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

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$15.04

  Intrinsic Value

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  Value-price divergence*

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$15.04

 
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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 35.9

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  39,669
  282,590
  289,090
  296,519
  304,860
  314,103
  324,244
  335,286
  347,240
  360,117
  373,938
  388,723
  404,500
  421,297
  439,150
  458,093
  478,168
  499,419
  521,891
  545,635
  570,706
  597,160
  625,057
  654,464
  685,447
  718,079
  752,436
  788,600
  826,654
  866,689
  908,798
Variable operating expenses, $m
 
  263,933
  269,998
  276,929
  284,712
  293,335
  302,796
  313,099
  324,252
  336,266
  349,161
  362,679
  377,398
  393,070
  409,726
  427,401
  446,131
  465,957
  486,924
  509,078
  532,468
  557,150
  583,178
  610,614
  639,522
  669,967
  702,023
  735,763
  771,268
  808,620
  847,909
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
  263,933
  269,998
  276,929
  284,712
  293,335
  302,796
  313,099
  324,252
  336,266
  349,161
  362,679
  377,398
  393,070
  409,726
  427,401
  446,131
  465,957
  486,924
  509,078
  532,468
  557,150
  583,178
  610,614
  639,522
  669,967
  702,023
  735,763
  771,268
  808,620
  847,909
Operating income, $m
  390
  18,656
  19,092
  19,590
  20,149
  20,768
  21,447
  22,187
  22,988
  23,851
  24,777
  26,045
  27,102
  28,227
  29,423
  30,692
  32,037
  33,461
  34,967
  36,558
  38,237
  40,010
  41,879
  43,849
  45,925
  48,111
  50,413
  52,836
  55,386
  58,068
  60,890
EBITDA, $m
  11,502
  96,505
  98,724
  101,261
  104,110
  107,266
  110,729
  114,500
  118,582
  122,980
  127,700
  132,749
  138,137
  143,873
  149,970
  156,439
  163,295
  170,552
  178,226
  186,335
  194,896
  203,930
  213,457
  223,499
  234,080
  245,224
  256,957
  269,307
  282,302
  295,974
  310,355
Interest expense (income), $m
  714
  4,485
  4,734
  5,028
  5,363
  5,739
  6,156
  6,613
  7,111
  7,650
  8,231
  8,855
  9,522
  10,233
  10,991
  11,796
  12,651
  13,556
  14,515
  15,528
  16,599
  17,730
  18,923
  20,182
  21,508
  22,906
  24,378
  25,927
  27,558
  29,275
  31,081
Earnings before tax, $m
  113
  14,171
  14,358
  14,562
  14,786
  15,029
  15,292
  15,574
  15,877
  16,200
  16,545
  17,190
  17,580
  17,994
  18,432
  18,896
  19,387
  19,905
  20,452
  21,029
  21,638
  22,280
  22,956
  23,667
  24,417
  25,206
  26,036
  26,909
  27,827
  28,793
  29,809
Tax expense, $m
  22
  3,826
  3,877
  3,932
  3,992
  4,058
  4,129
  4,205
  4,287
  4,374
  4,467
  4,641
  4,747
  4,858
  4,977
  5,102
  5,234
  5,374
  5,522
  5,678
  5,842
  6,016
  6,198
  6,390
  6,593
  6,806
  7,030
  7,265
  7,513
  7,774
  8,048
Net income, $m
  90
  10,345
  10,481
  10,630
  10,794
  10,971
  11,163
  11,369
  11,590
  11,826
  12,078
  12,549
  12,833
  13,135
  13,456
  13,794
  14,152
  14,531
  14,930
  15,351
  15,796
  16,264
  16,758
  17,277
  17,824
  18,400
  19,006
  19,644
  20,314
  21,019
  21,760

