Intrinsic value of Highpower International - HPJ

Previous Close

$4.50

  Intrinsic Value

$60.79

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

-183%

Previous close

$4.50

 
Intrinsic value

$60.79

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

-183%

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

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

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 0.1

 

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
  44.80
  40.82
  37.24
  34.01
  31.11
  28.50
  26.15
  24.04
  22.13
  20.42
  18.88
  17.49
  16.24
  15.12
  14.10
  13.19
  12.38
  11.64
  10.97
  10.38
  9.84
  9.35
  8.92
  8.53
  8.17
  7.86
  7.57
  7.31
  7.08
  6.87
Revenue, $m
  174
  252
  355
  487
  653
  856
  1,099
  1,387
  1,720
  2,101
  2,530
  3,008
  3,534
  4,108
  4,729
  5,395
  6,107
  6,863
  7,662
  8,503
  9,385
  10,308
  11,273
  12,278
  13,325
  14,414
  15,547
  16,724
  17,947
  19,218
  20,540
Variable operating expenses, $m
 
  224
  316
  434
  581
  762
  980
  1,236
  1,533
  1,872
  2,254
  2,680
  3,149
  3,660
  4,213
  4,807
  5,442
  6,115
  6,827
  7,576
  8,362
  9,185
  10,044
  10,940
  11,873
  12,843
  13,852
  14,901
  15,991
  17,124
  18,301
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
  237
  330
  448
  595
  777
  995
  1,251
  1,549
  1,888
  2,271
  2,697
  3,166
  3,678
  4,231
  4,826
  5,461
  6,135
  6,847
  7,597
  8,383
  9,207
  10,066
  10,963
  11,897
  12,867
  13,877
  14,926
  16,017
  17,151
  18,328
Operating income, $m
  6
  14
  25
  39
  57
  79
  105
  136
  172
  213
  259
  311
  368
  430
  497
  569
  646
  728
  815
  906
  1,002
  1,102
  1,206
  1,315
  1,429
  1,547
  1,670
  1,798
  1,930
  2,068
  2,212
EBITDA, $m
  11
  14
  25
  39
  57
  79
  105
  137
  173
  214
  261
  313
  370
  432
  500
  573
  650
  732
  819
  911
  1,007
  1,108
  1,213
  1,323
  1,437
  1,556
  1,679
  1,808
  1,941
  2,080
  2,224
Interest expense (income), $m
  1
  2
  3
  6
  8
  12
  16
  22
  28
  35
  44
  53
  64
  75
  88
  101
  116
  132
  148
  166
  184
  204
  224
  245
  267
  290
  314
  339
  364
  391
  419
Earnings before tax, $m
  7
  13
  22
  34
  48
  67
  88
  114
  144
  177
  215
  258
  304
  355
  409
  468
  530
  597
  667
  740
  817
  898
  983
  1,070
  1,162
  1,257
  1,356
  1,459
  1,566
  1,677
  1,792
Tax expense, $m
  1
  3
  6
  9
  13
  18
  24
  31
  39
  48
  58
  70
  82
  96
  110
  126
  143
  161
  180
  200
  221
  243
  265
  289
  314
  339
  366
  394
  423
  453
  484
Net income, $m
  6
  9
  16
  25
  35
  49
  64
  83
  105
  129
  157
  188
  222
  259
  299
  342
  387
  436
  487
  540
  597
  656
  717
  781
  848
  918
  990
  1,065
  1,143
  1,224
  1,308

