Intrinsic value of China Life Insurance ADR - LFC

Previous Close

$15.94

  Intrinsic Value

$31.72

stock screener

  Rating & Target

str. buy

+99%

Previous close

$15.94

 
Intrinsic value

$31.72

 
Up/down potential

+99%

 
Rating

str. buy

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

We calculate the intrinsic value of LFC 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 115.8

 

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, %
  7.02
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
Revenue, $m
  0
  84,123
  89,844
  95,791
  101,978
  108,415
  115,116
  122,095
  129,368
  136,950
  144,859
  153,112
  161,728
  170,728
  180,133
  189,963
  200,244
  210,998
  222,252
  234,032
  246,365
  259,283
  272,814
  286,992
  301,851
  317,425
  333,752
  350,871
  368,822
  387,649
  407,397
Variable operating expenses, $m
 
  76,805
  82,027
  87,458
  93,106
  98,983
  105,101
  111,473
  118,113
  125,035
  132,256
  139,791
  147,658
  155,875
  164,461
  173,437
  182,823
  192,641
  202,916
  213,671
  224,932
  236,725
  249,079
  262,024
  275,590
  289,809
  304,715
  320,345
  336,735
  353,924
  371,953
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
  76,018
  76,805
  82,027
  87,458
  93,106
  98,983
  105,101
  111,473
  118,113
  125,035
  132,256
  139,791
  147,658
  155,875
  164,461
  173,437
  182,823
  192,641
  202,916
  213,671
  224,932
  236,725
  249,079
  262,024
  275,590
  289,809
  304,715
  320,345
  336,735
  353,924
  371,953
Operating income, $m
  2,602
  7,319
  7,816
  8,334
  8,872
  9,432
  10,015
  10,622
  11,255
  11,915
  12,603
  13,321
  14,070
  14,853
  15,672
  16,527
  17,421
  18,357
  19,336
  20,361
  21,434
  22,558
  23,735
  24,968
  26,261
  27,616
  29,036
  30,526
  32,088
  33,725
  35,444
EBITDA, $m
  2,903
  7,640
  8,160
  8,700
  9,262
  9,846
  10,455
  11,089
  11,749
  12,438
  13,156
  13,906
  14,688
  15,505
  16,360
  17,252
  18,186
  19,163
  20,185
  21,255
  22,375
  23,548
  24,777
  26,064
  27,414
  28,828
  30,311
  31,866
  33,496
  35,206
  37,000
Interest expense (income), $m
  708
  626
  2,550
  4,493
  6,514
  8,617
  10,804
  13,081
  15,452
  17,924
  20,500
  23,187
  25,992
  28,920
  31,978
  35,173
  38,514
  42,007
  45,661
  49,485
  53,488
  57,679
  62,068
  66,666
  71,484
  76,533
  81,825
  87,372
  93,189
  99,289
  105,687
Earnings before tax, $m
  3,449
  6,693
  5,267
  3,840
  2,358
  816
  -789
  -2,459
  -4,197
  -6,009
  -7,897
  -9,867
  -11,921
  -14,066
  -16,306
  -18,646
  -21,093
  -23,650
  -26,325
  -29,124
  -32,054
  -35,121
  -38,333
  -41,698
  -45,223
  -48,917
  -52,788
  -56,847
  -61,102
  -65,564
  -70,243
Tax expense, $m
  616
  1,807
  1,422
  1,037
  637
  220
  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
Net income, $m
  2,767
  4,886
  3,845
  2,803
  1,721
  595
  -789
  -2,459
  -4,197
  -6,009
  -7,897
  -9,867
  -11,921
  -14,066
  -16,306
  -18,646
  -21,093
  -23,650
  -26,325
  -29,124
  -32,054
  -35,121
  -38,333
  -41,698
  -45,223
  -48,917
  -52,788
  -56,847
  -61,102
  -65,564
  -70,243

