Intrinsic value of Highpower International - HPJ

Previous Close

$3.55

  Intrinsic Value

$31.09

stock screener

  Rating & Target

str. buy

+776%

Previous close

$3.55

 
Intrinsic value

$31.09

 
Up/down potential

+776%

 
Rating

str. buy

We calculate the intrinsic value of HPJ 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, %
  19.18
  31.50
  28.85
  26.47
  24.32
  22.39
  20.65
  19.08
  17.67
  16.41
  15.27
  14.24
  13.32
  12.48
  11.74
  11.06
  10.46
  9.91
  9.42
  8.98
  8.58
  8.22
  7.90
  7.61
  7.35
  7.11
  6.90
  6.71
  6.54
  6.39
  6.25
Revenue, $m
  174
  229
  295
  373
  464
  567
  684
  815
  959
  1,116
  1,287
  1,470
  1,666
  1,874
  2,094
  2,325
  2,569
  2,823
  3,089
  3,366
  3,655
  3,956
  4,268
  4,593
  4,930
  5,281
  5,646
  6,025
  6,419
  6,829
  7,255
Variable operating expenses, $m
 
  204
  263
  332
  413
  505
  610
  726
  855
  995
  1,147
  1,310
  1,484
  1,670
  1,866
  2,072
  2,289
  2,515
  2,752
  2,999
  3,257
  3,525
  3,803
  4,092
  4,393
  4,706
  5,030
  5,368
  5,719
  6,084
  6,465
Fixed operating expenses, $m
 
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
Total operating expenses, $m
  168
  217
  277
  346
  427
  520
  625
  741
  871
  1,011
  1,164
  1,327
  1,501
  1,688
  1,884
  2,091
  2,308
  2,535
  2,772
  3,020
  3,278
  3,547
  3,825
  4,115
  4,417
  4,730
  5,055
  5,393
  5,745
  6,111
  6,492
Operating income, $m
  6
  12
  18
  27
  36
  47
  60
  73
  89
  105
  124
  143
  164
  186
  210
  235
  261
  288
  316
  346
  377
  409
  443
  478
  514
  552
  591
  631
  674
  718
  764
EBITDA, $m
  11
  12
  19
  27
  37
  48
  60
  74
  90
  107
  125
  145
  166
  189
  212
  237
  264
  291
  320
  350
  381
  414
  448
  483
  520
  558
  597
  639
  681
  726
  772
Interest expense (income), $m
  1
  2
  3
  4
  6
  8
  10
  13
  16
  19
  22
  26
  30
  34
  39
  44
  49
  54
  60
  65
  72
  78
  84
  91
  98
  106
  114
  122
  130
  138
  147
Earnings before tax, $m
  7
  10
  16
  22
  30
  39
  49
  61
  73
  87
  101
  117
  134
  152
  171
  191
  212
  234
  257
  281
  306
  331
  358
  386
  415
  446
  477
  510
  544
  579
  616
Tax expense, $m
  1
  3
  4
  6
  8
  11
  13
  16
  20
  23
  27
  32
  36
  41
  46
  52
  57
  63
  69
  76
  83
  89
  97
  104
  112
  120
  129
  138
  147
  156
  166
Net income, $m
  6
  7
  11
  16
  22
  29
  36
  44
  53
  63
  74
  86
  98
  111
  125
  139
  155
  171
  187
  205
  223
  242
  262
  282
  303
  325
  348
  372
  397
  423
  450

