Intrinsic value of Chunghwa Telecom ADR - CHT

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$35.81

  Intrinsic Value

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  Value-price divergence*

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$35.81

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

We calculate the intrinsic value of CHT 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 28.0

 

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, %
  -0.78
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  7,394
  241,530
  251,868
  262,829
  274,438
  286,719
  299,701
  313,412
  327,883
  343,148
  359,242
  376,202
  394,067
  412,880
  432,685
  453,527
  475,457
  498,525
  522,786
  548,297
  575,120
  603,316
  632,954
  664,103
  696,837
  731,234
  767,376
  805,348
  845,241
  887,149
  931,173
Variable operating expenses, $m
 
  193,706
  201,996
  210,786
  220,095
  229,944
  240,354
  251,348
  262,953
  275,194
  288,100
  301,678
  316,005
  331,091
  346,973
  363,686
  381,272
  399,770
  419,225
  439,683
  461,192
  483,803
  507,570
  532,548
  558,798
  586,381
  615,364
  645,814
  677,804
  711,410
  746,713
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
  5,866
  193,706
  201,996
  210,786
  220,095
  229,944
  240,354
  251,348
  262,953
  275,194
  288,100
  301,678
  316,005
  331,091
  346,973
  363,686
  381,272
  399,770
  419,225
  439,683
  461,192
  483,803
  507,570
  532,548
  558,798
  586,381
  615,364
  645,814
  677,804
  711,410
  746,713
Operating income, $m
  1,528
  47,824
  49,872
  52,043
  54,343
  56,776
  59,347
  62,063
  64,930
  67,954
  71,142
  74,523
  78,062
  81,789
  85,712
  89,841
  94,185
  98,755
  103,561
  108,614
  113,928
  119,513
  125,384
  131,555
  138,039
  144,853
  152,013
  159,535
  167,437
  175,739
  184,460
EBITDA, $m
  2,573
  82,617
  86,153
  89,902
  93,873
  98,074
  102,515
  107,204
  112,154
  117,376
  122,881
  128,682
  134,793
  141,228
  148,003
  155,132
  162,633
  170,524
  178,822
  187,549
  196,723
  206,368
  216,506
  227,161
  238,358
  250,123
  262,486
  275,475
  289,120
  303,455
  318,513
Interest expense (income), $m
  1
  61
  192
  324
  463
  611
  768
  933
  1,108
  1,292
  1,487
  1,692
  1,908
  2,135
  2,375
  2,627
  2,893
  3,172
  3,466
  3,775
  4,100
  4,442
  4,801
  5,178
  5,575
  5,992
  6,430
  6,891
  7,374
  7,883
  8,416
Earnings before tax, $m
  1,588
  47,763
  49,680
  51,719
  53,879
  56,164
  58,579
  61,130
  63,822
  66,662
  69,655
  72,832
  76,155
  79,654
  83,337
  87,214
  91,293
  95,583
  100,095
  104,840
  109,828
  115,072
  120,584
  126,377
  132,464
  138,861
  145,582
  152,644
  160,063
  167,856
  176,043
Tax expense, $m
  262
  12,896
  13,414
  13,964
  14,547
  15,164
  15,816
  16,505
  17,232
  17,999
  18,807
  19,665
  20,562
  21,507
  22,501
  23,548
  24,649
  25,807
  27,026
  28,307
  29,654
  31,069
  32,558
  34,122
  35,765
  37,492
  39,307
  41,214
  43,217
  45,321
  47,532
Net income, $m
  1,288
  34,867
  36,266
  37,755
  39,332
  41,000
  42,763
  44,625
  46,590
  48,663
  50,848
  53,167
  55,593
  58,147
  60,836
  63,666
  66,644
  69,775
  73,069
  76,533
  80,174
  84,002
  88,026
  92,255
  96,699
  101,369
  106,275
  111,430
  116,846
  122,535
  128,512

