Intrinsic value of Noah Holdings ADR - NOAH

Previous Close

$39.14

  Intrinsic Value

$33.22

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  Rating & Target

hold

-15%

Previous close

$39.14

 
Intrinsic value

$33.22

 
Up/down potential

-15%

 
Rating

hold

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

We calculate the intrinsic value of NOAH 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 2.2

 

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, %
  10.70
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
Revenue, $m
  362
  384
  407
  431
  456
  482
  509
  538
  568
  599
  631
  665
  701
  738
  777
  818
  860
  905
  952
  1,001
  1,053
  1,107
  1,164
  1,223
  1,285
  1,351
  1,419
  1,491
  1,567
  1,646
  1,729
Variable operating expenses, $m
 
  275
  291
  308
  326
  345
  364
  385
  406
  428
  451
  476
  501
  528
  555
  585
  615
  647
  681
  716
  753
  791
  832
  874
  919
  966
  1,015
  1,066
  1,120
  1,177
  1,236
Fixed operating expenses, $m
 
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
Total operating expenses, $m
  266
  282
  298
  316
  334
  353
  372
  393
  415
  437
  460
  485
  510
  538
  565
  595
  625
  658
  692
  727
  764
  803
  844
  886
  932
  979
  1,028
  1,080
  1,134
  1,191
  1,251
Operating income, $m
  96
  102
  109
  115
  122
  130
  137
  145
  153
  162
  171
  180
  190
  201
  212
  223
  235
  247
  260
  274
  289
  304
  320
  336
  354
  372
  391
  411
  433
  455
  478
EBITDA, $m
  105
  109
  116
  123
  131
  138
  146
  155
  164
  173
  182
  192
  203
  214
  226
  238
  250
  264
  278
  292
  308
  324
  341
  358
  377
  397
  417
  439
  461
  485
  510
Interest expense (income), $m
  3
  3
  3
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
Earnings before tax, $m
  106
  99
  106
  112
  118
  124
  131
  138
  145
  153
  160
  169
  177
  186
  196
  206
  216
  227
  239
  251
  263
  277
  291
  305
  320
  337
  353
  371
  390
  409
  430
Tax expense, $m
  23
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
  58
  61
  64
  68
  71
  75
  78
  82
  87
  91
  95
  100
  105
  110
  116
Net income, $m
  93
  72
  77
  82
  86
  91
  96
  101
  106
  111
  117
  123
  130
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  223
  234
  246
  258
  271
  284
  299
  314