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  390,174
  418,524
  446,984
  476,574
  507,352
  539,377
  572,715
  607,438
  643,621
  681,343
  720,690
  761,750
  804,618
  849,394
  896,182
  945,092
  996,238
  1,049,742
  1,105,730
  1,164,336
  1,225,699
  1,289,964
  1,357,285
  1,427,822
  1,501,745
  1,579,228
  1,660,456
  1,745,625
  1,834,936
  1,928,604
  2,026,851
Adjusted assets (=assets-cash), $m
  390,174
  418,524
  446,984
  476,574
  507,352
  539,377
  572,715
  607,438
  643,621
  681,343
  720,690
  761,750
  804,618
  849,394
  896,182
  945,092
  996,238
  1,049,742
  1,105,730
  1,164,336
  1,225,699
  1,289,964
  1,357,285
  1,427,822
  1,501,745
  1,579,228
  1,660,456
  1,745,625
  1,834,936
  1,928,604
  2,026,851
Revenue / Adjusted assets
  0.000
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
Average production assets, $m
  4,326
  4,627
  4,941
  5,269
  5,609
  5,963
  6,331
  6,715
  7,115
  7,532
  7,967
  8,421
  8,895
  9,390
  9,907
  10,448
  11,013
  11,605
  12,224
  12,872
  13,550
  14,261
  15,005
  15,785
  16,602
  17,458
  18,356
  19,298
  20,285
  21,321
  22,407
Working capital, $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
Total debt, $m
  8,130
  33,113
  58,357
  84,603
  111,903
  140,309
  169,881
  200,680
  232,774
  266,233
  301,134
  337,554
  375,579
  415,295
  456,796
  500,178
  545,545
  593,003
  642,665
  694,648
  749,077
  806,080
  865,794
  928,361
  993,929
  1,062,657
  1,134,707
  1,210,251
  1,289,470
  1,372,553
  1,459,699
Total liabilities, $m
  346,248
  371,231
  396,475
  422,721
  450,021
  478,427
  507,999
  538,798
  570,892
  604,351
  639,252
  675,672
  713,697
  753,413
  794,914
  838,296
  883,663
  931,121
  980,783
  1,032,766
  1,087,195
  1,144,198
  1,203,912
  1,266,479
  1,332,047
  1,400,775
  1,472,825
  1,548,369
  1,627,588
  1,710,671
  1,797,817
Total equity, $m
  43,926
  47,293
  50,509
  53,853
  57,331
  60,950
  64,717
  68,641
  72,729
  76,992
  81,438
  86,078
  90,922
  95,982
  101,269
  106,795
  112,575
  118,621
  124,948
  131,570
  138,504
  145,766
  153,373
  161,344
  169,697
  178,453
  187,632
  197,256
  207,348
  217,932
  229,034
Total liabilities and equity, $m
  390,174
  418,524
  446,984
  476,574
  507,352
  539,377
  572,716
  607,439
  643,621
  681,343
  720,690
  761,750
  804,619
  849,395
  896,183
  945,091
  996,238
  1,049,742
  1,105,731
  1,164,336
  1,225,699
  1,289,964
  1,357,285
  1,427,823
  1,501,744
  1,579,228
  1,660,457
  1,745,625
  1,834,936
  1,928,603
  2,026,851
Debt-to-equity ratio
  0.185
  0.700
  1.160
  1.570
  1.950
  2.300
  2.620
  2.920
  3.200
  3.460
  3.700
  3.920
  4.130
  4.330
  4.510
  4.680
  4.850
  5.000
  5.140
  5.280
  5.410
  5.530
  5.650
  5.750
  5.860
  5.950
  6.050
  6.140
  6.220
  6.300
  6.370
Adjusted equity ratio
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,767
  4,886
  3,845
  2,803
  1,721
  595
  -789
  -2,459
  -4,197
  -6,009
  -7,897
  -9,867
  -11,921
  -14,066
  -16,306
  -18,646
  -21,093
  -23,650
  -26,325
  -29,124
  -32,054
  -35,121
  -38,333
  -41,698
  -45,223
  -48,917
  -52,788
  -56,847
  -61,102
  -65,564
  -70,243
Depreciation, amort., depletion, $m
  301
  321
  343
  366
  389
  414
  440
  466
  494
  523
  553
  585
  618
  652
  688
  726
  765
  806
  849
  894
  941
  990
  1,042
  1,096
  1,153
  1,212
  1,275
  1,340
  1,409
  1,481
