Intrinsic value of China Unicom (Hong Kong) ADR - CHU

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$13.83

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$13.83

 
Intrinsic value

$5.14

 
Up/down potential

-63%

 
Rating

str. sell

 
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 CHU 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 32.9

 

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, %
  -1.03
  3.00
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
Revenue, $m
  39,669
  40,859
  42,167
  43,592
  45,136
  46,800
  48,588
  50,501
  52,543
  54,717
  57,029
  59,483
  62,084
  64,837
  67,750
  70,827
  74,077
  77,506
  81,123
  84,935
  88,953
  93,184
  97,639
  102,329
  107,264
  112,456
  117,918
  123,661
  129,700
  136,050
  142,724
Variable operating expenses, $m
 
  37,916
  39,128
  40,449
  41,881
  43,423
  45,080
  46,854
  48,746
  50,762
  52,906
  55,140
  57,551
  60,103
  62,803
  65,656
  68,668
  71,847
  75,200
  78,734
  82,458
  86,381
  90,511
  94,858
  99,433
  104,246
  109,308
  114,632
  120,231
  126,116
  132,303
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
  39,279
  37,916
  39,128
  40,449
  41,881
  43,423
  45,080
  46,854
  48,746
  50,762
  52,906
  55,140
  57,551
  60,103
  62,803
  65,656
  68,668
  71,847
  75,200
  78,734
  82,458
  86,381
  90,511
  94,858
  99,433
  104,246
  109,308
  114,632
  120,231
  126,116
  132,303
Operating income, $m
  390
  2,943
  3,039
  3,143
  3,255
  3,377
  3,507
  3,647
  3,796
  3,955
  4,124
  4,343
  4,533
  4,734
  4,946
  5,171
  5,408
  5,659
  5,923
  6,201
  6,495
  6,803
  7,129
  7,471
  7,831
  8,211
  8,609
  9,029
  9,470
  9,933
  10,420
EBITDA, $m
  11,502
  9,921
  10,238
  10,585
  10,959
  11,364
  11,798
  12,262
  12,758
  13,286
  13,847
  14,443
  15,075
  15,743
  16,450
  17,198
  17,987
  18,819
  19,698
  20,623
  21,599
  22,626
  23,708
  24,847
  26,045
  27,306
  28,632
  30,026
  31,493
  33,034
  34,655
Interest expense (income), $m
  714
  772
  827
  887
  953
  1,024
  1,101
  1,183
  1,272
  1,366
  1,466
  1,573
  1,686
  1,806
  1,933
  2,067
  2,209
  2,359
  2,517
  2,684
  2,860
  3,045
  3,240
  3,445
  3,662
  3,889
  4,129
  4,381
  4,645
  4,924
  5,217
Earnings before tax, $m
  113
  2,171
  2,212
  2,255
  2,302
  2,353
  2,406
  2,464
  2,525
  2,589
  2,658
  2,770
  2,847
  2,928
  3,014
  3,104
  3,200
  3,300
  3,406
  3,518
  3,635
  3,759
  3,889
  4,026
  4,170
  4,321
  4,481
  4,648
  4,824
  5,009
  5,204
Tax expense, $m
  22
  586
  597
  609
  622
  635
  650
  665
  682
  699
  718
  748
  769
  791
  814
  838
  864
  891
  920
  950
  981
  1,015
  1,050
  1,087
  1,126
  1,167
  1,210
  1,255
  1,303
  1,352
  1,405
Net income, $m
  90
  1,585
  1,614
  1,646
  1,681
  1,717
  1,757
  1,798
  1,843
  1,890
  1,940
  2,022
  2,078
  2,138
  2,200
  2,266
  2,336
  2,409
  2,486
  2,568
  2,654
  2,744
  2,839
  2,939
  3,044
  3,155
  3,271
  3,393
  3,522
  3,657
  3,799