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
  599,979
  613,778
  629,552
  647,262
  666,885
  688,415
  711,860
  737,239
  764,580
  793,923
  825,314
  858,810
  894,474
  932,377
  972,597
  1,015,219
  1,060,337
  1,108,048
  1,158,461
  1,211,690
  1,267,855
  1,327,086
  1,389,519
  1,455,301
  1,524,583
  1,597,529
  1,674,309
  1,755,104
  1,840,103
  1,929,508
Adjusted assets (=assets-cash), $m
  85,160
  599,979
  613,778
  629,552
  647,262
  666,885
  688,415
  711,860
  737,239
  764,580
  793,923
  825,314
  858,810
  894,474
  932,377
  972,597
  1,015,219
  1,060,337
  1,108,048
  1,158,461
  1,211,690
  1,267,855
  1,327,086
  1,389,519
  1,455,301
  1,524,583
  1,597,529
  1,674,309
  1,755,104
  1,840,103
  1,929,508
Revenue / Adjusted assets
  0.466
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
Average production assets, $m
  67,098
  465,426
  476,130
  488,367
  502,105
  517,327
  534,029
  552,216
  571,904
  593,113
  615,875
  640,227
  666,211
  693,877
  723,279
  754,479
  787,543
  822,542
  859,554
  898,661
  939,953
  983,522
  1,029,470
  1,077,902
  1,128,931
  1,182,676
  1,239,262
  1,298,823
  1,361,499
  1,427,436
  1,496,791
Working capital, $m
  -37,678
  -196,117
  -200,628
  -205,784
  -211,573
  -217,987
  -225,025
  -232,689
  -240,984
  -249,921
  -259,513
  -269,774
  -280,723
  -292,380
  -304,770
  -317,917
  -331,849
  -346,596
  -362,192
  -378,671
  -396,070
  -414,429
  -433,790
  -454,198
  -475,700
  -498,347
  -522,191
  -547,288
  -573,698
  -601,482
  -630,706
Total debt, $m
  25,742
  135,267
  143,643
  153,218
  163,968
  175,879
  188,948
  203,179
  218,584
  235,180
  252,991
  272,046
  292,378
  314,026
  337,033
  361,446
  387,318
  414,704
  443,665
  474,266
  506,576
  540,668
  576,621
  614,518
  654,448
  696,502
  740,780
  787,386
  836,428
  888,023
  942,291
Total liabilities, $m
  55,952
  364,187
  372,563
  382,138
  392,888
  404,799
  417,868
  432,099
  447,504
  464,100
  481,911
  500,966
  521,298
  542,946
  565,953
  590,366
  616,238
  643,624
  672,585
  703,186
  735,496
  769,588
  805,541
  843,438
  883,368
  925,422
  969,700
  1,016,306
  1,065,348
  1,116,943
  1,171,211
Total equity, $m
  32,899
  235,792
  241,215
  247,414
  254,374
  262,086
  270,547
  279,761
  289,735
  300,480
  312,012
  324,349
  337,512
  351,528
  366,424
  382,231
  398,981
  416,712
  435,463
  455,275
  476,194
  498,267
  521,545
  546,081
  571,933
  599,161
  627,829
  658,003
  689,756
  723,161
  758,297
Total liabilities and equity, $m
  88,851
  599,979
  613,778
  629,552
  647,262
  666,885
  688,415
  711,860
  737,239
  764,580
  793,923
  825,315
  858,810
  894,474
  932,377
  972,597
  1,015,219
  1,060,336
  1,108,048
  1,158,461
  1,211,690
  1,267,855
  1,327,086
  1,389,519
  1,455,301
  1,524,583
  1,597,529
  1,674,309
  1,755,104
  1,840,104
  1,929,508
Debt-to-equity ratio
  0.782
  0.570
  0.600
  0.620
  0.640
  0.670
  0.700
  0.730
  0.750
  0.780
  0.810
  0.840
  0.870
  0.890
  0.920
  0.950
  0.970
  1.000
  1.020
  1.040
  1.060
  1.090
  1.110
  1.130
  1.140
  1.160
  1.180
  1.200
  1.210
  1.230
  1.240
Adjusted equity ratio
  0.386
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  90
  10,345
  10,481
  10,630
  10,794
  10,971
  11,163
  11,369
  11,590
  11,826
  12,078
  12,549
  12,833
  13,135
  13,456
  13,794
  14,152
  14,531
  14,930
  15,351
  15,796
  16,264
  16,758
  17,277
  17,824
  18,400
  19,006
  19,644
  20,314
  21,019
  21,760
Depreciation, amort., depletion, $m
  11,112
  77,848
  79,632
  81,672
  83,961
  86,498
  89,282
  92,313
  95,594
  99,129
  102,923
  106,704
  111,035
  115,646
  120,547
  125,747
  131,257
  137,090
