Intrinsic value of China Mobile ADR - CHL

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$55.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$55.75

 
Intrinsic value

$75.98

 
Up/down potential

+36%

 
Rating

buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of CHL 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 226.7

 

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, %
  6.00
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
Revenue, $m
  102,489
  108,638
  115,048
  121,732
  128,706
  135,986
  143,588
  151,531
  159,832
  168,512
  177,590
  187,089
  197,031
  207,439
  218,338
  229,754
  241,715
  254,249
  267,385
  281,156
  295,593
  310,732
  326,609
  343,261
  360,728
  379,052
  398,277
  418,448
  439,614
  461,825
  485,133
Variable operating expenses, $m
 
  67,542
  71,497
  75,621
  79,925
  84,416
  89,107
  94,008
  99,130
  104,485
  110,086
  115,436
  121,570
  127,992
  134,717
  141,761
  149,141
  156,874
  164,980
  173,476
  182,384
  191,725
  201,521
  211,796
  222,573
  233,879
  245,741
  258,187
  271,247
  284,951
  299,333
Fixed operating expenses, $m
 
  22,802
  23,372
  23,957
  24,555
  25,169
  25,799
  26,444
  27,105
  27,782
  28,477
  29,189
  29,918
  30,666
  31,433
  32,219
  33,024
  33,850
  34,696
  35,564
  36,453
  37,364
  38,298
  39,256
  40,237
  41,243
  42,274
  43,331
  44,414
  45,524
  46,662
Total operating expenses, $m
  85,405
  90,344
  94,869
  99,578
  104,480
  109,585
  114,906
  120,452
  126,235
  132,267
  138,563
  144,625
  151,488
  158,658
  166,150
  173,980
  182,165
  190,724
  199,676
  209,040
  218,837
  229,089
  239,819
  251,052
  262,810
  275,122
  288,015
  301,518
  315,661
  330,475
  345,995
Operating income, $m
  17,084
  18,294
  20,179
  22,154
  24,226
  26,401
  28,683
  31,080
  33,598
  36,245
  39,027
  42,464
  45,542
  48,780
  52,188
  55,774
  59,550
  63,524
  67,709
  72,116
  76,756
  81,643
  86,789
  92,210
  97,918
  103,930
  110,262
  116,930
  123,953
  131,349
  139,138
EBITDA, $m
  36,920
  27,822
  30,239
  32,769
  35,420
  38,199
  41,112
  44,168
  47,375
  50,742
  54,278
  57,993
  61,896
  65,998
  70,310
  74,844
  79,612
  84,627
  89,902
  95,452
  101,290
  107,434
  113,898
  120,700
  127,858
  135,391
  143,319
  151,661
  160,441
  169,681
  179,404
Interest expense (income), $m
  64
  0
  417
  850
  1,301
  1,772
  2,263
  2,776
  3,312
  3,872
  4,458
  5,071
  5,712
  6,383
  7,085
  7,821
  8,591
  9,398
  10,244
  11,131
  12,060
  13,034
  14,056
  15,127
  16,251
  17,430
  18,666
  19,964
  21,325
  22,753
  24,252
Earnings before tax, $m
  20,900
  18,294
  19,761
  21,304
  22,925
  24,629
  26,420
  28,304
  30,286
  32,372
  34,569
  37,394
  39,830
  42,398
  45,103
  47,954
  50,959
  54,126
  57,465
  60,985
  64,696
  68,609
  72,734
  77,082
  81,667
  86,500
  91,595
  96,966
  102,628
  108,596
  114,886
Tax expense, $m
  5,154
  4,939
  5,335
  5,752
  6,190
  6,650
  7,133
  7,642
  8,177
  8,741
  9,334
  10,096
  10,754
  11,447
  12,178
  12,948
  13,759
  14,614
  15,516
  16,466
  17,468
  18,524
  19,638
  20,812
  22,050
  23,355
  24,731
  26,181
  27,710
  29,321
  31,019
Net income, $m
  15,732
  13,354
  14,426
  15,552
  16,735
  17,979
  19,286
  20,662
  22,109
  23,632
  25,235
  27,297
  29,076
  30,950
  32,925
  35,006
  37,200
  39,512
  41,950
  44,519
  47,228
  50,084
  53,096
  56,270
  59,617
  63,145
  66,865
  70,786
  74,919
  79,275
  83,867