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  163
  202
  261
  330
  410
  502
  606
  721
  849
  988
  1,139
  1,301
  1,474
  1,658
  1,853
  2,058
  2,273
  2,498
  2,734
  2,979
  3,235
  3,501
  3,777
  4,065
  4,363
  4,674
  4,996
  5,332
  5,680
  6,043
  6,421
Adjusted assets (=assets-cash), $m
  154
  202
  261
  330
  410
  502
  606
  721
  849
  988
  1,139
  1,301
  1,474
  1,658
  1,853
  2,058
  2,273
  2,498
  2,734
  2,979
  3,235
  3,501
  3,777
  4,065
  4,363
  4,674
  4,996
  5,332
  5,680
  6,043
  6,421
Revenue / Adjusted assets
  1.130
  1.134
  1.130
  1.130
  1.132
  1.129
  1.129
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
Average production assets, $m
  1
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
Working capital, $m
  -13
  41
  52
  66
  83
  101
  122
  145
  171
  199
  229
  262
  297
  334
  373
  414
  457
  503
  550
  599
  651
  704
  760
  818
  878
  940
  1,005
  1,072
  1,143
  1,216
  1,291
Total debt, $m
  53
  78
  120
  169
  225
  290
  364
  446
  536
  635
  741
  856
  979
  1,109
  1,247
  1,392
  1,544
  1,704
  1,870
  2,044
  2,225
  2,413
  2,609
  2,813
  3,024
  3,244
  3,472
  3,710
  3,957
  4,214
  4,481
Total liabilities, $m
  118
  143
  185
  234
  290
  355
  429
  511
  601
  700
  806
  921
  1,044
  1,174
  1,312
  1,457
  1,609
  1,769
  1,935
  2,109
  2,290
  2,478
  2,674
  2,878
  3,089
  3,309
  3,537
  3,775
  4,022
  4,279
  4,546
Total equity, $m
  45
  59
  76
  96
  120
  147
  177
  211
  248
  288
  333
  380
  430
  484
  541
  601
  664
  730
  798
  870
  945
  1,022
  1,103
  1,187
  1,274
  1,365
  1,459
  1,557
  1,659
  1,765
  1,875
Total liabilities and equity, $m
  163
  202
  261
  330
  410
  502
  606
  722
  849
  988
  1,139
  1,301
  1,474
  1,658
  1,853
  2,058
  2,273
  2,499
  2,733
  2,979
  3,235
  3,500
  3,777
  4,065
  4,363
  4,674
  4,996
  5,332
  5,681
  6,044
  6,421
Debt-to-equity ratio
  1.178
  1.330
  1.570
  1.750
  1.880
  1.980
  2.060
  2.120
  2.160
  2.200
  2.230
  2.250
  2.270
  2.290
  2.300
  2.320
  2.330
  2.340
  2.340
  2.350
  2.360
  2.360
  2.370
  2.370
  2.370
  2.380
  2.380
  2.380
  2.390
  2.390
  2.390
Adjusted equity ratio
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  7
  11
  16
  22
  29
  36
  44
  53
  63
  74
  86
  98
  111
  125
  139
  155
  171
  187
  205
  223
  242
  262
  282
  303
  325
  348
  372
  397
  423
  450
Depreciation, amort., depletion, $m
  5
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
Funds from operations, $m
  -3
  8
  12
  17
  23
  29
  37
  45
  55
  65
  76
  87
  100
  113
  127
  142
  158
  174
  191
  209
  227
  247
  267
  288
  309
  332
  355
  379
  405
  431
  458
Change in working capital, $m
  -8
  10
  12
  14
  16
  18
  21
  23
  26
  28
  30
  33
  35
  37
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  60
  62
  65
  67
  70
  73
  76
Cash from operations, $m
  5
  -2
  0
  3
  7
  11
  16
  22
  29
  37
  45
  55
  65
  76
  88
  101
  115
  129
  144
  160
  176
  193
  211
  230
  249
  269
  290
  312
  335
  358
  383
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
New CAPEX, $m
  -8
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
Cash from investing activities, $m
  -11
  0
  0
  0
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
Free cash flow, $m
  -6
  -3
  -1
  2
  6
  10
  15
  20
  27
  35
  43
  52
  62
  73
  85
  97
  110
  124
  139
  154
  170
  187
  204
  223
  242
  261
  282
  303
  325
  348
  372
Issuance/(repayment) of debt, $m
  10
  34
  41
  49
  57
  65
  73
  82
  90
  99
  107
  115
  123
  130
  138
  145
  152
  159
  167
  174
  181
  188
  196
  203
  211
  220
  228
  237
  247
  257
  267
Issuance/(repurchase) of shares, $m
  0
  7
  6
  4
  1
  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  
  10
  41
  47
  53
  58
  65
  73
  82
  90
  99
  107
  115
  123
  130
  138
  145
  152
  159
  167
  174
  181
  188
  196
  203
  211
  220
  228
  237
  247
  257
  267
Total cash flow (excl. dividends), $m
  3
  38
  46
  55
  64
  75
  88
  102
  117
  133
  150
  167
  185
  203
  222
  242
  263
  284
  305
  328
  351
  375
  400
  426
  453
  481
  510
  540
  572
  605
  639
Retained Cash Flow (-), $m
  -3
  -14
  -17
  -20
  -23
  -27
  -30
  -34
  -37
  -41
  -44
  -47
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -110
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
 