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,224
  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
  14,375
  435,190
  453,816
  473,566
  494,483
  516,611
  540,001
  564,706
  590,780
  618,285
  647,283
  677,841
  710,032
  743,929
  779,612
  817,166
  856,679
  898,243
  941,956
  987,923
  1,036,252
  1,087,056
  1,140,458
  1,196,582
  1,255,563
  1,317,540
  1,382,660
  1,451,078
  1,522,957
  1,598,467
  1,677,788
Adjusted assets (=assets-cash), $m
  13,151
  435,190
  453,816
  473,566
  494,483
  516,611
  540,001
  564,706
  590,780
  618,285
  647,283
  677,841
  710,032
  743,929
  779,612
  817,166
  856,679
  898,243
  941,956
  987,923
  1,036,252
  1,087,056
  1,140,458
  1,196,582
  1,255,563
  1,317,540
  1,382,660
  1,451,078
  1,522,957
  1,598,467
  1,677,788
Revenue / Adjusted assets
  0.562
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
  0.555
Average production assets, $m
  11,268
  368,575
  384,350
  401,077
  418,792
  437,534
  457,343
  478,266
  500,349
  523,644
  548,203
  574,084
  601,347
  630,056
  660,277
  692,083
  725,547
  760,749
  797,771
  836,702
  877,633
  920,661
  965,888
  1,013,421
  1,063,374
  1,115,864
  1,171,016
  1,228,962
  1,289,838
  1,353,790
  1,420,969
Working capital, $m
  692
  -18,356
  -19,142
  -19,975
  -20,857
  -21,791
  -22,777
  -23,819
  -24,919
  -26,079
  -27,302
  -28,591
  -29,949
  -31,379
  -32,884
  -34,468
  -36,135
  -37,888
  -39,732
  -41,671
  -43,709
  -45,852
  -48,105
  -50,472
  -52,960
  -55,574
  -58,321
  -61,206
  -64,238
  -67,423
  -70,769
Total debt, $m
  56
  5,487
  9,250
  13,239
  17,464
  21,934
  26,659
  31,650
  36,917
  42,472
  48,330
  54,503
  61,005
  67,853
  75,061
  82,647
  90,628
  99,024
  107,854
  117,139
  126,902
  137,164
  147,951
  159,289
  171,203
  183,722
  196,876
  210,697
  225,216
  240,469
  256,492
Total liabilities, $m
  2,650
  87,908
  91,671
  95,660
  99,885
  104,355
  109,080
  114,071
  119,338
  124,893
  130,751
  136,924
  143,426
  150,274
  157,482
  165,068
  173,049
  181,445
  190,275
  199,560
  209,323
  219,585
  230,372
  241,710
  253,624
  266,143
  279,297
  293,118
  307,637
  322,890
  338,913
Total equity, $m
  11,725
  347,282
  362,145
  377,906
  394,597
  412,256
  430,921
  450,635
  471,443
  493,391
  516,531
  540,917
  566,605
  593,655
  622,131
  652,099
  683,630
  716,798
  751,681
  788,363
  826,929
  867,471
  910,085
  954,872
  1,001,939
  1,051,397
  1,103,363
  1,157,960
  1,215,320
  1,275,577
  1,338,875
Total liabilities and equity, $m
  14,375
  435,190
  453,816
  473,566
  494,482
  516,611
  540,001
  564,706
  590,781
  618,284
  647,282
  677,841
  710,031
  743,929
  779,613
  817,167
  856,679
  898,243
  941,956
  987,923
  1,036,252
  1,087,056
  1,140,457
  1,196,582
  1,255,563
  1,317,540
  1,382,660
  1,451,078
  1,522,957
  1,598,467
  1,677,788
Debt-to-equity ratio
  0.005
  0.020
  0.030
  0.040
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.090
  0.100
  0.110
  0.110
  0.120
  0.130
  0.130
  0.140
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.190
Adjusted equity ratio
  0.799
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798
  0.798