  1,556
Funds from operations, $m
  19,748
  5,207
  4,188
  3,169
  2,111
  1,009
  -349
  -1,992
  -3,703
  -5,486
  -7,344
  -9,282
  -11,304
  -13,414
  -15,618
  -17,921
  -20,328
  -22,844
  -25,476
  -28,231
  -31,113
  -34,131
  -37,291
  -40,602
  -44,070
  -47,704
  -51,513
  -55,507
  -59,693
  -64,083
  -68,687
Change in working capital, $m
  6,858
  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 operations, $m
  12,890
  5,207
  4,188
  3,169
  2,111
  1,009
  -349
  -1,992
  -3,703
  -5,486
  -7,344
  -9,282
  -11,304
  -13,414
  -15,618
  -17,921
  -20,328
  -22,844
  -25,476
  -28,231
  -31,113
  -34,131
  -37,291
  -40,602
  -44,070
  -47,704
  -51,513
  -55,507
  -59,693
  -64,083
  -68,687
Maintenance CAPEX, $m
  0
  -300
  -321
  -343
  -366
  -389
  -414
  -440
  -466
  -494
  -523
  -553
  -585
  -618
  -652
  -688
  -726
  -765
  -806
  -849
  -894
  -941
  -990
  -1,042
  -1,096
  -1,153
  -1,212
  -1,275
  -1,340
  -1,409
  -1,481
New CAPEX, $m
  -768
  -301
  -315
  -327
  -340
  -354
  -369
  -384
  -400
  -417
  -435
  -454
  -474
  -495
  -517
  -541
  -565
  -591
  -619
  -648
  -678
  -710
  -744
  -780
  -817
  -857
  -898
  -942
  -987
  -1,035
  -1,086
Cash from investing activities, $m
  -15,148
  -601
  -636
  -670
  -706
  -743
  -783
  -824
  -866
  -911
  -958
  -1,007
  -1,059
  -1,113
  -1,169
  -1,229
  -1,291
  -1,356
  -1,425
  -1,497
  -1,572
  -1,651
  -1,734
  -1,822
  -1,913
  -2,010
  -2,110
  -2,217
  -2,327
  -2,444
  -2,567
Free cash flow, $m
  -2,258
  4,605
  3,552
  2,499
  1,404
  266
  -1,132
  -2,816
  -4,570
  -6,397
  -8,302
  -10,289
  -12,362
  -14,527
  -16,787
  -19,150
  -21,619
  -24,201
  -26,901
  -29,727
  -32,685
  -35,782
  -39,026
  -42,423
  -45,983
  -49,714
  -53,624
  -57,723
  -62,021
  -66,527
  -71,254
Issuance/(repayment) of debt, $m
  4,894
  24,983
  25,244
  26,247
  27,299
  28,406
  29,571
  30,799
  32,094
  33,460
  34,900
  36,420
  38,024
  39,716
  41,501
  43,383
  45,367
  47,458
  49,662
  51,983
  54,429
  57,003
  59,714
  62,567
  65,569
  68,727
  72,050
  75,544
  79,219
  83,083
  87,145
Issuance/(repurchase) of shares, $m
  0
  0
  0
  540
  1,757
  3,023
  4,556
  6,382
  8,286
  10,272
  12,343
  14,506
  16,765
  19,126
  21,593
  24,173
  26,872
  29,696
  32,652
  35,747
  38,988
  42,383
  45,941
  49,669
  53,576
  57,672
  61,967
  66,471
  71,194
  76,148
  81,345
Cash from financing (excl. dividends), $m  
  2,680
  24,983
  25,244
  26,787
  29,056
  31,429
  34,127
  37,181
  40,380
  43,732
  47,243
  50,926
  54,789
  58,842
  63,094
  67,556
  72,239
  77,154
  82,314
  87,730
  93,417
  99,386
  105,655
  112,236
  119,145
  126,399
  134,017
  142,015
  150,413
  159,231
  168,490
Total cash flow (excl. dividends), $m
  464
  29,588
  28,796
  29,286
  30,461
  31,696
  32,996
  34,366
  35,810
  37,334
  38,942
  40,638
  42,427
  44,315
  46,306
  48,406
  50,620
  52,954
  55,412
  58,003
  60,731
  63,604
  66,629
  69,812
  73,162
  76,686
  80,393
  84,292
  88,393
  92,704
  97,236
Retained Cash Flow (-), $m
  2,730
  -3,367
  -3,216
  -3,344
  -3,478
  -3,619
  -4,556
  -6,382
  -8,286
  -10,272
  -12,343
  -14,506
  -16,765
  -19,126
  -21,593
  -24,173
  -26,872
  -29,696
  -32,652
  -35,747
  -38,988
  -42,383
  -45,941
  -49,669
  -53,576
  -57,672
  -61,967
  -66,471
  -71,194
  -76,148
  -81,345
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
 