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,691
  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
  88,851
  87,680
  90,486
  93,545
  96,858
  100,430
  104,265
  108,370
  112,752
  117,419
  122,380
  127,646
  133,227
  139,136
  145,385
  151,989
  158,963
  166,322
  174,083
  182,265
  190,886
  199,966
  209,527
  219,590
  230,180
  241,322
  253,042
  265,367
  278,327
  291,952
  306,274
Adjusted assets (=assets-cash), $m
  85,160
  87,680
  90,486
  93,545
  96,858
  100,430
  104,265
  108,370
  112,752
  117,419
  122,380
  127,646
  133,227
  139,136
  145,385
  151,989
  158,963
  166,322
  174,083
  182,265
  190,886
  199,966
  209,527
  219,590
  230,180
  241,322
  253,042
  265,367
  278,327
  291,952
  306,274
Revenue / Adjusted assets
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
  0.466
Average production assets, $m
  33,661
  34,689
  35,799
  37,009
  38,320
  39,733
  41,251
  42,875
  44,609
  46,455
  48,418
  50,501
  52,709
  55,047
  57,519
  60,132
  62,891
  65,803
  68,873
  72,110
  75,521
  79,113
  82,896
  86,877
  91,067
  95,475
  100,112
  104,988
  110,116
  115,506
  121,173
Working capital, $m
  -37,678
  -22,146
  -22,854
  -23,627
  -24,464
  -25,366
  -26,335
  -27,371
  -28,478
  -29,657
  -30,910
  -32,240
  -33,649
  -35,142
  -36,720
  -38,388
  -40,150
  -42,008
  -43,969
  -46,035
  -48,212
  -50,506
  -52,921
  -55,462
  -58,137
  -60,951
  -63,911
  -67,024
  -70,298
  -73,739
  -77,356
Total debt, $m
  25,742
  23,626
  25,349
  27,226
  29,261
  31,454
  33,809
  36,329
  39,020
  41,885
  44,931
  48,165
  51,591
  55,219
  59,057
  63,111
  67,393
  71,912
  76,677
  81,701
  86,994
  92,569
  98,439
  104,618
  111,121
  117,962
  125,158
  132,725
  140,683
  149,048
  157,842
Total liabilities, $m
  55,952
  53,836
  55,559
  57,436
  59,471
  61,664
  64,019
  66,539
  69,230
  72,095
  75,141
  78,375
  81,801
  85,429
  89,267
  93,321
  97,603
  102,122
  106,887
  111,911
  117,204
  122,779
  128,649
  134,828
  141,331
  148,172
  155,368
  162,935
  170,893
  179,258
  188,052
Total equity, $m
  32,899
  33,845
  34,928
  36,108
  37,387
  38,766
  40,246
  41,831
  43,522
  45,324
  47,239
  49,271
  51,426
  53,706
  56,119
  58,668
  61,360
  64,200
  67,196
  70,354
  73,682
  77,187
  80,877
  84,762
  88,850
  93,150
  97,674
  102,432
  107,434
  112,693
  118,222
Total liabilities and equity, $m
  88,851
  87,681
  90,487
  93,544
  96,858
  100,430
  104,265
  108,370
  112,752
  117,419
  122,380
  127,646
  133,227
  139,135
  145,386
  151,989
  158,963
  166,322
  174,083
  182,265
  190,886
  199,966
  209,526
  219,590
  230,181
  241,322
  253,042
  265,367
  278,327
  291,951
  306,274
Debt-to-equity ratio
  0.782
  0.700
  0.730
  0.750
  0.780
  0.810
  0.840
  0.870
  0.900
  0.920
  0.950
  0.980
  1.000
  1.030
  1.050
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.200
  1.220
  1.230
  1.250
  1.270
  1.280
  1.300
  1.310
  1.320
  1.340
Adjusted equity ratio
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386
  0.386