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
  223
  314
  431
  577
  757
  973
  1,227
  1,522
  1,859
  2,239
  2,662
  3,127
  3,635
  4,185
  4,775
  5,405
  6,074
  6,780
  7,524
  8,305
  9,122
  9,976
  10,866
  11,792
  12,756
  13,758
  14,800
  15,883
  17,008
  18,177
Adjusted assets (=assets-cash), $m
  154
  223
  314
  431
  577
  757
  973
  1,227
  1,522
  1,859
  2,239
  2,662
  3,127
  3,635
  4,185
  4,775
  5,405
  6,074
  6,780
  7,524
  8,305
  9,122
  9,976
  10,866
  11,792
  12,756
  13,758
  14,800
  15,883
  17,008
  18,177
Revenue / Adjusted assets
  1.130
  1.130
  1.131
  1.130
  1.132
  1.131
  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
  2
  2
  3
  4
  5
  7
  8
  10
  13
  15
  18
  21
  25
  28
  32
  37
  41
  46
  51
  56
  62
  68
  74
  80
  86
  93
  100
  108
  115
  123
Working capital, $m
  -13
  45
  63
  87
  116
  152
  196
  247
  306
  374
  450
  535
  629
  731
  842
  960
  1,087
  1,222
  1,364
  1,513
  1,671
  1,835
  2,007
  2,185
  2,372
  2,566
  2,767
  2,977
  3,195
  3,421
  3,656
Total debt, $m
  53
  93
  157
  240
  344
  471
  624
  804
  1,013
  1,251
  1,520
  1,819
  2,149
  2,509
  2,898
  3,316
  3,762
  4,235
  4,736
  5,262
  5,815
  6,394
  6,998
  7,628
  8,284
  8,966
  9,676
  10,413
  11,180
  11,976
  12,804
Total liabilities, $m
  118
  158
  222
  305
  409
  536
  689
  869
  1,078
  1,316
  1,585
  1,884
  2,214
  2,574
  2,963
  3,381
  3,827
  4,300
  4,801
  5,327
  5,880
  6,459
  7,063
  7,693
  8,349
  9,031
  9,741
  10,478
  11,245
  12,041
  12,869
Total equity, $m
  45
  65
  92
  126
  169
  221
  284
  358
  445
  543
  654
  777
  913
  1,061
  1,222
  1,394
  1,578
  1,773
  1,980
  2,197
  2,425
  2,664
  2,913
  3,173
  3,443
  3,725
  4,017
  4,322
  4,638
  4,966
  5,308
Total liabilities and equity, $m
  163
  223
  314
  431
  578
  757
  973
  1,227
  1,523
  1,859
  2,239
  2,661
  3,127
  3,635
  4,185
  4,775
  5,405
  6,073
  6,781
  7,524
  8,305
  9,123
  9,976
  10,866
  11,792
  12,756
  13,758
  14,800
  15,883
  17,007
  18,177
Debt-to-equity ratio
  1.178
  1.430
  1.720
  1.910
  2.040
  2.130
  2.200
  2.240
  2.280
  2.300
  2.330
  2.340
  2.350
  2.360
  2.370
  2.380
  2.380
  2.390
  2.390
  2.400
  2.400
  2.400
  2.400
  2.400
  2.410
  2.410
  2.410
  2.410
  2.410
  2.410
  2.410
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
  9
  16
  25
  35
  49
  64
  83
  105
  129
  157
  188
  222
  259
  299
  342
  387
  436
  487
  540
  597
  656
  717
  781
  848
  918
  990
  1,065
  1,143
  1,224
  1,308
Depreciation, amort., depletion, $m
  5
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
Funds from operations, $m
  -3
  9
  16
  25
  36
  49
  65
  84
  106
  131
  159
  190
  224
  261
  302
  345
  391
  440
  491
  545
  602
  662
  724
  789
  856
  926
  999
  1,075
  1,154
  1,236
  1,321
Change in working capital, $m
  -8
  14
  18
  24
  29
  36
  43
  51
  59
  68
  76
  85
  94
  102
  111
  119
  127
  135
  142
  150
  157
  164
  172
  179
  186
  194
  202
  210
  218
  226
  235
Cash from operations, $m
  5
  -5
  -2
  1
  6
  13
  22
  33
  46
  63
  82
  105
  130
  159
  191
  226
  264
  305
  349
  396
  445
  498
  552
  610
  670
  732
  798
  866
  936
  1,009
  1,086
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
New CAPEX, $m
  -8
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
Cash from investing activities, $m
  -11
  -1
  -1
  -1
  -1
  -1
  -2
  -3
  -3
  -3
  -4
  -5
  -5
  -5
  -6
  -7
  -7
  -9
  -9
  -10
  -10
  -12
  -12
  -13
  -13
  -15
  -16
  -16
  -17
  -19
  -20
Free cash flow, $m
  -6
  -5
  -3
  0
  5
  11
  20
  30
  44
  60
  79
  100
  125
  154
  185
  219
  257
  297
  340
  386
  435
  486
  540
  597
  656
  718
  782
  849
  919
  991
  1,066
Issuance/(repayment) of debt, $m
  10
  49
  64
  83
  104
  127
  153
  180
  209
  239
  269
  299
  330
  360
  389
  418
  446
  474
  500
  527
  553
  579
  604
  630
  656
  682
  710
  738
  766
  796
  828
Issuance/(repurchase) of shares, $m
  0
  11
  11
  10
  7
  4
  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
  60
  75
  93
  111
  131
  153
  180
  209
  239
  269
  299
  330
  360
  389
  418
  446
  474
  500
  527
  553
  579
  604
  630
  656
  682
  710
  738
  766
  796
  828
Total cash flow (excl. dividends), $m
  3
  55
  72
  93
  116
  142
  173
  211
  253
  298
  347
  400
  455
  513
  574
  637
  703
  770
  841
  913
  988
  1,065
  1,145
  1,227
  1,312
  1,400
  1,492
  1,587
  1,685
  1,787
  1,894
Retained Cash Flow (-), $m
  -3
  -20
  -27
  -34
  -43
  -52
  -63
  -74
  -86
  -98
  -111
  -123
  -136
  -148
  -160
  -172
  -184
  -195
  -206
  -217
  -228
  -239
  -249
  -260
  -271
  -281
  -293
  -304
  -316
  -328
  -341
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
 