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  66,203
  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
  220,045
  163,121
  172,745
  182,781
  193,253
  204,183
  215,598
  227,524
  239,988
  253,021
  266,652
  280,914
  295,842
  311,469
  327,834
  344,976
  362,935
  381,755
  401,479
  422,156
  443,834
  466,565
  490,404
  515,407
  541,634
  569,148
  598,014
  628,301
  660,081
  693,430
  728,429
Adjusted assets (=assets-cash), $m
  153,842
  163,121
  172,745
  182,781
  193,253
  204,183
  215,598
  227,524
  239,988
  253,021
  266,652
  280,914
  295,842
  311,469
  327,834
  344,976
  362,935
  381,755
  401,479
  422,156
  443,834
  466,565
  490,404
  515,407
  541,634
  569,148
  598,014
  628,301
  660,081
  693,430
  728,429
Revenue / Adjusted assets
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
Average production assets, $m
  42,542
  45,085
  47,745
  50,519
  53,413
  56,434
  59,589
  62,885
  66,330
  69,932
  73,700
  77,642
  81,768
  86,087
  90,610
  95,348
  100,312
  105,513
  110,965
  116,680
  122,671
  128,954
  135,543
  142,453
  149,702
  157,307
  165,285
  173,656
  182,440
  191,657
  201,330
Working capital, $m
  7,270
  -61,707
  -65,347
  -69,144
  -73,105
  -77,240
  -81,558
  -86,070
  -90,785
  -95,715
  -100,871
  -106,267
  -111,913
  -117,825
  -124,016
  -130,500
  -137,294
  -144,413
  -151,875
  -159,696
  -167,897
  -176,496
  -185,514
  -194,972
  -204,894
  -215,302
  -226,221
  -237,679
  -249,701
  -262,316
  -275,556
Total debt, $m
  723
  4,691
  9,551
  14,620
  19,908
  25,428
  31,192
  37,215
  43,509
  50,090
  56,974
  64,177
  71,715
  79,607
  87,871
  96,528
  105,597
  115,101
  125,062
  135,504
  146,451
  157,930
  169,969
  182,595
  195,840
  209,735
  224,312
  239,607
  255,656
  272,497
  290,171
Total liabilities, $m
  78,408
  82,376
  87,236
  92,305
  97,593
  103,113
  108,877
  114,900
  121,194
  127,775
  134,659
  141,862
  149,400
  157,292
  165,556
  174,213
  183,282
  192,786
  202,747
  213,189
  224,136
  235,615
  247,654
  260,280
  273,525
  287,420
  301,997
  317,292
  333,341
  350,182
  367,856
Total equity, $m
  141,637
  80,745
  85,509
  90,477
  95,660
  101,071
  106,721
  112,624
  118,794
  125,245
  131,993
  139,053
  146,442
  154,177
  162,278
  170,763
  179,653
  188,969
  198,732
  208,967
  219,698
  230,950
  242,750
  255,126
  268,109
  281,728
  296,017
  311,009
  326,740
  343,248
  360,572
Total liabilities and equity, $m
  220,045
  163,121
  172,745
  182,782
  193,253
  204,184
  215,598
  227,524
  239,988
  253,020
  266,652
  280,915
  295,842
  311,469
  327,834
  344,976
  362,935
  381,755
  401,479
  422,156
  443,834
  466,565
  490,404
  515,406
  541,634
  569,148
  598,014
  628,301
  660,081
  693,430
  728,428
Debt-to-equity ratio
  0.005
  0.060
  0.110
  0.160
  0.210
  0.250
  0.290
  0.330
  0.370
  0.400
  0.430
  0.460
  0.490
  0.520
  0.540
  0.570
  0.590
  0.610
  0.630
  0.650
  0.670
  0.680
  0.700
  0.720
  0.730
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
Adjusted equity ratio
  0.490
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15,732
  13,354
  14,426
  15,552
  16,735
  17,979
  19,286
  20,662
  22,109
  23,632
  25,235
  27,297
  29,076
  30,950
  32,925
  35,006
  37,200
  39,512
  41,950
  44,519
  47,228
  50,084
  53,096
  56,270
  59,617
  63,145
  66,865
  70,786
  74,919
  79,275
  83,867
Depreciation, amort., depletion, $m
  19,836
  9,528
  10,060
  10,615
  11,194
  11,798
  12,429
  13,088
  13,777
  14,498
  15,251
  15,528
  16,354
  17,217
  18,122
  19,070
  20,062
  21,103
