Intrinsic value of China TechFaith Wireless Communication T - CNTF

Previous Close

$2.40

  Intrinsic Value

$5.75

stock screener

  Rating & Target

str. buy

+140%

  Value-price divergence*

-36%

Previous close

$2.40

 
Intrinsic value

$5.75

 
Up/down potential

+140%

 
Rating

str. buy

 
Value-price divergence*

-36%

Our model is not good at valuating stocks of financial companies, such as CNTF.

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

We calculate the intrinsic value of CNTF 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 0.0

 

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, %
  -4.69
  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
  61
  62
  64
  65
  67
  69
  71
  74
  76
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  131
  138
  144
  151
  158
  166
  174
  182
  191
  200
Variable operating expenses, $m
 
  72
  74
  76
  78
  81
  83
  86
  89
  92
  96
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  222
  233
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
  49
  72
  74
  76
  78
  81
  83
  86
  89
  92
  96
  100
  104
  108
  113
  117
  123
  128
  134
  140
  146
  153
  160
  168
  176
  184
  193
  202
  212
  222
  233
Operating income, $m
  12
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
EBITDA, $m
  19
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Interest expense (income), $m
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  10
Earnings before tax, $m
  10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
Tax expense, $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
Net income, $m
  10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6
  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
  384
  386
  395
  406
  417
  430
  443
  459
  475
  492
  511
  532
  553
  576
  601
  626
  654
  683
  714
  746
  780
  817
  855
  895
  937
  982
  1,029
  1,078
  1,131
  1,185
  1,243
Adjusted assets (=assets-cash), $m
  378
  386
  395
  406
  417
  430
  443
  459
  475
  492
  511
  532
  553
  576
  601
  626
  654
  683
  714
  746
  780
  817
  855
  895
  937
  982
  1,029
  1,078
  1,131
  1,185
  1,243
Revenue / Adjusted assets
  0.161
  0.161
  0.162
  0.160
  0.161
  0.160
  0.160
  0.161
  0.160
  0.161
  0.160
  0.162
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.162
  0.160
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
Average production assets, $m
  61
  62
  64
  65
  67
  69
  71
  74
  76
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  131
  138
  144
  151
  158
  166
  174
  182
  191
  200
Working capital, $m
  -2
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Total debt, $m
  26
  23
  26
  29
  32
  36
  41
  45
  51
  56
  62
  68
  75
  82
  90
  98
  107
  116
  126
  136
  147
  158
  170
  183
  196
  210
  225
  241
  257
  274
  292
Total liabilities, $m
  124
  122
  125
  128
  131
  135
  140
  144
  150
  155
  161
  167
  174
  181
  189
  197
  206
  215
  225
  235
  246
  257
  269
  282
  295
  309
  324
  340
  356
  373
  391
Total equity, $m
  259
  265
  271
  278
  286
  294
  304
  314
  325
  337
  350
  364
  379
  395
  411
  429
  448
  468
  489
  511
  535
  559
  586
  613
  642
  673
  705
  739
  774
  812
  851
Total liabilities and equity, $m
  383
  387
  396
  406
  417
  429
  444
  458
  475
  492
  511
  531
  553
  576
  600
  626
  654
  683
  714
  746
  781
  816
  855
  895
  937
  982
  1,029
  1,079
  1,130
  1,185
  1,242
Debt-to-equity ratio
  0.100
  0.090
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.330
  0.340
  0.340
Adjusted equity ratio
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685
  0.685

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
Depreciation, amort., depletion, $m
  7
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Funds from operations, $m
  -20
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Change in working capital, $m
  -12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  -8
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
New CAPEX, $m
  -4
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  15
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -16
  -16
  -16
  -18
  -19
  -19
  -20
  -21
  -22
  -24
  -25
  -25
  -27
  -28
Free cash flow, $m
  7
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
Issuance/(repayment) of debt, $m
  -1
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
Issuance/(repurchase) of shares, $m
  0
  17
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  34
  35
  37
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
Cash from financing (excl. dividends), $m  
  -1
  20
  20
  22
  24
  25
  26
  29
  30
  33
  34
  36
  39
  41
  43
  45
  49
  51
  54
  56
  60
  62
  66
  70
  73
  77
  82
  86
  90
  95
  100
Total cash flow (excl. dividends), $m
  6
  7
  7
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  42
  44
  46
  48
Retained Cash Flow (-), $m
  9
  -17
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -35
  -37
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
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
 