  143,259
  149,777
  156,659
  163,920
  171,578
  179,650
  188,155
  197,113
  206,544
  216,471
  226,916
  237,906
  249,465
Funds from operations, $m
  9,277
  88,193
  90,113
  92,302
  94,755
  97,469
  100,445
  103,682
  107,184
  110,956
  115,001
  119,253
  123,869
  128,782
  134,002
  139,541
  145,410
  151,621
  158,189
  165,128
  172,455
  180,184
  188,336
  196,928
  205,979
  215,513
  225,550
  236,114
  247,231
  258,925
  271,226
Change in working capital, $m
  -1,515
  -3,845
  -4,511
  -5,156
  -5,789
  -6,414
  -7,038
  -7,664
  -8,296
  -8,937
  -9,591
  -10,261
  -10,949
  -11,658
  -12,389
  -13,147
  -13,932
  -14,748
  -15,596
  -16,479
  -17,399
  -18,359
  -19,361
  -20,408
  -21,502
  -22,647
  -23,844
  -25,097
  -26,410
  -27,784
  -29,224
Cash from operations, $m
  10,792
  101,001
  94,624
  97,458
  100,544
  103,884
  107,483
  111,346
  115,480
  119,893
  124,593
  129,514
  134,817
  140,439
  146,391
  152,688
  159,342
  166,369
  173,785
  181,607
  189,854
  198,543
  207,697
  217,335
  227,482
  238,159
  249,394
  261,212
  273,640
  286,709
  300,450
Maintenance CAPEX, $m
  0
  -76,064
  -77,571
  -79,355
  -81,395
  -83,684
  -86,221
  -89,005
  -92,036
  -95,317
  -98,852
  -102,646
  -106,704
  -111,035
  -115,646
  -120,547
  -125,747
  -131,257
  -137,090
  -143,259
  -149,777
  -156,659
  -163,920
  -171,578
  -179,650
  -188,155
  -197,113
  -206,544
  -216,471
  -226,916
  -237,906
New CAPEX, $m
  -14,812
  -9,043
  -10,705
  -12,237
  -13,738
  -15,222
  -16,702
  -18,187
  -19,687
  -21,210
  -22,762
  -24,351
  -25,984
  -27,666
  -29,403
  -31,200
  -33,064
  -34,999
  -37,012
  -39,107
  -41,291
  -43,569
  -45,948
  -48,432
  -51,029
  -53,745
  -56,587
  -59,561
  -62,675
  -65,937
  -69,355
Cash from investing activities, $m
  -13,852
  -85,107
  -88,276
  -91,592
  -95,133
  -98,906
  -102,923
  -107,192
  -111,723
  -116,527
  -121,614
  -126,997
  -132,688
  -138,701
  -145,049
  -151,747
  -158,811
  -166,256
  -174,102
  -182,366
  -191,068
  -200,228
  -209,868
  -220,010
  -230,679
  -241,900
  -253,700
  -266,105
  -279,146
  -292,853
  -307,261
Free cash flow, $m
  -3,060
  15,894
  6,348
  5,867
  5,411
  4,977
  4,559
  4,154
  3,757
  3,366
  2,978
  2,517
  2,129
  1,738
  1,343
  941
  531
  112
  -317
  -759
  -1,215
  -1,685
  -2,171
  -2,675
  -3,198
  -3,741
  -4,305
  -4,893
  -5,506
  -6,144
  -6,811
Issuance/(repayment) of debt, $m
  3,950
  7,120
  8,376
  9,575
  10,750
  11,911
  13,069
  14,231
  15,405
  16,596
  17,811
  19,055
  20,332
  21,648
  23,007
  24,413
  25,872
  27,386
  28,961
  30,601
  32,310
  34,092
  35,953
  37,897
  39,929
  42,054
  44,278
  46,605
  49,042
  51,595
  54,269
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  
  3,899
  7,120
  8,376
  9,575
  10,750
  11,911
  13,069
  14,231
  15,405
  16,596
  17,811
  19,055
  20,332
  21,648
  23,007
  24,413
  25,872
  27,386
  28,961
  30,601
  32,310
  34,092
  35,953
  37,897
  39,929
  42,054
  44,278
  46,605
  49,042
  51,595
  54,269
Total cash flow (excl. dividends), $m
  861
  23,014
  14,724
  15,441
  16,161
  16,888
  17,628
  18,385
  19,162
  19,962
  20,789
  21,571
  22,461
  23,386
  24,350
  25,354
  26,403
  27,499
  28,644
  29,841
  31,095
  32,407
  33,782
  35,222
  36,732
  38,314
  39,973
  41,712
  43,537
  45,450
  47,458
Retained Cash Flow (-), $m
  552
  -4,576
  -5,423
  -6,199
  -6,960
  -7,712
  -8,462
  -9,214
  -9,974
  -10,745
  -11,532
  -12,337
  -13,164
  -14,016
  -14,896
  -15,806
  -16,751
  -17,731
  -18,751
  -19,812
  -20,919
  -22,073
  -23,278
  -24,536
  -25,852
  -27,228
  -28,668
  -30,175
  -31,752
  -33,405
  -35,136
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
 