  22,193
  23,336
  24,534
  25,791
  27,109
  28,491
  29,940
  31,461
  33,057
  34,731
  36,488
  38,331
  40,266
Funds from operations, $m
  31,111
  22,883
  24,486
  26,167
  27,929
  29,777
  31,716
  33,750
  35,886
  38,130
  40,487
  42,826
  45,430
  48,168
  51,047
  54,076
  57,262
  60,615
  64,143
  67,855
  71,763
  75,875
  80,204
  84,761
  89,557
  94,606
  99,922
  105,517
  111,407
  117,606
  124,133
Change in working capital, $m
  -2,900
  -3,493
  -3,641
  -3,797
  -3,961
  -4,135
  -4,318
  -4,511
  -4,715
  -4,930
  -5,157
  -5,395
  -5,647
  -5,912
  -6,191
  -6,485
  -6,794
  -7,119
  -7,461
  -7,822
  -8,201
  -8,599
  -9,018
  -9,458
  -9,921
  -10,408
  -10,920
  -11,457
  -12,022
  -12,616
  -13,239
Cash from operations, $m
  34,011
  -15,919
  28,127
  29,964
  31,891
  33,912
  36,034
  38,261
  40,601
  43,060
  45,643
  48,221
  51,077
  54,079
  57,238
  60,560
  64,056
  67,734
  71,604
  75,677
  79,963
  84,474
  89,222
  94,219
  99,479
  105,015
  110,841
  116,974
  123,429
  130,222
  137,372
Maintenance CAPEX, $m
  0
  -8,508
  -9,017
  -9,549
  -10,104
  -10,683
  -11,287
  -11,918
  -12,577
  -13,266
  -13,986
  -14,740
  -15,528
  -16,354
  -17,217
  -18,122
  -19,070
  -20,062
  -21,103
  -22,193
  -23,336
  -24,534
  -25,791
  -27,109
  -28,491
  -29,940
  -31,461
  -33,057
  -34,731
  -36,488
  -38,331
New CAPEX, $m
  -25,159
  -2,543
  -2,660
  -2,774
  -2,894
  -3,021
  -3,155
  -3,296
  -3,445
  -3,602
  -3,768
  -3,942
  -4,126
  -4,319
  -4,523
  -4,738
  -4,964
  -5,201
  -5,452
  -5,715
  -5,992
  -6,283
  -6,589
  -6,911
  -7,249
  -7,605
  -7,978
  -8,371
  -8,784
  -9,217
  -9,673
Cash from investing activities, $m
  -20,651
  -11,051
  -11,677
  -12,323
  -12,998
  -13,704
  -14,442
  -15,214
  -16,022
  -16,868
  -17,754
  -18,682
  -19,654
  -20,673
  -21,740
  -22,860
  -24,034
  -25,263
  -26,555
  -27,908
  -29,328
  -30,817
  -32,380
  -34,020
  -35,740
  -37,545
  -39,439
  -41,428
  -43,515
  -45,705
  -48,004
Free cash flow, $m
  13,360
  -26,971
  16,450
  17,641
  18,893
  20,208
  21,592
  23,047
  24,579
  26,191
  27,889
  29,539
  31,422
  33,407
  35,497
  37,701
  40,023
  42,470
  45,050
  47,769
  50,636
  53,657
  56,842
  60,200
  63,739
  67,470
  71,402
  75,546
  79,914
  84,517
  89,368
Issuance/(repayment) of debt, $m
  -1,179
  4,691
  4,860
  5,068
  5,288
  5,520
  5,764
  6,022
  6,295
  6,581
  6,884
  7,202
  7,538
  7,892
  8,264
  8,657
  9,069
  9,504
  9,961
  10,442
  10,947
  11,479
  12,039
  12,627
  13,245
  13,894
  14,577
  15,295
  16,049
  16,841
  17,674
Issuance/(repurchase) of shares, $m
  148
  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  
  -5,584
  4,691
  4,860
  5,068
  5,288
  5,520
  5,764
  6,022
  6,295
  6,581
  6,884
  7,202
  7,538
  7,892
  8,264
  8,657
  9,069
  9,504
  9,961
  10,442
  10,947
  11,479
  12,039
  12,627
  13,245
  13,894
  14,577
  15,295
  16,049
  16,841
  17,674
Total cash flow (excl. dividends), $m
  7,804
  -22,280
  21,310
  22,709
  24,181
  25,728
  27,356
  29,070
  30,874
  32,773
  34,773
  36,742
  38,961
  41,299
  43,762
  46,357
  49,092
  51,974
  55,011
  58,211
  61,583
  65,137
  68,881
  72,827
  76,984
  81,364
  85,979
  90,841
  95,963
  101,358
  107,042
Retained Cash Flow (-), $m
  -8,924
  -4,588
  -4,764
  -4,968
  -5,183
  -5,411
  -5,650
  -5,903
  -6,170
  -6,451
  -6,747
  -7,060
  -7,389
  -7,736
  -8,101
  -8,485
  -8,890
  -9,316
  -9,764
  -10,235
  -10,731
  -11,252
  -11,800
  -12,377
  -12,982
  -13,619
  -14,289
  -14,992
  -15,731
  -16,508
  -17,324
Prev. year cash balance distribution, $m
 
