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

Previous Close

$15.19

  Intrinsic Value

$3.40

stock screener

  Rating & Target

str. sell

-78%

  Value-price divergence*

+1074%

Previous close

$15.19

 
Intrinsic value

$3.40

 
Up/down potential

-78%

 
Rating

str. sell

 
Value-price divergence*

+1074%

*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 36.3

 

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
  40,462
  41,393
  42,457
  43,651
  44,974
  46,427
  48,008
  49,719
  51,563
  53,542
  55,659
  57,918
  60,323
  62,879
  65,592
  68,466
  71,509
  74,726
  78,126
  81,716
  85,504
  89,498
  93,709
  98,145
  102,817
  107,737
  112,915
  118,364
  124,096
  130,125
Variable operating expenses, $m
 
  37,548
  38,411
  39,397
  40,504
  41,731
  43,077
  44,543
  46,129
  47,838
  49,673
  51,595
  53,689
  55,919
  58,288
  60,803
  63,467
  66,288
  69,271
  72,422
  75,750
  79,261
  82,964
  86,867
  90,979
  95,311
  99,871
  104,671
  109,722
  115,036
  120,625
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
  37,548
  38,411
  39,397
  40,504
  41,731
  43,077
  44,543
  46,129
  47,838
  49,673
  51,595
  53,689
  55,919
  58,288
  60,803
  63,467
  66,288
  69,271
  72,422
  75,750
  79,261
  82,964
  86,867
  90,979
  95,311
  99,871
  104,671
  109,722
  115,036
  120,625
Operating income, $m
  390
  2,914
  2,982
  3,060
  3,147
  3,244
  3,350
  3,465
  3,590
  3,725
  3,869
  4,064
  4,229
  4,404
  4,591
  4,789
  4,999
  5,221
  5,456
  5,704
  5,966
  6,243
  6,534
  6,842
  7,166
  7,507
  7,866
  8,244
  8,642
  9,060
  9,501
EBITDA, $m
  11,502
  9,796
  10,022
  10,279
  10,568
  10,889
  11,240
  11,623
  12,038
  12,484
  12,963
  13,476
  14,023
  14,605
  15,224
  15,880
  16,576
  17,313
  18,092
  18,915
  19,784
  20,701
  21,668
  22,688
  23,762
  24,893
  26,084
  27,338
  28,657
  30,045
  31,505
Interest expense (income), $m
  714
  772
  809
  852
  901
  956
  1,017
  1,084
  1,157
  1,235
  1,321
  1,412
  1,509
  1,614
  1,725
  1,842
  1,967
  2,100
  2,240
  2,389
  2,546
  2,711
  2,886
  3,070
  3,264
  3,469
  3,684
  3,911
  4,150
  4,401
  4,665
Earnings before tax, $m
  113
  2,142
  2,173
  2,208
  2,246
  2,288
  2,333
  2,381
  2,433
  2,489
  2,549
  2,652
  2,719
  2,791
  2,866
  2,947
  3,031
  3,121
  3,216
  3,315
  3,421
  3,532
  3,649
  3,772
  3,902
  4,038
  4,182
  4,333
  4,492
  4,659
  4,835
Tax expense, $m
  22
  578
  587
  596
  607
  618
  630
  643
  657
  672
  688
  716
  734
  753
  774
  796
  818
  843
  868
  895
  924
  954
  985
  1,018
  1,053
  1,090
  1,129
  1,170
  1,213
  1,258
  1,305
Net income, $m
  90
  1,564
  1,587
  1,612
  1,640
  1,670
  1,703
  1,738
  1,776
  1,817
  1,860
  1,936
  1,985
  2,037
  2,092
  2,151
  2,213
  2,278
  2,347
  2,420
  2,497
  2,578
  2,663
  2,753
  2,848
  2,948
  3,053
  3,163
  3,279
  3,401
  3,530

