Intrinsic value of China HGS Real Estate - HGSH

Previous Close

$1.76

  Intrinsic Value

$4.50

stock screener

  Rating & Target

str. buy

+156%

Previous close

$1.76

 
Intrinsic value

$4.50

 
Up/down potential

+156%

 
Rating

str. buy

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

We calculate the intrinsic value of HGSH 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  -50.00
  33.30
  30.47
  27.92
  25.63
  23.57
  21.71
  20.04
  18.54
  17.18
  15.96
  14.87
  13.88
  12.99
  12.19
  11.47
  10.83
  10.24
  9.72
  9.25
  8.82
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
Revenue, $m
  38
  51
  66
  85
  106
  131
  160
  192
  227
  266
  309
  355
  404
  457
  512
  571
  633
  698
  765
  836
  910
  987
  1,067
  1,150
  1,236
  1,326
  1,419
  1,516
  1,617
  1,721
  1,830
Variable operating expenses, $m
 
  13
  17
  22
  28
  35
  42
  50
  60
  70
  81
  93
  106
  120
  135
  150
  166
  183
  201
  220
  239
  260
  281
  302
  325
  349
  373
  399
  425
  453
  481
Fixed operating expenses, $m
 
  24
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
Total operating expenses, $m
  32
  37
  41
  47
  53
  61
  69
  77
  88
  99
  110
  123
  137
  152
  167
  183
  200
  218
  237
  257
  277
  299
  321
  343
  367
  392
  417
  444
  471
  500
  529
Operating income, $m
  6
  14
  25
  38
  53
  71
  91
  114
  139
  168
  198
  231
  267
  305
  345
  387
  432
  479
  528
  579
  633
  689
  747
  807
  869
  934
  1,002
  1,072
  1,146
  1,222
  1,301
EBITDA, $m
  6
  14
  25
  38
  53
  71
  91
  114
  139
  168
  198
  231
  267
  305
  345
  387
  432
  479
  528
  579
  633
  689
  747
  807
  869
  934
  1,002
  1,072
  1,146
  1,222
  1,301
Interest expense (income), $m
  5
  7
  12
  18
  24
  32
  42
  52
  64
  77
  91
  107
  124
  142
  161
  182
  203
  226
  250
  275
  301
  328
  356
  386
  416
  448
  481
  515
  551
  588
  627
Earnings before tax, $m
  6
  6
  13
  20
  28
  38
  49
  62
  76
  91
  107
  124
  143
  163
  184
  206
  229
  253
  278
  305
  332
  360
  390
  421
  453
  486
  521
  557
  594
  633
  674
Tax expense, $m
  1
  2
  3
  5
  8
  10
  13
  17
  20
  24
  29
  34
  39
  44
  50
  56
  62
  68
  75
  82
  90
  97
  105
  114
  122
  131
  141
  150
  160
  171
  182
Net income, $m
  5
  5
  9
  14
  21
  28
  36
  45
  55
  66
  78
  91
  104
  119
  134
  150
  167
  185
  203
  222
  242
  263
  285
  307
  331
  355
  380
  407
  434
  462
  492

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
  356
  465
  606
  776
  974
  1,204
  1,465
  1,759
  2,085
  2,444
  2,834
  3,255
  3,707
  4,188
  4,699
  5,238
  5,805
  6,400
  7,022
  7,671
  8,348
  9,053
  9,786
  10,548
  11,340
  12,163
  13,018
  13,907
  14,831
  15,792
  16,792
Adjusted assets (=assets-cash), $m
  350
  465
  606
  776
  974
  1,204
  1,465
  1,759
  2,085
  2,444
  2,834
  3,255
  3,707
  4,188
  4,699
  5,238
  5,805
  6,400
  7,022
  7,671
  8,348
  9,053
  9,786
  10,548
  11,340
  12,163
  13,018
  13,907
  14,831
  15,792
  16,792
Revenue / Adjusted assets
  0.109
  0.110
  0.109
  0.110
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
Average production assets, $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
Working capital, $m
  52
  25
  33
  42
  53
  66
  80
  96
  114
  133
  154
  177
  202
  228
  256
  285
  316
  349
  383
  418
  455
  493
  533
  575
  618
  663
  709
  758
  808
  861
  915
Total debt, $m
  109
  167
  246
  340
  451
  579
  724
  888
  1,069
  1,269
  1,486
  1,721
  1,973
  2,241
  2,525
  2,826
  3,142
  3,473
  3,819
  4,181
  4,558
  4,950
  5,359
  5,783
  6,224
  6,683
  7,159
  7,654
  8,169
  8,704
  9,261
Total liabilities, $m
  201
  259
  338
  432
  543
  671
  816
  980
  1,161
  1,361
  1,578
  1,813
  2,065
  2,333
  2,617
  2,918
  3,234
  3,565
  3,911
  4,273
  4,650
  5,042
  5,451
  5,875
  6,316
  6,775
  7,251
  7,746
  8,261
  8,796
  9,353
Total equity, $m
  155
  206
  269
  344
  432
  533
  649
  779
  924
  1,082
  1,255
  1,442
  1,642
  1,855
  2,082
  2,320
  2,572
  2,835
  3,111
  3,398
  3,698
  4,010
  4,335
  4,673
  5,024
  5,388
  5,767
  6,161
  6,570
  6,996
  7,439
Total liabilities and equity, $m
  356
  465
  607
  776
  975
  1,204
  1,465
  1,759
  2,085
  2,443
  2,833
  3,255
  3,707
  4,188
  4,699
  5,238
  5,806
  6,400
  7,022
  7,671
  8,348
  9,052
  9,786
  10,548
  11,340
  12,163
  13,018
  13,907
  14,831
  15,792
  16,792
Debt-to-equity ratio
  0.703
  0.810
  0.910
  0.990
  1.040
  1.080
  1.120
  1.140
  1.160
  1.170
  1.180
  1.190
  1.200
  1.210
  1.210
  1.220
  1.220
  1.220
  1.230
  1.230
  1.230
  1.230
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
Adjusted equity ratio
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443
  0.443