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  90
  1,585
  1,614
  1,646
  1,681
  1,717
  1,757
  1,798
  1,843
  1,890
  1,940
  2,022
  2,078
  2,138
  2,200
  2,266
  2,336
  2,409
  2,486
  2,568
  2,654
  2,744
  2,839
  2,939
  3,044
  3,155
  3,271
  3,393
  3,522
  3,657
  3,799
Depreciation, amort., depletion, $m
  11,112
  6,978
  7,200
  7,442
  7,704
  7,987
  8,290
  8,615
  8,962
  9,331
  9,724
  10,100
  10,542
  11,009
  11,504
  12,026
  12,578
  13,161
  13,775
  14,422
  15,104
  15,823
  16,579
  17,375
  18,213
  19,095
  20,022
  20,998
  22,023
  23,101
  24,235
Funds from operations, $m
  9,277
  8,563
  8,814
  9,088
  9,385
  9,704
  10,047
  10,414
  10,805
  11,221
  11,664
  12,123
  12,620
  13,147
  13,704
  14,292
  14,914
  15,570
  16,261
  16,990
  17,758
  18,566
  19,418
  20,314
  21,257
  22,250
  23,293
  24,391
  25,545
  26,758
  28,033
Change in working capital, $m
  -1,515
  -645
  -709
  -772
  -837
  -902
  -969
  -1,037
  -1,107
  -1,179
  -1,253
  -1,330
  -1,410
  -1,492
  -1,578
  -1,668
  -1,761
  -1,859
  -1,960
  -2,066
  -2,177
  -2,293
  -2,415
  -2,542
  -2,675
  -2,814
  -2,960
  -3,113
  -3,273
  -3,441
  -3,617
Cash from operations, $m
  10,792
  -24,453
  9,523
  9,861
  10,222
  10,606
  11,016
  11,450
  11,911
  12,400
  12,917
  13,452
  14,030
  14,639
  15,282
  15,960
  16,675
  17,428
  18,221
  19,056
  19,935
  20,860
  21,833
  22,856
  23,932
  25,064
  26,253
  27,504
  28,818
  30,199
  31,651
Maintenance CAPEX, $m
  0
  -6,732
  -6,938
  -7,160
  -7,402
  -7,664
  -7,947
  -8,250
  -8,575
  -8,922
  -9,291
  -9,684
  -10,100
  -10,542
  -11,009
  -11,504
  -12,026
  -12,578
  -13,161
  -13,775
  -14,422
  -15,104
  -15,823
  -16,579
  -17,375
  -18,213
  -19,095
  -20,022
  -20,998
  -22,023
  -23,101
New CAPEX, $m
  -14,812
  -1,028
  -1,110
  -1,210
  -1,311
  -1,413
  -1,517
  -1,624
  -1,734
  -1,846
  -1,963
  -2,083
  -2,208
  -2,338
  -2,472
  -2,613
  -2,759
  -2,911
  -3,071
  -3,237
  -3,411
  -3,592
  -3,783
  -3,982
  -4,190
  -4,408
  -4,637
  -4,876
  -5,127
  -5,391
  -5,666
Cash from investing activities, $m
  -13,852
  -7,760
  -8,048
  -8,370
  -8,713
  -9,077
  -9,464
  -9,874
  -10,309
  -10,768
  -11,254
  -11,767
  -12,308
  -12,880
  -13,481
  -14,117
  -14,785
  -15,489
  -16,232
  -17,012
  -17,833
  -18,696
  -19,606
  -20,561
  -21,565
  -22,621
  -23,732
  -24,898
  -26,125
  -27,414
  -28,767
Free cash flow, $m
  -3,060
  -32,214
  1,475
  1,491
  1,509
  1,529
  1,552
  1,576
  1,603
  1,632
  1,663
  1,686
  1,722
  1,760
  1,800
  1,844
  1,890
  1,939
  1,990
  2,045
  2,102
  2,163
  2,228
  2,295
  2,367
  2,442
  2,522
  2,605
  2,693
  2,786
  2,883
Issuance/(repayment) of debt, $m
  3,950
  1,575
  1,723
  1,878
  2,034
  2,193
  2,355
  2,521
  2,690
  2,865
  3,046
  3,233
  3,427
  3,628
  3,837
  4,055
  4,282
  4,518
  4,765
  5,023
  5,293
  5,575
  5,870
  6,179
  6,502
  6,841
  7,196
  7,568
  7,957
  8,366
  8,794
Issuance/(repurchase) of shares, $m
  0
  31,584
  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  
  3,899
  33,159
  1,723
  1,878
  2,034
  2,193
  2,355
  2,521
  2,690
  2,865
  3,046
  3,233
  3,427
  3,628
  3,837
  4,055
  4,282
  4,518
  4,765
  5,023
  5,293
  5,575
  5,870
  6,179
  6,502
  6,841
  7,196
  7,568
  7,957
  8,366
  8,794
Total cash flow (excl. dividends), $m
  861
  -30,639
  3,198
  3,369
  3,543
  3,722
  3,907
  4,097
  4,293
  4,497
  4,709
  4,919
  5,148
  5,388
  5,638
  5,899
  6,172
  6,457
  6,756
  7,068
  7,396
  7,738
  8,098
  8,474
  8,869
  9,283
  9,717
  10,173
  10,650
  11,151
  11,677
Retained Cash Flow (-), $m
  552
  -946
  -1,083
  -1,181
  -1,279
  -1,379
  -1,480
  -1,585
  -1,691
  -1,801
  -1,915
  -2,033
  -2,154
  -2,281
  -2,412
  -2,549
  -2,692
  -2,841
  -2,996
  -3,158
  -3,328
  -3,505
  -3,690
  -3,885
  -4,088
  -4,301
  -4,524
  -4,757
  -5,002
  -5,259
  -5,529
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
 
  0
  2,115
  2,188
  2,264
  2,344
  2,426
  2,512
  2,602
  2,696
  2,794
  2,886
  2,994
  3,107
  3,225
  3,350
  3,480
  3,616
  3,760
  3,910
  4,068
  4,234
  4,407
  4,590
  4,781
  4,983
  5,194
  5,415
  5,648
  5,892
  6,149
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  0
  1,909
  1,863
  1,808
  1,745
  1,674
  1,595
  1,510
  1,419
  1,324
  1,220
  1,118
  1,016
  914
  813
  715
  622
  533
  451
  377
  309
  250
  199
  155
  119
  89
  65
  47
  33
  22
Current shareholders' claim on cash, %
  100
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0
  51.0