  24
  29
  35
  40
  48
  58
  68
  80
  92
  106
  120
  134
  150
  166
  182
  200
  218
  237
  256
  277
  298
  320
  342
  366
  390
  416
  442
  470
  499
  529
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  23
  25
  28
  30
  32
  35
  37
  38
  39
  38
  37
  35
  33
  30
  27
  23
  20
  17
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  88.9
  82.5
  79.2
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3
  78.3

Highpower International, Inc., through its subsidiaries, is engaged in the manufacturing and marketing of nickel metal hydride rechargeable batteries (Ni-MH) and lithium batteries for both consumer and industrial applications. The Company operates through three segments: Lithium Batteries, Ni-MH Batteries and New Material. It has commenced over two production lines of Lithium-ion (Li-ion) and Lithium polymer rechargeable batteries for consumer applications, such as consumer electronic products, mobile devices and wireless communication products. It produces a line of batteries falling into two categories: Consumer Batteries, which are relative to ordinary nickel cadmium (Ni-Cad) rechargeable batteries, as well as their non-rechargeable counterparts, and Industrial Batteries, which are designed for electric bikes, power tools and electric toys. It produces A, AA and AAA sized batteries in blister packing, as well as chargers and battery packs.

FINANCIAL RATIOS  of  Highpower International (HPJ)

Valuation Ratios
P/E Ratio 8.9
Price to Sales 0.3
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 10.7
Price to Free Cash Flow -17.9
Growth Rates
Sales Growth Rate 19.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27.3%
Cap. Spend. - 3 Yr. Gr. Rate -16.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 117.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.7%
Return On Equity 13.8%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 21.8%
Gross Margin - 3 Yr. Avg. 20.5%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 6.8%
Operating Margin 3.4%
Oper. Margin - 3 Yr. Avg. 2.5%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. 2.9%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 13.1%
Payout Ratio 0%

HPJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HPJ stock intrinsic value calculation we used $174 million for the last fiscal year's total revenue generated by Highpower International. The default revenue input number comes from 2016 income statement of Highpower International. 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 HPJ stock valuation model: a) initial revenue growth rate of 31.5% 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 6.9%, whose default value for HPJ is calculated based on our internal credit rating of Highpower International, 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 Highpower International.
    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 HPJ stock the variable cost ratio is equal to 89.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for HPJ 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 Highpower International.

Corporate tax rate of 27% is the nominal tax rate for Highpower International. 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 HPJ 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 HPJ are equal to 0.6%.

Life of production assets of 0.2 years is the average useful life of capital assets used in Highpower International 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 HPJ is equal to 17.8%. 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 - $45 million for Highpower International - 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 15.3 million for Highpower International 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 Highpower International at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Highpower International to Attend CES 2018   [Dec-28-17 08:30AM  PR Newswire]
▶ Highpower International, Inc. to Host Earnings Call   [Nov-14-17 06:50AM  ACCESSWIRE]
▶ Highpower International Adopts Stockholder Rights Plan   [Sep-13-17 08:30AM  PR Newswire]
▶ Highpower International Announces Management Changes   [Jun-15-17 05:04PM  PR Newswire]
▶ Highpower International Retains ICR, Inc.   [08:00AM  PR Newswire]
▶ 6 Stocks Trading Below Peter Lynch Value   [Apr-06-17 03:44PM  GuruFocus.com]
▶ Heres Why These 5 Stocks Are on the Move Today   [11:55AM  at Insider Monkey]
▶ These 4 Stocks Are Strong Gainers On Friday   [Nov-27  11:57AM  at Insider Monkey]
Financial statements of HPJ
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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