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  5
  9
  14
  21
  28
  36
  45
  55
  66
  78
  91
  104
  119
  134
  150
  167
  185
  203
  222
  242
  263
  285
  307
  331
  355
  380
  407
  434
  462
  492
Depreciation, amort., depletion, $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
Funds from operations, $m
  -158
  5
  9
  14
  21
  28
  36
  45
  55
  66
  78
  91
  104
  119
  134
  150
  167
  185
  203
  222
  242
  263
  285
  307
  331
  355
  380
  407
  434
  462
  492
Change in working capital, $m
  -81
  6
  8
  9
  11
  13
  14
  16
  18
  20
  21
  23
  25
  26
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  48
  50
  52
  55
Cash from operations, $m
  -77
  -2
  1
  5
  10
  15
  22
  29
  37
  47
  57
  68
  80
  93
  106
  121
  136
  152
  169
  187
  205
  225
  245
  266
  288
  310
  334
  358
  384
  410
  438
Maintenance CAPEX, $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
New CAPEX, $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 investing activities, $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
Free cash flow, $m
  -77
  -2
  1
  5
  10
  15
  22
  29
  37
  47
  57
  68
  80
  93
  106
  121
  136
  152
  169
  187
  205
  225
  245
  266
  288
  310
  334
  358
  384
  410
  438
Issuance/(repayment) of debt, $m
  82
  64
  79
  94
  111
  128
  146
  164
  182
  200
  217
  235
  252
  268
  284
  300
  316
  331
  346
  362
  377
  392
  408
  424
  441
  458
  476
  495
  515
  535
  557
Issuance/(repurchase) of shares, $m
  0
  46
  54
  61
  67
  74
  80
  85
  89
  93
  95
  96
  96
  95
  92
  89
  84
  79
  72
  65
  58
  49
  40
  30
  20
  10
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  82
  110
  133
  155
  178
  202
  226
  249
  271
  293
  312
  331
  348
  363
  376
  389
  400
  410
  418
  427
  435
  441
  448
  454
  461
  468
  476
  495
  515
  535
  557
Total cash flow (excl. dividends), $m
  5
  108
  134
  160
  188
  217
  247
  278
  308
  339
  369
  398
  427
  455
  483
  510
  536
  562
  588
  614
  640
  666
  693
  720
  749
  778
  810
  853
  898
  945
  995
Retained Cash Flow (-), $m
  2
  -51
  -63
  -75
  -88
  -102
  -116
  -130
  -144
  -159
  -173
  -187
  -200
  -213
  -226
  -239
  -251
  -263
  -276
  -288
  -300
  -312
  -325
  -338
  -351
  -365
  -379
  -394
  -409
  -426
  -443
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
 
  58
  71
  85
  100
  115
  131
  148
  164
  180
  196
  212
  227
  242
  257
  271
  285
  299
  313
  326
  340
  354
  368
  383
  398
  414
  431
  459
  489
  520
  552
Discount rate, %
 
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
  34.58
PV of cash for distribution, $m
 