China Unicom (Hong Kong) Limited, an investment holding company, provides telecommunications services in the People’s Republic of China. The company offers cellular and fixed-line voice and related value-added, broadband and other Internet-related, information communications technology, and business and data communications services. It also provides GSM cellular voice, WCDMA cellular voice, TD-LTE cellular voice, LTE FDD cellular voice, and related value-added services; Internet information services; communications technology training, development, and promotion services; and telecommunications network construction, planning, and technical consulting services. In addition, the company offers consultancy, survey, design, and contract services relating to information and construction projects in the telecommunications industry; technical support, manufacturing, research, and design services for SIM/USIM cards and other telecommunications cards; project consultation and management services; and property management services. Further, it provides e–payment; advertising design, production, agency, and publication; magazine publishing; telecommunications networks leasing; and technology development, transfer, and consulting services, as well as sells handsets and telecommunications equipment. Additionally, the company is involved in venture capital investment business. It has approximately 74 million fixed-line local access subscribers, approximately 72 million fixed-line broadband subscribers, and approximately 252 million mobile billing subscribers. The company was founded in 2000 and is based in Central, Hong Kong.

FINANCIAL RATIOS  of  China Unicom (Hong Kong) ADR (CHU)

Valuation Ratios
P/E Ratio 3679.9
Price to Sales 8.3
Price to Book 10.1
Price to Tangible Book
Price to Cash Flow 30.7
Price to Free Cash Flow -82.4
Growth Rates
Sales Growth Rate -1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 17.9%
Total Debt to Equity 78.2%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 0.3%
Return On Equity - 3 Yr. Avg. 3.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 63.4%
Gross Margin - 3 Yr. Avg. 64.6%
EBITDA Margin 30.1%
EBITDA Margin - 3 Yr. Avg. 32.6%
Operating Margin 1%
Oper. Margin - 3 Yr. Avg. 4.9%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. 3.6%
Net Profit Margin 0.2%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 19.5%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio 654.4%

CHU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHU stock intrinsic value calculation we used $39669 million for the last fiscal year's total revenue generated by China Unicom (Hong Kong) ADR. The default revenue input number comes from 2016 income statement of China Unicom (Hong Kong) 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 CHU stock valuation model: a) initial revenue growth rate of 3% 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 5%, whose default value for CHU is calculated based on our internal credit rating of China Unicom (Hong Kong) 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 Unicom (Hong Kong) 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 CHU stock the variable cost ratio is equal to 92.8%.

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 CHU 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 Unicom (Hong Kong) ADR.

Corporate tax rate of 27% is the nominal tax rate for China Unicom (Hong Kong) 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 CHU 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 CHU are equal to 84.9%.

Life of production assets of 3.1 years is the average useful life of capital assets used in China Unicom (Hong Kong) 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 CHU is equal to -54.2%. 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 - $32899 million for China Unicom (Hong Kong) 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 2377.13 million for China Unicom (Hong Kong) 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 Unicom (Hong Kong) ADR at the current share price and the inputted number of shares is $32.9 billion.


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COMPANY NEWS

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▶ 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]
▶ China Unicom Rising On Mixed-Ownership Reform Rumors, Again   [Mar-08-17 12:47AM  at Barrons.com]
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▶ China Unicom: All We Have Is Hope, Deutsche Downgrades   [Oct-24-16 10:37PM  at Barrons.com]
▶ Unicom Hopes on Hold   [Oct-20-16 06:24PM  at Bloomberg]
▶ China Unicom Profit Declines 81%   [10:01PM  at Bloomberg]
▶ China Telcos: Deutsche Sees 11% Drop In Q3 Net Profit   [Oct-17-16 10:42PM  at Barrons.com]
▶ [$$] Beijing seeks new ways to assert South China Sea authority   [Oct-12-16 07:41AM  at Financial Times]
▶ [$$] China Unicom: defying gravity   [Oct-11-16 05:36AM  at Financial Times]
▶ China Unicom Soars: What Does "Mixed Ownership Reform" Mean?   [Oct-10-16 10:49PM  at Barrons.com]
▶ Why Goldman Has Swapped China Mobile For China Unicom   [Sep-23-16 03:36AM  at Barrons.com]
▶ China Unicom Most Aggressive In Apple iPhone 7 Push   [Sep-18-16 11:14PM  at Barrons.com]
▶ A China-Style Apple Launch   [Sep-08-16 12:33AM  at The Wall Street Journal]
▶ Why We Are Bullish On China Mobile   [Sep-06-16 08:38AM  at Forbes]
▶ China Comservice Announces 2016 Interim Results   [Aug-25-16 06:54AM  ACN Newswire]
▶ China Unicom: Do We See First Signs Of Recovery?   [Aug-17-16 10:24PM  at Barrons.com]
▶ China Unicom Voted Asia's Most Honored Telecom Company   [Aug-07-16 11:38PM  PR Newswire]
Stock chart of CHU Financial statements of CHU Annual reports of CHU
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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