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
  86,829
  88,826
  91,109
  93,672
  96,512
  99,628
  103,021
  106,694
  110,650
  114,897
  119,440
  124,287
  129,449
  134,934
  140,755
  146,923
  153,452
  160,357
  167,653
  175,356
  183,484
  192,056
  201,092
  210,612
  220,638
  231,195
  242,307
  253,999
  266,300
  279,239
Adjusted assets (=assets-cash), $m
  85,160
  86,829
  88,826
  91,109
  93,672
  96,512
  99,628
  103,021
  106,694
  110,650
  114,897
  119,440
  124,287
  129,449
  134,934
  140,755
  146,923
  153,452
  160,357
  167,653
  175,356
  183,484
  192,056
  201,092
  210,612
  220,638
  231,195
  242,307
  253,999
  266,300
  279,239
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
  67,098
  68,422
  69,996
  71,794
  73,814
  76,052
  78,507
  81,181
  84,075
  87,193
  90,539
  94,119
  97,939
  102,006
  106,329
  110,915
  115,776
  120,921
  126,362
  132,112
  138,182
  144,587
  151,342
  158,462
  165,963
  173,864
  182,183
  190,939
  200,153
  209,846
  220,042
Working capital, $m
  -37,678
  -4,046
  -4,139
  -4,246
  -4,365
  -4,497
  -4,643
  -4,801
  -4,972
  -5,156
  -5,354
  -5,566
  -5,792
  -6,032
  -6,288
  -6,559
  -6,847
  -7,151
  -7,473
  -7,813
  -8,172
  -8,550
  -8,950
  -9,371
  -9,815
  -10,282
  -10,774
  -11,291
  -11,836
  -12,410
  -13,013
Total debt, $m
  25,742
  23,103
  24,329
  25,731
  27,305
  29,048
  30,961
  33,045
  35,300
  37,729
  40,337
  43,126
  46,102
  49,271
  52,639
  56,213
  60,001
  64,010
  68,249
  72,729
  77,459
  82,449
  87,713
  93,260
  99,106
  105,262
  111,744
  118,566
  125,746
  133,298
  141,243
Total liabilities, $m
  55,952
  53,313
  54,539
  55,941
  57,515
  59,258
  61,171
  63,255
  65,510
  67,939
  70,547
  73,336
  76,312
  79,481
  82,849
  86,423
  90,211
  94,220
  98,459
  102,939
  107,669
  112,659
  117,923
  123,470
  129,316
  135,472
  141,954
  148,776
  155,956
  163,508
  171,453
Total equity, $m
  32,899
  33,516
  34,287
  35,168
  36,157
  37,254
  38,456
  39,766
  41,184
  42,711
  44,350
  46,104
  47,975
  49,967
  52,085
  54,331
  56,712
  59,233
  61,898
  64,714
  67,687
  70,825
  74,134
  77,621
  81,296
  85,166
  89,241
  93,530
  98,044
  102,792
  107,786
Total liabilities and equity, $m
  88,851
  86,829
  88,826
  91,109
  93,672
  96,512
  99,627
  103,021
  106,694
  110,650
  114,897
  119,440
  124,287
  129,448
  134,934
  140,754
  146,923
  153,453
  160,357
  167,653
  175,356
  183,484
  192,057
  201,091
  210,612
  220,638
  231,195
  242,306
  254,000
  266,300
  279,239
Debt-to-equity ratio
  0.782
  0.690
  0.710
  0.730
  0.760
  0.780
  0.810
  0.830
  0.860
  0.880
  0.910
  0.940
  0.960
  0.990
  1.010
  1.030
  1.060
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.200
  1.220
  1.240
  1.250
  1.270
  1.280
  1.300
  1.310
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
  1,564
  1,587
  1,612
  1,640
  1,670
  1,703
  1,738
  1,776
  1,817
  1,860
  1,936
  1,985
  2,037
  2,092
  2,151
  2,213
  2,278
  2,347
  2,420
  2,497
  2,578
  2,663
  2,753
  2,848
  2,948
  3,053
  3,163
  3,279
  3,401
  3,530
Depreciation, amort., depletion, $m
  11,112
  6,882
  7,040
  7,220
  7,422
  7,645
  7,891
  8,158
  8,448
  8,759
  9,094
  9,412
  9,794
  10,201
  10,633
  11,092
  11,578
  12,092
  12,636
  13,211
  13,818
  14,459
  15,134
  15,846
  16,596
  17,386
  18,218
  19,094
  20,015
  20,985