  53
  60
  65
  69
  71
  71
  70
  67
  63
  58
  52
  45
  39
  33
  27
  22
  17
  13
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  70.1
  51.1
  38.7
  30.2
  24.3
  20.0
  16.9
  14.5
  12.7
  11.3
  10.2
  9.3
  8.6
  8.0
  7.5
  7.2
  6.9
  6.6
  6.4
  6.3
  6.2
  6.1
  6.0
  6.0
  6.0
  6.0
  6.0
  6.0
  6.0
  6.0

China HGS Real Estate Inc., formerly China Agro Sciences Corp., is engaged in real estate development, primarily in the construction and sale of residential apartments, car parks and commercial properties. As of September 30, 2016, the Company had three types of real estate projects, including multi-layer apartment buildings, which were six stories or less; sub-high-rise apartment buildings, which were 7 to 11 stories; and high-rise apartment buildings, which were 12 to 33 stories. The Company's main projects located in Hanzhong City are Mingzhu Garden-Mingzhu Nanyuan, Mingzhu Beiyuan, Oriental Pearl Garden, Mingzhu Xinju and Liangzhou road related projects. In Yang County, its projects are Yangzhou Pearl Garden and Yangzhou Palace. Its Mingzhu Nanyuan project consists of multi-layer residential buildings, and sub-high-rise and high-rise residential buildings with commercial shops on the first floors.

FINANCIAL RATIOS  of  China HGS Real Estate (HGSH)

Valuation Ratios
P/E Ratio 15.9
Price to Sales 2.1
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow -1
Price to Free Cash Flow -1
Growth Rates
Sales Growth Rate -50%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 1
Current Ratio 1.4
LT Debt to Equity 64.5%
Total Debt to Equity 70.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 13.9%
Return On Equity 3.2%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 26.3%
Gross Margin - 3 Yr. Avg. 36.1%
EBITDA Margin 28.9%
EBITDA Margin - 3 Yr. Avg. 35.5%
Operating Margin 15.8%
Oper. Margin - 3 Yr. Avg. 30.4%
Pre-Tax Margin 15.8%
Pre-Tax Margin - 3 Yr. Avg. 29.7%
Net Profit Margin 13.2%
Net Profit Margin - 3 Yr. Avg. 27.1%
Effective Tax Rate 16.7%
Eff/ Tax Rate - 3 Yr. Avg. 10.4%
Payout Ratio 0%

HGSH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HGSH stock intrinsic value calculation we used $38 million for the last fiscal year's total revenue generated by China HGS Real Estate. The default revenue input number comes from 2016 income statement of China HGS Real Estate. 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 HGSH stock valuation model: a) initial revenue growth rate of 33.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.4%, whose default value for HGSH is calculated based on our internal credit rating of China HGS Real Estate, 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 HGS Real Estate.
    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 HGSH stock the variable cost ratio is equal to 26.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $23 million in the base year in the intrinsic value calculation for HGSH 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 7.2% for China HGS Real Estate.

Corporate tax rate of 27% is the nominal tax rate for China HGS Real Estate. 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 HGSH 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 HGSH are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in China HGS Real Estate 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 HGSH is equal to 50%. 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 - $155 million for China HGS Real Estate - 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 45.415 million for China HGS Real Estate 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 HGS Real Estate at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Riding China Hgs Real Estate Inc (HGSH) to New Heights   [Jan-03-18 01:15PM  SmarterAnalyst]
▶ When Should You Buy China HGS Real Estate Inc (HGSH)?   [Nov-08-17 03:29PM  Simply Wall St.]
▶ When Should You Buy China HGS Real Estate Inc (HGSH)?   [Sep-11-17 03:03PM  Simply Wall St.]
▶ China HGS posts 3Q profit   [Aug-11-17 10:06PM  Associated Press]
▶ China HGS posts 2Q profit   [May-12-17 07:17AM  Associated Press]
▶ China HGS posts 1Q profit   [06:39AM  Associated Press]
▶ What is Causing These 5 Stocks to Move Sharply on Friday?   [Apr-08-16 01:39PM  Insider Monkey]
▶ 3 Real Estate Stocks Nudging The Industry Higher   [Sep-23  01:03PM  at TheStreet]
▶ Why China HGS Real Estate (HGSH) Stock Is Up Today   [Sep-02  11:08AM  at TheStreet]
▶ Why China HGS Real Estate (HGSH) Stock Is Jumping Today   [Aug-19  11:12AM  at TheStreet]
▶ 3 Real Estate Stocks Moving The Industry Upward   [Jul-22  04:01PM  at TheStreet]
▶ 3 Stocks Pushing The Real Estate Industry Lower   [Jul-21  04:03PM  at TheStreet]
Financial statements of HGSH
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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