Intrinsic value of iKang Healthcare Group ADR - KANG

Previous Close

$15.82

  Intrinsic Value

$7.51

stock screener

  Rating & Target

str. sell

-53%

Previous close

$15.82

 
Intrinsic value

$7.51

 
Up/down potential

-53%

 
Rating

str. sell

We calculate the intrinsic value of KANG 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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.52
  17.50
  16.25
  15.13
  14.11
  13.20
  12.38
  11.64
  10.98
  10.38
  9.84
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
  7.08
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
Revenue, $m
  436
  512
  596
  686
  782
  886
  995
  1,111
  1,233
  1,361
  1,495
  1,635
  1,781
  1,933
  2,091
  2,255
  2,426
  2,604
  2,788
  2,980
  3,179
  3,386
  3,602
  3,827
  4,060
  4,304
  4,558
  4,822
  5,098
  5,387
  5,688
Variable operating expenses, $m
 
  474
  549
  631
  718
  812
  911
  1,016
  1,126
  1,242
  1,363
  1,479
  1,611
  1,748
  1,891
  2,040
  2,194
  2,355
  2,522
  2,695
  2,875
  3,063
  3,258
  3,461
  3,672
  3,893
  4,122
  4,362
  4,611
  4,872
  5,144
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
  422
  474
  549
  631
  718
  812
  911
  1,016
  1,126
  1,242
  1,363
  1,479
  1,611
  1,748
  1,891
  2,040
  2,194
  2,355
  2,522
  2,695
  2,875
  3,063
  3,258
  3,461
  3,672
  3,893
  4,122
  4,362
  4,611
  4,872
  5,144
Operating income, $m
  13
  38
  46
  55
  64
  74
  84
  95
  107
  119
  132
  156
  170
  185
  200
  215
  232
  249
  266
  285
  304
  324
  344
  366
  388
  411
  435
  461
  487
  515
  543
EBITDA, $m
  50
  76
  88
  102
  116
  132
  148
  165
  183
  202
  222
  243
  265
  287
  311
  335
  360
  387
  414
  443
  472
  503
  535
  568
  603
  639
  677
  716
  757
  800
  845
Interest expense (income), $m
  4
  5
  7
  9
  12
  15
  18
  21
  24
  27
  31
  35
  38
  43
  47
  51
  56
  60
  65
  71
  76
  81
  87
  93
  100
  106
  113
  120
  127
  135
  143
Earnings before tax, $m
  0
  33
  39
  45
  52
  59
  67
  75
  83
  92
  101
  122
  132
  142
  153
  164
  176
  188
  201
  214
  228
  242
  257
  272
  288
  305
  323
  341
  360
  380
  400
Tax expense, $m
  3
  9
  11
  12
  14
  16
  18
  20
  22
  25
  27
  33
  36
  38
  41
  44
  48
  51
  54
  58
  62
  65
  69
  74
  78
  82
  87
  92
  97
  103
  108
Net income, $m
  -11
  24
  28
  33
  38
  43
  49
  55
  61
  67
  74
  89
  96
  104
  112
  120
  129
  137
  147
  156
  166
  177
  188
  199
  211
  223
  236
  249
  263
  277
  292

