
  293
  248
  207
  170
  138
  109
  85
  65
  49
  36
  26
Current shareholders' claim on cash, %
  100
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8

China Telecom Corporation Limited is an investment holding company principally engaged in telecommunications and related businesses. The Company provides integrated information services, including wireline and mobile telecommunications services, Internet access services, information services and other value-added telecommunications services. The Company mainly operates its business in domestic market.

FINANCIAL RATIOS  of  China Telecom ADR (CHA)

Valuation Ratios
P/E Ratio 1550.3
Price to Sales 79.2
Price to Book 88.5
Price to Tangible Book
Price to Cash Flow 276
Price to Free Cash Flow 6400.2
Growth Rates
Sales Growth Rate 6.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.1%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 3%
Total Debt to Equity 35.7%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 6.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 72.7%
Gross Margin - 3 Yr. Avg. 70.1%
EBITDA Margin 27.2%
EBITDA Margin - 3 Yr. Avg. 28.8%
Operating Margin 7.7%
Oper. Margin - 3 Yr. Avg. 8.2%
Pre-Tax Margin 6.8%
Pre-Tax Margin - 3 Yr. Avg. 7.4%
Net Profit Margin 5.1%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 24.8%
Eff/ Tax Rate - 3 Yr. Avg. 24.3%
Payout Ratio 36%

CHA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHA stock intrinsic value calculation we used $50966 million for the last fiscal year's total revenue generated by China Telecom ADR. The default revenue input number comes from 2016 income statement of China Telecom ADR. 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 CHA stock valuation model: a) initial revenue growth rate of 6.4% 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 CHA is calculated based on our internal credit rating of China Telecom ADR, 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 Telecom ADR.
    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 CHA stock the variable cost ratio is equal to 92%.

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 CHA 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 Telecom ADR.

Corporate tax rate of 27% is the nominal tax rate for China Telecom ADR. 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 CHA 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 CHA are equal to 132.7%.

Life of production assets of 7.3 years is the average useful life of capital assets used in China Telecom ADR 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 CHA is equal to -48.2%. 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 - $45619 million for China Telecom ADR - 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 816.711 million for China Telecom ADR 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 Telecom ADR at the current share price and the inputted number of shares is $40.8 billion.

RELATED COMPANIES Price Int.Val. Rating
CHL China Mobile A 50.64 77.95  buy
CHU China Unicom ( 14.49 5.09  str.sell
ORAN Orange ADR 16.51 21.88  buy
SINA Sina 115.68 291.83  str.buy
WB Weibo ADR 100.04 470.39  str.buy

COMPANY NEWS

▶ Highlights From China Telecom's First Half   [Aug-23-17 12:40PM  Forbes]
▶ Whats in the China Telecom Deal for AT&T?   [Aug-18-17 10:36AM  Market Realist]
▶ AT&T, China Telecom to Cooperate on Cloud Services   [Jun-27-17 08:16PM  Bloomberg Video]
▶ Why Oclaro, Inc. Jumped 13% Higher Today   [Jun-06-17 01:26PM  Motley Fool]
▶ Why We Remain Bullish On China Telecom   [Jun-01-17 01:48PM  Forbes]
▶ China Telecom Ranked "No.1 Best Managed Company in Asia"   [May-23-17 10:06AM  PR Newswire]
▶ Worlds 10 Largest Telecom Companies By Subscribers   [Apr-18-17 04:18PM  Insider Monkey]
▶ The 3 Best International Telecom Stocks to Buy in 2017   [Apr-12-17 02:35PM  Motley Fool]
▶ Telecom: Firms Strive to Be More Than 'Dumb Pipes'   [Mar-31-17 07:00AM  Morningstar]
▶ China Comservice Announces 2016 Annual Results   [Mar-30-17 07:02AM  ACN Newswire]
▶ 10 Reasons to Buy China Mobile Ltd. and Never Sell   [Mar-19-17 12:35PM  at Motley Fool]
▶ China Unicom Soars After Slashing Capex: Dividends?   [Mar-15-17 10:00PM  Barrons.com]
▶ [$$] China's Three Telecom Operators to Eliminate Mobile Roaming Fees   [Mar-06-17 09:55AM  The Wall Street Journal]
▶ 4 Reasons I'm Buying China Mobile Ltd. (ADR) Stock   [Jan-26-17 07:52PM  Motley Fool]
▶ 10 Largest Telecom Companies in The World by Revenue   [Jan-23-17 10:24AM  Insider Monkey]
▶ New Strong Sell Stocks for January 18th   [Jan-18-17 08:01AM  Zacks]
▶ Morgan Stanley's Favorite Telecom Stocks   [Jan-16-17 12:56AM  Barrons.com]
▶ Morgan Stanley's Favorite Telecom Stocks   [12:56AM  at Barrons.com]
▶ IR Magazine Awards - Greater China 2016 Winners Announced   [Dec-06-16 06:55AM  ACN Newswire]
▶ IIROC Trading Halt - CHA   [Dec-05-16 07:53AM  PR Newswire]
▶ China Telcos: Deutsche Sees 11% Drop In Q3 Net Profit   [Oct-17-16 10:42PM  at Barrons.com]
▶ China's 3 Big Telco Stocks Can Rally At Least 20%   [Sep-23-16 12:01AM  at Barrons.com]
▶ China Comservice Announces 2016 Interim Results   [Aug-25-16 06:54AM  ACN Newswire]
▶ Nokia Corp. (ADR) Scores A Big Telco Win In China   [Aug-17-16 03:21PM  at Motley Fool]
▶ CHINA TELECOM CORP LTD Financials   [01:04PM  EDGAR Online Financials]
▶ Reviewing China Telecom's Q1 Results   [May-02-16 08:34AM  at Forbes]
▶ China Comservice Announces 2015 Annual Results   [Mar-31-16 06:58AM  ACN Newswire]
▶ China Unicom Focuses On 4G, Cuts Capex: Can It Turn Around?   [Mar-16-16 10:51PM  at Barrons.com]
▶ Do Hedge Funds Love CIGNA Corporation (CI) Ahead of Merger?   [Mar-07-16 08:05PM  at Insider Monkey]
▶ China Mobile: Just How Big is It? (CHL, CHU, CHA)   [Feb-01-16 07:21AM  at Investopedia]
▶ [$$] Arrests in China over $7.6bn Ponzi scheme   [01:39AM  at Financial Times]
Financial statements of CHA
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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