  22,004
Funds from operations, $m
  9,277
  8,446
  8,626
  8,832
  9,061
  9,315
  9,594
  9,897
  10,224
  10,576
  10,954
  11,348
  11,779
  12,238
  12,725
  13,243
  13,790
  14,370
  14,984
  15,631
  16,315
  17,037
  17,798
  18,600
  19,444
  20,334
  21,271
  22,257
  23,294
  24,386
  25,534
Change in working capital, $m
  -1,515
  -79
  -93
  -106
  -119
  -132
  -145
  -158
  -171
  -184
  -198
  -212
  -226
  -241
  -256
  -271
  -287
  -304
  -322
  -340
  -359
  -379
  -399
  -421
  -444
  -467
  -492
  -518
  -545
  -573
  -603
Cash from operations, $m
  10,792
  8,526
  8,719
  8,938
  9,181
  9,448
  9,739
  10,055
  10,395
  10,761
  11,152
  11,560
  12,005
  12,478
  12,981
  13,514
  14,078
  14,675
  15,305
  15,971
  16,674
  17,416
  18,197
  19,021
  19,888
  20,801
  21,763
  22,775
  23,839
  24,959
  26,137
Maintenance CAPEX, $m
  0
  -6,710
  -6,842
  -7,000
  -7,179
  -7,381
  -7,605
  -7,851
  -8,118
  -8,408
  -8,719
  -9,054
  -9,412
  -9,794
  -10,201
  -10,633
  -11,092
  -11,578
  -12,092
  -12,636
  -13,211
  -13,818
  -14,459
  -15,134
  -15,846
  -16,596
  -17,386
  -18,218
  -19,094
  -20,015
  -20,985
New CAPEX, $m
  -14,812
  -1,324
  -1,574
  -1,799
  -2,020
  -2,238
  -2,455
  -2,674
  -2,894
  -3,118
  -3,346
  -3,580
  -3,820
  -4,067
  -4,322
  -4,587
  -4,861
  -5,145
  -5,441
  -5,749
  -6,070
  -6,405
  -6,755
  -7,120
  -7,502
  -7,901
  -8,319
  -8,756
  -9,214
  -9,693
  -10,196
Cash from investing activities, $m
  -13,852
  -8,034
  -8,416
  -8,799
  -9,199
  -9,619
  -10,060
  -10,525
  -11,012
  -11,526
  -12,065
  -12,634
  -13,232
  -13,861
  -14,523
  -15,220
  -15,953
  -16,723
  -17,533
  -18,385
  -19,281
  -20,223
  -21,214
  -22,254
  -23,348
  -24,497
  -25,705
  -26,974
  -28,308
  -29,708
  -31,181
Free cash flow, $m
  -3,060
  491
  303
  139
  -18
  -171
  -322
  -470
  -617
  -765
  -913
  -1,074
  -1,227
  -1,383
  -1,542
  -1,706
  -1,874
  -2,048
  -2,228
  -2,414
  -2,607
  -2,808
  -3,016
  -3,233
  -3,460
  -3,696
  -3,942
  -4,200
  -4,468
  -4,750
  -5,044
Issuance/(repayment) of debt, $m
  3,950
  1,052
  1,226
  1,402
  1,574
  1,744
  1,913
  2,083
  2,255
  2,429
  2,607
  2,789
  2,976
  3,169
  3,368
  3,574
  3,787
  4,009
  4,240
  4,480
  4,730
  4,991
  5,263
  5,548
  5,845
  6,156
  6,482
  6,823
  7,179
  7,553
  7,944
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  25
  96
  168
  242
  318
  396
  476
  559
  645
  734
  827
  922
  1,022
  1,126
  1,234
  1,347
  1,465
Cash from financing (excl. dividends), $m  
  3,899
  1,052
  1,226
  1,402
  1,574
  1,744
  1,913
  2,083
  2,255
  2,429
  2,607
  2,789
  2,976
  3,169
  3,393
  3,670
  3,955
  4,251
  4,558
  4,876
  5,206
  5,550
  5,908
  6,282
  6,672
  7,078
  7,504
  7,949
  8,413
  8,900
  9,409
Total cash flow (excl. dividends), $m
  861
  1,543
  1,530
  1,541
  1,555
  1,572
  1,592
  1,614
  1,638
  1,665
  1,694
  1,715
  1,749
  1,786
  1,851
  1,964
  2,081
  2,203
  2,330
  2,462
  2,599
  2,742
  2,892
  3,049
  3,212
  3,383
  3,562
  3,749
  3,945
  4,150
  4,365
Retained Cash Flow (-), $m
  552
  -617
  -771
  -881
  -989
  -1,096
  -1,203
  -1,310
  -1,418
  -1,527
  -1,639
  -1,754
  -1,871
  -1,992
  -2,117
  -2,247
  -2,381
  -2,520
  -2,665
  -2,816
  -2,973
  -3,137
  -3,309
  -3,488
  -3,675
  -3,870
  -4,075
  -4,289
  -4,513
  -4,748
  -4,994
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
 