  65,480
  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
 
  38,613
  16,546
  17,741
  18,997
  20,318
  21,706
  23,167
  24,704
  26,322
  28,025
  29,682
  31,572
  33,563
  35,661
  37,872
  40,202
  42,658
  45,247
  47,976
  50,852
  53,885
  57,081
  60,450
  64,001
  67,745
  71,690
  75,849
  80,231
  84,850
  89,718
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
 
  37,021
  15,147
  15,440
  15,642
  15,749
  15,753
  15,651
  15,440
  15,120
  14,693
  14,095
  13,473
  12,761
  11,972
  11,119
  10,216
  9,282
  8,333
  7,387
  6,462
  5,573
  4,736
  3,962
  3,260
  2,635
  2,092
  1,628
  1,241
  926
  676
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
  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

China Mobile Limited, an investment holding company, provides mobile telecommunications and related services in Mainland China and Hong Kong. It offers voice services comprising local calls, domestic and international long distance calls, intra-provincial roaming, inter-provincial roaming, and international roaming, as well as voice value-added services, including caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, conference calls, and others. The company also offers data services, such as SMS, including subscriber-to-subscriber messages, short messages, and others; MMS services; wireless mobile phone data traffic and WLAN data traffic services; and applications and information services, including mobile music, mobile paper, mobile reading, mobile video, mobile market, etc. In addition, it offers telecommunications network planning design and consulting services; roaming clearance services; technology platform development and maintenance services; and system integration and development solutions, as well as operates a network and business coordination center. Further, the company is involved in network planning and optimizing construction testing and supervising activities; technology support; development and training of mobile communication systems; and providing electronic communication products, non-banking financial services, and call center services, as well as computer hardware and software research and development services. The company was formerly known as China Mobile (Hong Kong) Limited and changed its name to China Mobile Limited in May 2006. The company was incorporated in 1997 and is based in Central, Hong Kong. China Mobile Limited is a subsidiary of China Mobile Hong Kong (BVI) Limited.

FINANCIAL RATIOS  of  China Mobile ADR (CHL)

Valuation Ratios
P/E Ratio 72.6
Price to Sales 11.1
Price to Book 8.1
Price to Tangible Book
Price to Cash Flow 33.6
Price to Free Cash Flow 129
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1%
Cap. Spend. - 3 Yr. Gr. Rate 6.8%
Financial Strength
Quick Ratio 92
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0.5%
Interest Coverage 328
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 8%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 12.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 79.1%
Gross Margin - 3 Yr. Avg. 80.6%
EBITDA Margin 39.8%
EBITDA Margin - 3 Yr. Avg. 39.3%
Operating Margin 16.7%
Oper. Margin - 3 Yr. Avg. 16.7%
Pre-Tax Margin 20.4%
Pre-Tax Margin - 3 Yr. Avg. 21.3%
Net Profit Margin 15.3%
Net Profit Margin - 3 Yr. Avg. 16.1%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 24.1%
Payout Ratio 44.1%

CHL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHL stock intrinsic value calculation we used $102489 million for the last fiscal year's total revenue generated by China Mobile ADR. The default revenue input number comes from 2016 income statement of China Mobile 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 CHL stock valuation model: a) initial revenue growth rate of 6% 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 CHL is calculated based on our internal credit rating of China Mobile 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 Mobile 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 CHL stock the variable cost ratio is equal to 62.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $22246 million in the base year in the intrinsic value calculation for CHL 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 8.9% for China Mobile ADR.