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,288
  34,867
  36,266
  37,755
  39,332
  41,000
  42,763
  44,625
  46,590
  48,663
  50,848
  53,167
  55,593
  58,147
  60,836
  63,666
  66,644
  69,775
  73,069
  76,533
  80,174
  84,002
  88,026
  92,255
  96,699
  101,369
  106,275
  111,430
  116,846
  122,535
  128,512
Depreciation, amort., depletion, $m
  1,045
  34,793
  36,281
  37,859
  39,530
  41,299
  43,167
  45,141
  47,225
  49,422
  51,739
  54,159
  56,731
  59,439
  62,290
  65,291
  68,448
  71,769
  75,261
  78,934
  82,796
  86,855
  91,121
  95,606
  100,318
  105,270
  110,473
  115,940
  121,683
  127,716
  134,054
Funds from operations, $m
  1,509
  69,660
  72,547
  75,614
  78,862
  82,299
  85,930
  89,766
  93,815
  98,085
  102,587
  107,326
  112,324
  117,587
  123,127
  128,957
  135,091
  141,544
  148,331
  155,467
  162,970
  170,857
  179,148
  187,861
  197,017
  206,639
  216,748
  227,370
  238,529
  250,251
  262,565
Change in working capital, $m
  -579
  -740
  -786
  -833
  -882
  -933
  -987
  -1,042
  -1,100
  -1,160
  -1,223
  -1,289
  -1,358
  -1,430
  -1,505
  -1,584
  -1,667
  -1,753
  -1,844
  -1,939
  -2,038
  -2,143
  -2,252
  -2,367
  -2,488
  -2,614
  -2,747
  -2,886
  -3,032
  -3,185
  -3,346
Cash from operations, $m
  2,088
  71,198
  73,333
  76,447
  79,745
  83,232
  86,917
  90,808
  94,915
  99,245
  103,811
  108,615
  113,682
  119,016
  124,632
  130,541
  136,758
  143,297
  150,175
  157,406
  165,008
  173,000
  181,400
  190,228
  199,505
  209,253
  219,495
  230,256
  241,561
  253,436
  265,911
Maintenance CAPEX, $m
  0
  -33,371
  -34,771
  -36,259
  -37,837
  -39,509
  -41,277
  -43,146
  -45,119
  -47,203
  -49,400
  -51,717
  -54,159
  -56,731
  -59,439
  -62,290
  -65,291
  -68,448
  -71,769
  -75,261
  -78,934
  -82,796
  -86,855
  -91,121
  -95,606
  -100,318
  -105,270
  -110,473
  -115,940
  -121,683
  -127,716
New CAPEX, $m
  -765
  -14,844
  -15,775
  -16,727
  -17,715
  -18,741
  -19,810
  -20,923
  -22,083
  -23,294
  -24,559
  -25,881
  -27,263
  -28,709
  -30,222
  -31,805
  -33,464
  -35,202
  -37,022
  -38,931
  -40,931
  -43,028
  -45,227
  -47,533
  -49,953
  -52,490
  -55,152
  -57,946
  -60,876
  -63,952
  -67,179
Cash from investing activities, $m
  -696
  -48,215
  -50,546
  -52,986
  -55,552
  -58,250
  -61,087
  -64,069
  -67,202
  -70,497
  -73,959
  -77,598
  -81,422
  -85,440
  -89,661
  -94,095
  -98,755
  -103,650
  -108,791
  -114,192
  -119,865
  -125,824
  -132,082
  -138,654
  -145,559
  -152,808
  -160,422
  -168,419
  -176,816
  -185,635
  -194,895
Free cash flow, $m
  1,392
  22,984
  22,787
  23,461
  24,192
  24,982
  25,830
  26,740
  27,712
  28,748
  29,851
  31,017
  32,260
  33,577
  34,971
  36,445
  38,003
  39,648
  41,383
  43,214
  45,143
  47,177
  49,318
  51,573
  53,947
  56,445
  59,073
  61,837
  64,744
  67,802
  71,016
Issuance/(repayment) of debt, $m
  -4
  3,745
  3,762
  3,990
  4,225
  4,470
  4,725
  4,990
  5,267
  5,556
  5,858
  6,173
  6,502
  6,847
  7,208
  7,586
  7,981
  8,396
  8,830
  9,285
  9,762
  10,263
  10,787
  11,337
  11,914
  12,519
  13,154
  13,820
  14,520
  15,253
  16,023
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  
  1
  3,745
  3,762
  3,990
  4,225
  4,470
  4,725
  4,990
  5,267
  5,556
  5,858
  6,173
  6,502
  6,847
  7,208
  7,586
  7,981
  8,396
  8,830
  9,285
  9,762
  10,263
  10,787
  11,337
  11,914
  12,519
  13,154
  13,820
  14,520
  15,253
  16,023
Total cash flow (excl. dividends), $m
  1,395
  26,729
  26,549
  27,451
  28,418
  29,452
  30,555
  31,730
  32,979
  34,304
  35,709
  37,190
  38,762
  40,424
  42,179
  44,031
  45,984
  48,044
  50,214
  52,499
  54,906
  57,439
  60,105
  62,910
  65,861
  68,964
  72,227
  75,658
  79,264
  83,055
  87,039
Retained Cash Flow (-), $m
  130
  -13,877
  -14,864
  -15,761
  -16,691
  -17,659
  -18,665
  -19,714
  -20,807
  -21,949
  -23,140
  -24,386
  -25,688
  -27,050
  -28,476
  -29,968
  -31,531
  -33,168
  -34,884
  -36,681
  -38,566
  -40,542
  -42,614
  -44,787
  -47,067
  -49,458
  -51,966
  -54,598
  -57,359
  -60,257
  -63,298
Prev. year cash balance distribution, $m
 