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  69
  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
  728
  774
  900
  1,036
  1,182
  1,338
  1,504
  1,679
  1,863
  2,056
  2,259
  2,470
  2,690
  2,920
  3,159
  3,407
  3,665
  3,933
  4,212
  4,501
  4,802
  5,115
  5,441
  5,780
  6,133
  6,501
  6,885
  7,284
  7,702
  8,137
  8,592
Adjusted assets (=assets-cash), $m
  659
  774
  900
  1,036
  1,182
  1,338
  1,504
  1,679
  1,863
  2,056
  2,259
  2,470
  2,690
  2,920
  3,159
  3,407
  3,665
  3,933
  4,212
  4,501
  4,802
  5,115
  5,441
  5,780
  6,133
  6,501
  6,885
  7,284
  7,702
  8,137
  8,592
Revenue / Adjusted assets
  0.662
  0.661
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
Average production assets, $m
  178
  209
  243
  280
  319
  361
  406
  453
  503
  555
  610
  667
  727
  789
  853
  920
  990
  1,062
  1,138
  1,216
  1,297
  1,382
  1,470
  1,561
  1,657
  1,756
  1,859
  1,967
  2,080
  2,198
  2,321
Working capital, $m
  -67
  -29
  -34
  -39
  -45
  -50
  -57
  -63
  -70
  -78
  -85
  -93
  -102
  -110
  -119
  -129
  -138
  -148
  -159
  -170
  -181
  -193
  -205
  -218
  -231
  -245
  -260
  -275
  -291
  -307
  -324
Total debt, $m
  213
  205
  271
  343
  420
  502
  589
  682
  779
  881
  987
  1,099
  1,215
  1,336
  1,462
  1,592
  1,728
  1,870
  2,017
  2,169
  2,328
  2,493
  2,665
  2,843
  3,029
  3,223
  3,425
  3,636
  3,856
  4,085
  4,325
Total liabilities, $m
  416
  408
  474
  546
  623
  705
  792
  885
  982
  1,084
  1,190
  1,302
  1,418
  1,539
  1,665
  1,795
  1,931
  2,073
  2,220
  2,372
  2,531
  2,696
  2,868
  3,046
  3,232
  3,426
  3,628
  3,839
  4,059
  4,288
  4,528
Total equity, $m
  312
  366
  426
  490
  559
  633
  711
  794
  881
  973
  1,068
  1,168
  1,273
  1,381
  1,494
  1,611
  1,734
  1,860
  1,992
  2,129
  2,272
  2,420
  2,574
  2,734
  2,901
  3,075
  3,256
  3,446
  3,643
  3,849
  4,064
Total liabilities and equity, $m
  728
  774
  900
  1,036
  1,182
  1,338
  1,503
  1,679
  1,863
  2,057
  2,258
  2,470
  2,691
  2,920
  3,159
  3,406
  3,665
  3,933
  4,212
  4,501
  4,803
  5,116
  5,442
  5,780
  6,133
  6,501
  6,884
  7,285
  7,702
  8,137
  8,592
Debt-to-equity ratio
  0.683
  0.560
  0.640
  0.700
  0.750
  0.790
  0.830
  0.860
  0.880
  0.910
  0.920
  0.940
  0.950
  0.970
  0.980
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.040
  1.040
  1.040
  1.050
  1.050
  1.060
  1.060
  1.060
  1.060
Adjusted equity ratio
  0.369
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -11
  24
  28
  33
  38
  43
  49
  55
  61
  67
  74
  89
  96
  104
  112
  120
  129
  137
  147
  156
  166
  177
  188
  199
  211
  223
  236
  249
  263
  277
  292
Depreciation, amort., depletion, $m
  37
  38
  42
  47
  52
  58
  63
  70
  76
  83
  90
  87
  94
  102
  111
  120
  129
  138
  148
  158
  168
  179
  191
  203
  215
  228
  241
  256
  270
  285
  301
Funds from operations, $m
  71
  62
  71
  80
  90
  101
  112
  124
  137
  150
  164
  175
  191
  206
  223
  239
  257
  275
  294
  314
  335
  356
  378
  402
  426
  451
  477
  504
  533
  563
  594
Change in working capital, $m
  21
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
Cash from operations, $m
  50
  66
  75
  85
  96
  107
  118
  131
  144
  157
  172
  183
  199
  215
  232
  249
  267
  286
  305
  325
  346
  368
  391
  414
  439
  465
  491
  519
  549
  579
  611
Maintenance CAPEX, $m
  0
  -23
  -27
  -32
  -36
  -41
  -47
  -53
  -59
  -65
  -72
  -79
  -87
  -94
  -102
  -111
  -120
  -129
  -138
  -148
  -158
  -168
  -179
  -191
  -203
  -215
  -228
  -241
  -256
  -270
  -285
New CAPEX, $m
  -63
  -31
  -34
  -37
  -39
  -42
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -62
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -95
  -99
  -104
  -108
  -113
  -118
  -123
Cash from investing activities, $m
  -32
  -54
  -61
  -69
  -75
  -83
  -92
  -100
  -109
  -117
  -127
  -136
  -147
  -156
  -166
  -178
  -190
  -201
  -213
  -226
  -239
  -253
  -267
  -283
  -298
  -314
  -332
  -349
  -369
  -388
  -408
Free cash flow, $m
  18
  12
  14
  17
  20
  23
  27
  31
  35
  40
  45
  47
  53
  58
  65
  71
  78
  85
  92
  99
  107
  115
  123
  132
  141
  150
  160
  170
  180
  191
  203
Issuance/(repayment) of debt, $m
  -53
  61
  66
  72
  77
  82
  87
  92
  97
  102
  107
  111
  116
  121
  126
  131
  136
  141
  147
  153
  159
  165
  172
  179
  186
  194
  202
  211
  220
  229
  240
Issuance/(repurchase) of shares, $m
  1
  30
  31
  31
  31
  31
  30
  28
  26
  24
  22
  11
  8
  5
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -52
  91
  97
  103
  108
  113
  117
  120
  123
  126
  129
  122
  124
  126
  127
  131
  136
  141
  147
  153
  159
  165
  172
  179
  186
  194
  202
  211
  220
  229
  240
Total cash flow (excl. dividends), $m
  -43
  103
  112
  120
  128
  136
  144
  151
  159
  166
  173
  170
  177
  184
  192
  202
  214
  226
  239
  252
  266
  280
  295
  311
  327
  344
  362
  381
  400
  421
  442
Retained Cash Flow (-), $m
  31
  -54
  -59
  -64
  -69
  -74
  -78
  -83
  -87
  -91
  -96
  -100
  -104
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -142
  -148
  -154
  -160
  -167
  -174
  -181
  -189
  -197
  -206
  -215
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
 