  926
  759
  660
  566
  476
  389
  304
  220
  137
  55
  -38
  -122
  -206
  -267
  -283
  -300
  -317
  -336
  -355
  -374
  -395
  -417
  -439
  -463
  -487
  -513
  -540
  -568
  -598
  -629
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
 
  882
  685
  562
  452
  354
  268
  193
  128
  72
  26
  -16
  -45
  -67
  -76
  -69
  -62
  -55
  -48
  -41
  -35
  -29
  -24
  -19
  -15
  -12
  -9
  -7
  -5
  -3
  -2
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
  99.8
  99.5
  99.1
  98.6
  98.1
  97.4
  96.7
  95.9
  95.1
  94.1
  93.2
  92.2
  91.1
  90.1
  89.0
  87.8

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 4041.7
Price to Sales 9.2
Price to Book 11.1
Price to Tangible Book
Price to Cash Flow 33.7
Price to Free Cash Flow -90.5
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 $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 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 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 169.1%.

Life of production assets of 10 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 -10%. 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 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 $36.3 billion.

RELATED COMPANIES Price Int.Val. Rating
CHL China Mobile A 55.36 66.35  buy
CHA China Telecom 47.30 34.70  sell
TEF Telefonica ADR 10.76 10.03  hold

COMPANY NEWS

▶ Uber Gets a China Ride It Can't Cancel   [02:44AM  Bloomberg]
▶ Unicom Isn't Cheap at Twice the Price   [02:20AM  Bloomberg]
▶ Mixed ownership reform at China Unicom   [12:46AM  CNBC Videos]
▶ China Begins Privatization Push   [12:04AM  Bloomberg Video]
▶ China Shows How Not to Sell $11.7 Billion in Shares   [Aug-16-17 11:17PM  Bloomberg]
▶ China's Internet Giants Heed Unicom Call   [Jul-24-17 09:32PM  Bloomberg]
▶ Where to Find Value in Chinese Stocks   [Jul-20-17 09:23PM  Barrons.com]
▶ China Unicom's Ivory Tower   [Jul-06-17 12:37AM  Bloomberg]
▶ [$$] Chinese telecoms: G forces   [Jun-27-17 10:31AM  Financial Times]
▶ Why We Remain Bullish On China Telecom   [Jun-01-17 01:48PM  Forbes]
▶ Matthews China Fund Seeks Gains in Tech Sector   [May-18-17 03:49PM  GuruFocus.com]
▶ China Unicom Voted "Asia's Best Management Team"   [May-10-17 06:08AM  PR Newswire]
▶ China's Stock Market Shocks the World by Going Nowhere Fast   [Apr-20-17 10:00AM  TheStreet.com]
▶ Inside China Unicom's Mixed-Ownership Plan   [Apr-05-17 11:24PM  Bloomberg]
▶ Telecom: Firms Strive to Be More Than 'Dumb Pipes'   [Mar-31-17 07:00AM  Morningstar]
▶ 10 Reasons to Buy China Mobile Ltd. and Never Sell   [Mar-19-17 12:35PM  Motley Fool]
▶ China Unicom Soars After Slashing Capex: Dividends?   [Mar-15-17 10:00PM  at Barrons.com]
▶ China Unicom Rising On Mixed-Ownership Reform Rumors, Again   [Mar-08-17 12:47AM  at Barrons.com]
▶ 4 Reasons I'm Buying China Mobile Ltd. (ADR) Stock   [Jan-26-17 07:52PM  at Motley Fool]
▶ Hang Seng Gains As China Pushes For Mixed Ownership Reform   [Dec-20-16 10:44PM  at Barrons.com]
▶ [$$] Investors Can Put China Unicom on Hold   [Dec-03-16 12:01AM  at Barrons.com]
▶ Is Spectra Energy Corp. (SE) A Good Stock To Buy?   [Dec-01-16 01:35PM  at Insider Monkey]
▶ Hedge Funds Are Crazy About Southwest Airlines Co. (LUV)   [Nov-24-16 01:22PM  at Insider Monkey]
Stock chart of CHU Financial statements 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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