Intrinsic value of China Cord Blood - CO

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$7.76

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$7.76

 
Intrinsic value

$13.95

 
Up/down potential

+80%

 
Rating

str. buy

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

We calculate the intrinsic value of CO 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 0.6

 

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, %
  4.35
  16.00
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
Revenue, $m
  96
  111
  128
  146
  165
  185
  206
  228
  252
  276
  302
  329
  356
  385
  415
  447
  479
  513
  548
  584
  622
  662
  703
  745
  790
  836
  885
  935
  988
  1,043
  1,101
Variable operating expenses, $m
 
  71
  81
  93
  105
  117
  131
  145
  160
  176
  192
  209
  226
  245
  264
  284
  304
  326
  348
  371
  395
  420
  446
  473
  502
  531
  562
  594
  627
  662
  699
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
  69
  71
  81
  93
  105
  117
  131
  145
  160
  176
  192
  209
  226
  245
  264
  284
  304
  326
  348
  371
  395
  420
  446
  473
  502
  531
  562
  594
  627
  662
  699
Operating income, $m
  26
  41
  47
  53
  60
  67
  75
  83
  92
  101
  110
  120
  130
  141
  152
  163
  175
  187
  200
  213
  227
  241
  256
  272
  288
  305
  323
  341
  361
  381
  402
EBITDA, $m
  34
  50
  57
  65
  74
  83
  92
  102
  113
  124
  135
  147
  160
  173
  186
  200
  215
  230
  246
  262
  279
  297
  315
  334
  354
  375
  397
  419
  443
  468
  493
Interest expense (income), $m
  7
  7
  -2
  0
  2
  4
  7
  9
  12
  15
  18
  21
  24
  28
  31
  35
  39
  42
  47
  51
  55
  60
  64
  69
  75
  80
  86
  91
  98
  104
  111
Earnings before tax, $m
  20
  34
  49
  53
  58
  63
  68
  74
  80
  86
  92
  99
  106
  113
  121
  128
  136
  145
  153
  163
  172
  182
  192
  203
  214
  225
  237
  250
  263
  277
  291
Tax expense, $m
  7
  9
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
Net income, $m
  13
  25
  36
  39
  42
  46
  50
  54
  58
  63
  67
  72
  77
  83
  88
  94
  100
  106
  112
  119
  126
  133
  140
  148
  156
  164
  173
  182
  192
  202
  213

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  435
  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
  678
  282
  324
  369
  417
  468
  522
  578
  638
  700
  765
  832
  902
  976
  1,052
  1,131
  1,213
  1,298
  1,387
  1,479
  1,575
  1,675
  1,779
  1,887
  2,000
  2,117
  2,240
  2,368
  2,502
  2,641
  2,787
Adjusted assets (=assets-cash), $m
  243
  282
  324
  369
  417
  468
  522
  578
  638
  700
  765
  832
  902
  976
  1,052
  1,131
  1,213
  1,298
  1,387
  1,479
  1,575
  1,675
  1,779
  1,887
  2,000
  2,117
  2,240
  2,368
  2,502
  2,641
  2,787
Revenue / Adjusted assets
  0.395
  0.394
  0.395
  0.396
  0.396
  0.395
  0.395
  0.394
  0.395
  0.394
  0.395
  0.395
  0.395
  0.394
  0.394
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
Average production assets, $m
  102
  118
  135
  154
  174
  195
  218
  241
  266
  292
  319
  347
  377
  407
  439
  472
  506
  542
  579
  618
  658
  699
  743
  788
  835
  884
  935
  989
  1,044
  1,103
  1,164
Working capital, $m
  395
  -36
  -41
  -47
  -53
  -60
  -67
  -74
  -81
  -89
  -98
  -106
  -115
  -124
  -134
  -144
  -155
  -166
  -177
  -189
  -201
  -214
  -227
  -241
  -255
  -270
  -286
  -302
  -319
  -337
  -356
Total debt, $m
  140
  -37
  1
  41
  84
  130
  179
  230
  283
  339
  397
  458
  521
  587
  656
  727
  801
  877
  957
  1,040
  1,127
  1,217
  1,310
  1,407
  1,509
  1,615
  1,725
  1,840
  1,960
  2,086
  2,217
Total liabilities, $m
  431
  254
  292
  332
  375
  421
  470
  521
  574
  630
  688
  749
  812
  878
  947
  1,018
  1,092
  1,168
  1,248
  1,331
  1,418
  1,508
  1,601
  1,698
  1,800
  1,906
  2,016
  2,131
  2,251
  2,377
  2,508
Total equity, $m
  247
  28
  32
  37
  42
  47
  52
  58
  64
  70
  76
  83
  90
  98
  105
  113
  121
  130
  139
  148
  158
  168
  178
  189
  200
  212
  224
  237
  250
  264
  279
Total liabilities and equity, $m
  678
  282
  324
  369
  417
  468
  522
  579
  638
  700
  764
  832
  902
  976
  1,052
  1,131
  1,213
  1,298
  1,387
  1,479
  1,576
  1,676
  1,779
  1,887
  2,000
  2,118
  2,240
  2,368
  2,501
  2,641
  2,787
Debt-to-equity ratio
  0.567
  -1.320
  0.020
  1.110
  2.020
  2.780
  3.420
  3.970
  4.440
  4.840
  5.190
  5.500
  5.780
  6.020
  6.230
  6.430
  6.600
  6.760
  6.900
  7.030
  7.150
  7.260
  7.360
  7.460
  7.540
  7.630
  7.700
  7.770
  7.840
  7.900
  7.960
Adjusted equity ratio
  -0.737
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  25
  36
  39
  42
  46
  50
  54
  58
  63
  67
  72
  77
  83
  88
  94
  100
  106
  112
  119
  126
  133
  140
  148
  156
  164
  173
  182
  192
  202
  213
Depreciation, amort., depletion, $m
  8
  9
  11
  12
  14
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  49
  52
  55
  58
  62
  66
  70
  74
  78
  82
  87
  92
Funds from operations, $m
  127
  34
  46
  51
  56
  61
  67
  73
  79
  86
  93
  100
  107
  115
  123
  131
  139
  148
  158
  167
  177
  188
  199
  210
  222
  234
  247
  260
  274
  289
  304
Change in working capital, $m
  43
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
Cash from operations, $m
  84
  36
  52
  57
  62
  68
  74
  80
  87
  94
  101
  108
  116
  124
  132
  141
  150
  159
  169
  179
  190
  201
  212
  224
  236
  249
  263
  277
  291
  307
  323
Maintenance CAPEX, $m
  0
  -8
  -9
  -11
  -12
  -14
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -30
  -32
  -35
  -37
  -40
  -43
  -46
  -49
  -52
  -55
  -58
  -62
  -66
  -70
  -74
  -78
  -82
  -87
New CAPEX, $m
  -2
  -16
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
Cash from investing activities, $m
  -2
  -24
  -27
  -30
  -32
  -35
  -37
  -41
  -44
  -47
  -50
  -53
  -56
  -61
  -64
  -68
  -71
  -76
  -80
  -85
  -89
  -94
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -140
  -148
Free cash flow, $m
  82
  12
  25
  27
  30
  33
  36
  39
  43
  47
  51
  55
  59
  64
  68
  73
  78
  84
  89
  95
  101
  107
  113
  120
  127
  134
  142
  150
  158
  166
  175
Issuance/(repayment) of debt, $m
  0
  -168
  38
  41
  43
  46
  48
  51
  53
  56
  58
  61
  63
  66
  68
  71
  74
  77
  80
  83
  86
  90
  94
  97
  101
  106
  110
  115
  120
  126
  131
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  
  0
  -168
  38
  41
  43
  46
  48
  51
  53
  56
  58
  61
  63
  66
  68
  71
  74
  77
  80
  83
  86
  90
  94
  97
  101
  106
  110
  115
  120
  126
  131
Total cash flow (excl. dividends), $m
  83
  -156
  63
  68
  73
  79
  84
  90
  96
  103
  109
  116
  122
  130
  137
  144
  152
  161
  169
  178
  187
  197
  207
  218
  229
  240
  252
  265
  278
  292
  306
Retained Cash Flow (-), $m
  -25
  -207
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
Prev. year cash balance distribution, $m
 