  49
  52
  56
  59
  62
  65
  68
  71
  74
  77
  70
  73
  76
  79
  84
  92
  99
  107
  115
  123
  132
  141
  150
  160
  170
  181
  192
  203
  215
  227
Discount rate, %
 
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
 
  46
  46
  45
  44
  43
  41
  39
  36
  33
  30
  24
  21
  19
  16
  14
  13
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  97.3
  94.9
  92.9
  91.2
  89.8
  88.5
  87.5
  86.7
  86.0
  85.4
  85.2
  85.0
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9
  84.9

iKang Healthcare Group, Inc. provides preventive healthcare solutions, including a range of medical examinations services and value-added services, including disease screening, dental services and other services in China. The Company's segments include medical examinations and other medical services, and dental services. The Company, through its integrated service platform, offers healthcare management solutions, including medical examinations, which cover basic examination items, such as internal, gynecology, ophthalmology, dental and X-ray, and value-added services at selected medical centers, including disease screening focusing on cancer screening, cardiovascular disease screening, certain chronic disease screening and functional medicine testing; dental care, including oral health, pediatric dentistry and cosmetic dentistry; outpatient services, such as acupuncture, obstetrics, gynecology and minor surgery, and on-site healthcare management or clinics at certain locations.


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FINANCIAL RATIOS  of  iKang Healthcare Group ADR (KANG)

Valuation Ratios
P/E Ratio -49.9
Price to Sales 1.3
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 11
Price to Free Cash Flow -42.3
Growth Rates
Sales Growth Rate 17.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 70.3%
Cap. Spend. - 3 Yr. Gr. Rate 11.8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 32.7%
Total Debt to Equity 68.3%
Interest Coverage 1
Management Effectiveness
Return On Assets -0.9%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital -1.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity -3.4%
Return On Equity - 3 Yr. Avg. 4.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 39.9%
Gross Margin - 3 Yr. Avg. 43.3%
EBITDA Margin 9.4%
EBITDA Margin - 3 Yr. Avg. 15.3%
Operating Margin 3.2%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 6.7%
Net Profit Margin -2.5%
Net Profit Margin - 3 Yr. Avg. 3.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 19.2%
Payout Ratio 0%

KANG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KANG stock intrinsic value calculation we used $436 million for the last fiscal year's total revenue generated by iKang Healthcare Group ADR. The default revenue input number comes from 2017 income statement of iKang Healthcare Group ADR. 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 KANG stock valuation model: a) initial revenue growth rate of 17.5% 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 6.3%, whose default value for KANG is calculated based on our internal credit rating of iKang Healthcare Group ADR, 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 iKang Healthcare Group ADR.
    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 KANG stock the variable cost ratio is equal to 92.9%.

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 KANG 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 iKang Healthcare Group ADR.

Corporate tax rate of 27% is the nominal tax rate for iKang Healthcare Group ADR. 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 KANG 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 KANG are equal to 40.8%.

Life of production assets of 7.7 years is the average useful life of capital assets used in iKang Healthcare Group ADR 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 KANG is equal to -5.7%. 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 - $312 million for iKang Healthcare Group ADR - 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 67.089 million for iKang Healthcare Group ADR 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 iKang Healthcare Group ADR at the current share price and the inputted number of shares is $1.1 billion.

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COMPANY NEWS

▶ iKang Filed 2015 Annual Report on Form 20-F   [Aug-01-16 07:45AM  GlobeNewswire]
▶ Is iKang Healthcare Group Inc (ADR) (KANG) A Good Stock To Buy?   [Dec-10  01:42PM  at Insider Monkey]
▶ Meinian Responds to iKang's "Poison Pill" Rights Plan   [Dec-03  01:26PM  PR Newswire]
▶ iKang Healthcare Group, Inc. Adopts Rights Agreement   [Dec-02  09:15AM  GlobeNewswire]
▶ Do Hedge Funds Love Benefitfocus Inc (BNFT)?   [Nov-27  06:29AM  at Insider Monkey]
▶ iKang Announces Changes to the Board of Directors   [Oct-15  08:47AM  GlobeNewswire]
▶ After Carnage, Pros Pinpoint Bargains in China   [Sep-05  02:22AM  at Barrons.com]
Financial statements of KANG
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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