  18,438
  9,301
  9,242
  9,201
  9,177
  9,167
  9,171
  9,188
  9,217
  9,258
  9,234
  9,297
  9,370
  9,454
  9,548
  9,653
  9,767
  9,893
  10,029
  10,176
  10,335
  10,504
  10,686
  10,880
  11,086
  11,305
  11,538
  11,784
  12,045
  12,322
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
 
  17,678
  8,515
  8,043
  7,576
  7,113
  6,653
  6,196
  5,743
  5,295
  4,853
  4,385
  3,967
  3,563
  3,174
  2,803
  2,453
  2,125
  1,822
  1,544
  1,293
  1,069
  872
  700
  554
  431
  330
  248
  182
  131
  93
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 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 4001.8
Price to Sales 9.1
Price to Book 10.9
Price to Tangible Book
Price to Cash Flow 33.4
Price to Free Cash Flow -89.6
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 52%
Gross Margin - 3 Yr. Avg. 57.4%
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 $277049 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 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 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 93.4%.

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 164.7%.

Life of production assets of 6 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 -69.4%. 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 - $231216 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 2387.94 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 $35.9 billion.


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COMPANY NEWS

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▶ China's Stock Market Shocks the World by Going Nowhere Fast   [Apr-20-17 10:00AM  TheStreet.com]
▶ Inside China Unicom's Mixed-Ownership Plan   [Apr-05-17 11:24PM  Bloomberg]
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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]
▶ 4 Reasons I'm Buying China Mobile Ltd. (ADR) Stock   [Jan-26-17 07:52PM  at Motley Fool]
▶ Hang Seng Gains As China Pushes For Mixed Ownership Reform   [Dec-20-16 10:44PM  at Barrons.com]
▶ [$$] Investors Can Put China Unicom on Hold   [Dec-03-16 12:01AM  at Barrons.com]
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▶ China Unicom: All We Have Is Hope, Deutsche Downgrades   [Oct-24-16 10:37PM  at Barrons.com]
▶ Unicom Hopes on Hold   [Oct-20-16 06:24PM  at Bloomberg]
▶ China Unicom Profit Declines 81%   [10:01PM  at Bloomberg]
▶ China Telcos: Deutsche Sees 11% Drop In Q3 Net Profit   [Oct-17-16 10:42PM  at Barrons.com]
▶ [$$] 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]
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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