  35
  46
  59
  73
  90
  109
  136
  166
  200
  236
  276
  319
  365
  413
  465
  519
  575
  634
  696
  760
  826
  895
  967
  1,042
  1,119
  1,199
  1,282
  1,369
  1,459
  1,553
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
 
  32
  40
  47
  54
  60
  66
  73
  79
  83
  86
  86
  84
  80
  75
  68
  61
  53
  45
  38
  31
  24
  19
  14
  10
  7
  5
  3
  2
  1
  1
Current shareholders' claim on cash, %
  100
  86.3
  78.0
  72.9
  70.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2
  69.2

Highpower International, Inc., through its subsidiaries, manufactures and trades in nickel metal hydride rechargeable batteries for consumer and industrial applications. It produces consumer batteries in A, AA, and AAA sizes in blister packing, as well as chargers and battery packs; and industrial batteries, which are designed for electric bikes, power tools, and electric toys. The company also manufactures lithium-ion and lithium polymer rechargeable batteries for applications in laptops, digital cameras, and wireless communication products. In addition, it recycles scrap battery materials and resells the recycled materials; engages in processing and marketing, and research of battery materials; and designs and produces battery packs and systems. The company sells its products to original equipment manufacturers, and distributors and resellers. The company was formerly known as Hong Kong Highpower Technology, Inc. and changed its name to Highpower International, Inc. in October 2010. Highpower International, Inc. was founded in 2001 and is headquartered in Shenzhen, the People’s Republic of China.

FINANCIAL RATIOS  of  Highpower International (HPJ)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 0.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow -22.7
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 44.8% 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 10 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 15.298 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 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]
▶ Highpower Selected by Seiko for Power Solutions   [Apr-09  08:30AM  PR Newswire]
Stock chart of HPJ Financial statements of HPJ
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