  426
  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
 
  63
  58
  63
  68
  74
  79
  85
  90
  96
  103
  109
  115
  122
  129
  137
  144
  152
  160
  169
  178
  187
  197
  207
  217
  228
  240
  252
  265
  278
  292
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
 
  60
  53
  55
  56
  57
  57
  57
  57
  55
  54
  52
  49
  46
  43
  40
  37
  33
  30
  26
  23
  19
  16
  14
  11
  9
  7
  5
  4
  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
  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 Cord Blood Corporation, together with its subsidiaries, primarily provides umbilical cord blood storage and ancillary services in the People’s Republic of China. The company provides cord blood testing, processing, and storage services under the direction of subscribers; and tests, processes, and stores donated cord blood, as well as offers matching services. As of March 31, 2016, it had three operating cord blood banks in the Beijing municipality, the Guangdong province, and the Zhejiang province. The company has a strategic collaboration with Cord Blood Registry to share data on cord blood collection, processing, and storage. China Cord Blood Corporation is based in Central, Hong Kong.

FINANCIAL RATIOS  of  China Cord Blood (CO)

Valuation Ratios
P/E Ratio 43.6
Price to Sales 5.9
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow 6.9
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -60%
Cap. Spend. - 3 Yr. Gr. Rate -42.9%
Financial Strength
Quick Ratio 48
Current Ratio 0
LT Debt to Equity 53%
Total Debt to Equity 56.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity 5.5%
Return On Equity - 3 Yr. Avg. 7.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 78.1%
Gross Margin - 3 Yr. Avg. 79.8%
EBITDA Margin 36.5%
EBITDA Margin - 3 Yr. Avg. 40.8%
Operating Margin 28.1%
Oper. Margin - 3 Yr. Avg. 35.3%
Pre-Tax Margin 20.8%
Pre-Tax Margin - 3 Yr. Avg. 26.2%
Net Profit Margin 13.5%
Net Profit Margin - 3 Yr. Avg. 17.9%
Effective Tax Rate 35%
Eff/ Tax Rate - 3 Yr. Avg. 31.5%
Payout Ratio 0%

CO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CO stock intrinsic value calculation we used $96 million for the last fiscal year's total revenue generated by China Cord Blood. The default revenue input number comes from 2016 income statement of China Cord Blood. 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 CO stock valuation model: a) initial revenue growth rate of 16% 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 CO is calculated based on our internal credit rating of China Cord Blood, 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 Cord Blood.
    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 CO stock the variable cost ratio is equal to 63.5%.

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 CO 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 5.3% for China Cord Blood.

Corporate tax rate of 27% is the nominal tax rate for China Cord Blood. 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 CO 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 CO are equal to 105.7%.

Life of production assets of 12.7 years is the average useful life of capital assets used in China Cord Blood 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 CO is equal to -32.3%. 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 - $247 million for China Cord Blood - 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 74.27 million for China Cord Blood 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 Cord Blood at the current share price and the inputted number of shares is $0.6 billion.


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Stock chart of CO Financial statements of CO Annual reports of CO
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