  26,221
  25,580
  25,942
  26,983
  28,077
  28,440
  27,984
  27,524
  27,063
  26,598
  26,131
  25,662
  25,189
  24,713
  24,233
  23,748
  23,258
  22,760
  22,256
  21,743
  21,221
  20,688
  20,143
  19,586
  19,014
  18,426
  17,822
  17,199
  16,556
  15,891
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
 
  25,140
  23,417
  22,577
  22,218
  21,763
  20,640
  18,905
  17,203
  15,546
  13,944
  12,409
  10,951
  9,577
  8,297
  7,114
  6,035
  5,060
  4,192
  3,427
  2,763
  2,195
  1,717
  1,320
  998
  740
  538
  383
  266
  181
  120
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  99.6
  98.4
  96.4
  93.8
  90.4
  86.5
  82.1
  77.4
  72.5
  67.5
  62.5
  57.6
  52.8
  48.2
  43.8
  39.7
  35.8
  32.2
  28.8
  25.8
  22.9
  20.4
  18.0
  15.9
  14.1
  12.4
  10.9
  9.5

China Life Insurance Company Limited is a life insurance company. The Company provides a range of insurance products, including individual and group life insurance, health insurance and accident insurance products. It operates through three segments: Life Insurance, Health Insurance, and Accident Insurance. Its Life Insurance segment provides participating and non-participating life insurance and annuities to individuals and groups. Its Health Insurance segment provides short-term and long-term health insurance to individuals and groups. Its Accident Insurance segment provides short-term and long-term accident insurance to individuals and groups.

FINANCIAL RATIOS  of  China Life Insurance ADR (LFC)

Valuation Ratios
P/E Ratio 162.8
Price to Sales 5.7
Price to Book 10.3
Price to Tangible Book
Price to Cash Flow 35
Price to Free Cash Flow 37.2
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.7%
Cap. Spend. - 3 Yr. Gr. Rate 7.3%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 18.5%
Total Debt to Equity 18.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 0.9%
Ret/ On Assets - 3 Yr. Avg. 1.4%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8.1%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. 8.9%
Operating Margin 3.3%
Oper. Margin - 3 Yr. Avg. 7.1%
Pre-Tax Margin 4.4%
Pre-Tax Margin - 3 Yr. Avg. 7.5%
Net Profit Margin 3.5%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 17.9%
Eff/ Tax Rate - 3 Yr. Avg. 20.3%
Payout Ratio 64.1%

LFC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LFC stock intrinsic value calculation we used $78620 million for the last fiscal year's total revenue generated by China Life Insurance ADR. The default revenue input number comes from 2016 income statement of China Life Insurance 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 LFC stock valuation model: a) initial revenue growth rate of 7% 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 LFC is calculated based on our internal credit rating of China Life Insurance 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 China Life Insurance 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 LFC stock the variable cost ratio is equal to 91.3%.

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 LFC 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 7.7% for China Life Insurance ADR.

Corporate tax rate of 27% is the nominal tax rate for China Life Insurance 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 LFC 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 LFC are equal to 5.5%.

Life of production assets of 14.4 years is the average useful life of capital assets used in China Life Insurance 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 LFC is equal to 0%. 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 - $43926 million for China Life Insurance 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 7266.34 million for China Life Insurance 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 China Life Insurance ADR at the current share price and the inputted number of shares is $115.8 billion.

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▶ [$$] Baidu, China Life Set Up $1.05 Billion Investment Fund   [11:34AM  The Wall Street Journal]
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▶ Why Is China Life Insurance Soaring?   [Feb-05-17 10:10PM  Barrons.com]
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Financial statements of LFC
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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