  35,335
  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
 
  48,187
  11,686
  11,690
  11,726
  11,793
  11,890
  12,016
  12,171
  12,355
  12,568
  12,804
  13,074
  13,374
  13,704
  14,063
  14,454
  14,876
  15,330
  15,818
  16,340
  16,897
  17,491
  18,123
  18,794
  19,506
  20,261
  21,060
  21,905
  22,797
  23,740
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
 
  46,201
  10,698
  10,173
  9,655
  9,141
  8,629
  8,118
  7,607
  7,098
  6,589
  6,080
  5,579
  5,085
  4,601
  4,129
  3,673
  3,237
  2,823
  2,435
  2,076
  1,748
  1,451
  1,188
  957
  759
  591
  452
  339
  249
  179
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

Chunghwa Telecom Co., Ltd. provides telecommunication services primarily in Taiwan. The company’s Domestic Fixed Communications Business segment provides local telephone, domestic long distance telephone, broadband access, local and domestic long distance leased line, Wi-Fi, and multimedia on demand services; and other domestic services, including information and communication technology (ICT), corporate solution services, and cloud computing services. This segment also offers interconnection with its fixed-line network to other mobile and fixed-line operators. Its Mobile Communications Business segment provides mobile services, and ICT and other mobile services; and sells mobile handsets, tablets, and data cards. The company’s Internet Business segment provides Internet service provider, Internet value-added, data communication, Internet data center, and ICT and other Internet services. Its International Fixed Communications Business segment offers international long distance telephone, international leased line, international data, satellite, and ICT and other international services. The company’s Other Business segment sells properties. Chunghwa Telecom Co., Ltd. was founded in 1996 and is headquartered in Taipei, Taiwan.

FINANCIAL RATIOS  of  Chunghwa Telecom ADR (CHT)

Valuation Ratios
P/E Ratio 215.7
Price to Sales 37.6
Price to Book 23.7
Price to Tangible Book
Price to Cash Flow 133
Price to Free Cash Flow 210
Growth Rates
Sales Growth Rate -0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.9%
Cap. Spend. - 3 Yr. Gr. Rate -20.8%
Financial Strength
Quick Ratio 306
Current Ratio 0
LT Debt to Equity 0.4%
Total Debt to Equity 0.5%
Interest Coverage 1589
Management Effectiveness
Return On Assets 8.9%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 10.9%
Ret/ On T. Cap. - 3 Yr. Avg. 11%
Return On Equity 10.9%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 35.8%
Gross Margin - 3 Yr. Avg. 35.5%
EBITDA Margin 35.6%
EBITDA Margin - 3 Yr. Avg. 36%
Operating Margin 20.7%
Oper. Margin - 3 Yr. Avg. 20.7%
Pre-Tax Margin 21.5%
Pre-Tax Margin - 3 Yr. Avg. 21.5%
Net Profit Margin 17.4%
Net Profit Margin - 3 Yr. Avg. 17.6%
Effective Tax Rate 16.5%
Eff/ Tax Rate - 3 Yr. Avg. 16.1%
Payout Ratio 106.2%

CHT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHT stock intrinsic value calculation we used $231795 million for the last fiscal year's total revenue generated by Chunghwa Telecom ADR. The default revenue input number comes from 2016 income statement of Chunghwa 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 CHT stock valuation model: a) initial revenue growth rate of 4.2% 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 CHT is calculated based on our internal credit rating of Chunghwa 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 Chunghwa 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 CHT stock the variable cost ratio is equal to 80.2%.

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 CHT 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 Chunghwa Telecom ADR.

Corporate tax rate of 27% is the nominal tax rate for Chunghwa 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 CHT 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 CHT are equal to 152.6%.

Life of production assets of 10.6 years is the average useful life of capital assets used in Chunghwa 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 CHT is equal to -7.6%. 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 - $368740 million for Chunghwa 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 782.569 million for Chunghwa 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 Chunghwa Telecom ADR at the current share price and the inputted number of shares is $28.0 billion.


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Stock chart of CHT Financial statements of CHT Annual reports of CHT
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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