Corporate tax rate of 27% is the nominal tax rate for China Mobile 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 CHL 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 CHL are equal to 41.5%.

Life of production assets of 2.4 years is the average useful life of capital assets used in China Mobile 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 CHL is equal to -56.8%. 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 - $141637 million for China Mobile 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 4065.73 million for China Mobile 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 Mobile ADR at the current share price and the inputted number of shares is $226.7 billion.


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COMPANY NEWS

▶ 3 Top Dividend Stocks to Invest in China's Growth   [May-23-17 07:10AM  Motley Fool]
▶ ETFs with exposure to China Mobile Ltd. : May 1, 2017   [May-01-17 03:46PM  Capital Cube]
▶ 3 Stocks That Will Hate a 15% Corporate Tax Rate   [Apr-27-17 09:06AM  Motley Fool]
▶ China Mobile Denies Interest in Singapore Telco M1   [Apr-26-17 10:35AM  TheStreet.com]
▶ Why China's Mobile's Weak Results Hurt China Unicom   [Apr-21-17 11:14AM  Barrons.com]
▶ ETFs with exposure to China Mobile Ltd. : April 19, 2017   [Apr-19-17 02:15PM  Capital Cube]
▶ Is Slower Growth in China a New Standard?   [11:38AM  Market Realist]
▶ China Mobile Ltd. Wants More Broadband Customers   [Mar-24-17 03:57PM  Motley Fool]
▶ China Mobile Slips 3% As Dividends Disappoint   [Mar-23-17 02:06AM  Barrons.com]
▶ China Mobile Slips 3% As Dividends Disappoint   [02:06AM  at Barrons.com]
▶ What Happened to China Mobile on March 20?   [03:58PM  Market Realist]
▶ What Happened to China Mobile on March 20?   [03:58PM  at Market Realist]
▶ 10 Reasons to Buy China Mobile Ltd. and Never Sell   [Mar-19-17 12:35PM  Motley Fool]
▶ China Unicom Soars After Slashing Capex: Dividends?   [Mar-15-17 10:00PM  at Barrons.com]
▶ A New Journey of GTI: Joint Innovation Towards 5G   [Mar-01-17 06:00AM  PR Newswire]
▶ [$$] Apple, Samsung Need to Dazzle in a Slow Market   [Feb-24-17 02:29PM  at The Wall Street Journal]
▶ 10 Most Valuable Brands in China   [Jan-27-17 01:17PM  at Insider Monkey]
▶ [$$] China Mobile Can Dial Up 25% Upside   [Jan-26-17 08:41PM  at Barrons.com]
▶ 11 Most Profitable Companies in China   [Jan-25-17 09:13AM  at Insider Monkey]
▶ How Do Vodafones Valuation Metrics Look?   [Dec-22-16 10:37AM  at Market Realist]
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▶ [$$] Vodafone Loss Widened by Hefty India Write-Down   [Nov-15-16 10:04AM  at The Wall Street Journal]
▶ Hong Kong Lifestyle Expo Underway in Dubai   [Nov-07-16 08:13AM  ACN Newswire]
▶ Value Partners Acquires High-Impact Holdings   [Sep-27-16 06:53PM  Gurufocus]
▶ How China matters to your 401(k)   [06:03AM  at MarketWatch]
▶ China Mobile Endures Downgrades (CHL, CBSH)   [Sep-22-16 08:04AM  at Investopedia]
▶ 3 Top Telecom Stocks You Can Buy Today   [Sep-15-16 02:22PM  at Motley Fool]
▶ Why We Are Bullish On China Mobile   [Sep-06-16 08:38AM  at Forbes]
▶ How China Matters to Your 401(k)   [12:08AM  at The Wall Street Journal]
▶ How China Matters to Your 401(k)   [Sep-05-16 10:32PM  at The Wall Street Journal]
▶ CHNCX, FLFAX, MALTX: Funds to Avoid With a Strong Dollar   [Aug-18-16 04:23PM  at Investopedia]
▶ China Unicom: Do We See First Signs Of Recovery?   [Aug-17-16 10:24PM  at Barrons.com]
▶ Asia Markets Mixed; Futures Point to Positive Opening   [Aug-11-16 03:43AM  at TheStreet]
▶ China's Reluctant Cash Cow   [Jul-06-16 05:00PM  at Bloomberg]
Stock chart of CHL Financial statements of CHL Annual reports of CHL
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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