  -9
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  -9
  -9
  -8
  -8
  -8
  -7
  -7
  -7
  -6
  -6
  -5
  -5
  -4
  -4
  -4
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  91.6
  83.8
  76.3
  69.2
  62.6
  56.5
  50.8
  45.5
  40.7
  36.3
  32.4
  28.8
  25.6
  22.6
  20.0
  17.7
  15.6
  13.8
  12.1
  10.7
  9.4
  8.2
  7.2
  6.3
  5.6
  4.9
  4.3
  3.7
  3.3
  2.9

China Techfaith Wireless Communication Technology Limited engages in the original design, development, and sale of mobile handsets in the People's Republic of China and internationally. It operates through Mobile Phone and Real Estate segments. The company offers mobile handset design services based on existing platforms, successor model design services, and mobile handset design services based on new platforms. Its services include industrial design, mechanical design, software design, hardware design, hardware components and software sourcing, testing, quality assurance, pilot production, and production support. The company’s products comprise feature phones; smart phones; wireless modules and data cards; and other components, such as printed circuit board assemblies, as well as wireless software and applications. China Techfaith Wireless Communication Technology Limited sells phones under QIGI brand name to Chinese mobile handset brand owners and international mobile handset brand owners. It also owns, develops, and operates commercial real estate properties. The company was founded in 2002 and is headquartered in Beijing, the People's Republic of China.

FINANCIAL RATIOS  of  China TechFaith Wireless Communication T (CNTF)

Valuation Ratios
P/E Ratio 190.6
Price to Sales 31.2
Price to Book 7.4
Price to Tangible Book
Price to Cash Flow -238.2
Price to Free Cash Flow -158.8
Growth Rates
Sales Growth Rate -4.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -93.7%
Cap. Spend. - 3 Yr. Gr. Rate -21%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 4.6%
Total Debt to Equity 10%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. -1.3%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. -1.6%
Return On Equity 3.8%
Return On Equity - 3 Yr. Avg. -1.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 19.7%
Gross Margin - 3 Yr. Avg. 12.7%
EBITDA Margin 27.9%
EBITDA Margin - 3 Yr. Avg. 3.6%
Operating Margin 19.7%
Oper. Margin - 3 Yr. Avg. -4.6%
Pre-Tax Margin 16.4%
Pre-Tax Margin - 3 Yr. Avg. -6.4%
Net Profit Margin 16.4%
Net Profit Margin - 3 Yr. Avg. -5.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. -4.8%
Payout Ratio 0%

CNTF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNTF stock intrinsic value calculation we used $61 million for the last fiscal year's total revenue generated by China TechFaith Wireless Communication T. The default revenue input number comes from 2016 income statement of China TechFaith Wireless Communication T. 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 CNTF 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 5.2%, whose default value for CNTF is calculated based on our internal credit rating of China TechFaith Wireless Communication T, 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 TechFaith Wireless Communication T.
    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 CNTF stock the variable cost ratio is equal to 116.4%.

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 CNTF 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 TechFaith Wireless Communication T.

Corporate tax rate of 27% is the nominal tax rate for China TechFaith Wireless Communication T. 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 CNTF 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 CNTF are equal to 100%.

Life of production assets of 10 years is the average useful life of capital assets used in China TechFaith Wireless Communication T 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 CNTF is equal to 9.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $259 million for China TechFaith Wireless Communication T - 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 11.255 million for China TechFaith Wireless Communication T 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 TechFaith Wireless Communication T at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ TechFaith Wins Enterprise Device Order for Latin America   [Dec-07-16 07:00AM  PR Newswire]
▶ TechFaith Announces Board of Directors Changes   [Nov-23-16 05:30AM  PR Newswire]
▶ TechFaith to Launch 4G Intrinsically Safe Smartphone   [May-31-16 06:00AM  PR Newswire]
▶ TechFaith Announces ADS Ratio Change   [Feb-12-16 06:00AM  PR Newswire]
▶ TechFaith to Launch Sleek, 4G Smartphone for Mass Market   [Jan-19-16 06:30AM  PR Newswire]
▶ Do Hedge Funds Love Resolute Energy Corp (REN)?   [Nov-30  10:00AM  at Insider Monkey]
▶ Should You Go Long RMG Networks Holding Corporation (RMGN)?   [Nov-23  09:51AM  at Insider Monkey]
▶ TechFaith to Launch Ruggedized 4G Android Smartphone   [Feb-03  05:30AM  PR Newswire]
▶ 4 Stocks Under $10 Making Big Moves   [Apr-25  07:35AM  at TheStreet]
▶ 5 Stocks Poised for Breakouts   [Apr-04  03:07PM  at TheStreet]
Stock chart of CNTF Financial statements of CNTF
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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