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  473
  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
  858
  409
  433
  459
  485
  513
  542
  572
  604
  637
  671
  708
  745
  785
  826
  870
  915
  963
  1,013
  1,065
  1,120
  1,177
  1,238
  1,301
  1,367
  1,437
  1,510
  1,586
  1,667
  1,751
  1,840
Adjusted assets (=assets-cash), $m
  385
  409
  433
  459
  485
  513
  542
  572
  604
  637
  671
  708
  745
  785
  826
  870
  915
  963
  1,013
  1,065
  1,120
  1,177
  1,238
  1,301
  1,367
  1,437
  1,510
  1,586
  1,667
  1,751
  1,840
Revenue / Adjusted assets
  0.940
  0.939
  0.940
  0.939
  0.940
  0.940
  0.939
  0.941
  0.940
  0.940
  0.940
  0.939
  0.941
  0.940
  0.941
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.941
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
  0.940
Average production assets, $m
  33
  35
  37
  39
  42
  44
  46
  49
  52
  54
  57
  61
  64
  67
  71
  74
  78
  82
  87
  91
  96
  101
  106
  111
  117
  123
  129
  136
  143
  150
  157
Working capital, $m
  455
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -78
  -82
  -86
Total debt, $m
  80
  70
  92
  115
  139
  164
  190
  217
  245
  275
  306
  339
  373
  408
  446
  485
  526
  569
  614
  661
  710
  762
  816
  873
  933
  995
  1,061
  1,130
  1,202
  1,278
  1,358
Total liabilities, $m
  378
  368
  390
  413
  437
  462
  488
  515
  543
  573
  604
  637
  671
  706
  744
  783
  824
  867
  912
  959
  1,008
  1,060
  1,114
  1,171
  1,231
  1,293
  1,359
  1,428
  1,500
  1,576
  1,656
Total equity, $m
  480
  41
  43
  46
  49
  51
  54
  57
  60
  64
  67
  71
  75
  78
  83
  87
  92
  96
  101
  107
  112
  118
  124
  130
  137
  144
  151
  159
  167
  175
  184
Total liabilities and equity, $m
  858
  409
  433
  459
  486
  513
  542
  572
  603
  637
  671
  708
  746
  784
  827
  870
  916
  963
  1,013
  1,066
  1,120
  1,178
  1,238
  1,301
  1,368
  1,437
  1,510
  1,587
  1,667
  1,751
  1,840
Debt-to-equity ratio
  0.167
  1.710
  2.120
  2.500
  2.860
  3.190
  3.500
  3.790
  4.060
  4.320
  4.560
  4.790
  5.000
  5.200
  5.390
  5.570
  5.740
  5.910
  6.060
  6.200
  6.340
  6.470
  6.590
  6.710
  6.820
  6.930
  7.030
  7.120
  7.210
  7.300
  7.380
Adjusted equity ratio
  0.018
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  93
  72
  77
  82
  86
  91
  96
  101
  106
  111
  117
  123
  130
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  223
  234
  246
  258
  271
  284
  299
  314
Depreciation, amort., depletion, $m
  9
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  31
Funds from operations, $m
  78
  79
  85
  89
  94
  99
  105
  110
  116
  122
  129
  135
  142
  150
  157
  165
  174
  182
  192
  201
  211
  222
  233
  245
  257
  270
  284
  298
  313
  329
  345
Change in working capital, $m
  -21
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
Cash from operations, $m
  99
  81
  86
  91
  96
  101
  106
  112
  118
  124
  130
  137
  144
  151
  159
  167
  176
  185
  194
  204
  214
  225
  236
  248
  260
  274
  287
  302
  317
  333
  349
Maintenance CAPEX, $m
  0
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
New CAPEX, $m
  -15
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Cash from investing activities, $m
  -127
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
Free cash flow, $m
  -28
  72
  77
  81
  85
  90
  95
  100
  105
  111
  116
  122
  129
  135
  142
  149
  157
  165
  173
  182
  191
  201
  211
  221
  233
  244
  256
  269
  283
  297
  312
Issuance/(repayment) of debt, $m
  0
  -10
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
Issuance/(repurchase) of shares, $m
  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
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  143
  -10
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
Total cash flow (excl. dividends), $m
  122
  62
  99
  104
  109
  115
  121
  127
  134
  140
  147
  155
  163
  171
  179
  188
  198
  208
  218
  229
  241
  253
  265
  278
  292
  307
  322
  338
  355
  373
  391
Retained Cash Flow (-), $m
  -102
  -34
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Prev. year cash balance distribution, $m
 
  473
  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
 
  501
  96
  101
  107
  112
  118
  124
  130
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  224
  235
  247
  259
  272
  286
  300
  315
  330
  347
  364
  382
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
 
  480
  88
  88
  88
  87
  86
  84
  82
  79
  76
  72
  68
  63
  59
  54
  49
  44
  39
  34
  30
  26
  21
  18
  15
  12
  9
  7
  5
  4
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Noah Holdings Limited is a wealth management service provider with a focus on global wealth investment and asset allocation services for high net worth individuals and enterprises in China. The Company operates through three segments: wealth management, asset management and Internet finance. It also provides Internet finance services to clients in China. It provides direct access to China's high net worth population. With approximately 1,100 relationship managers in over 130 branch offices, its coverage network includes China's regions where high net worth population is concentrated, including the Yangtze River Delta, the Pearl River Delta, the Bohai Rim and other regions. Its product offerings consist primarily of over-the-counter (OTC) wealth management and OTC asset management products, mutual fund products and asset management plans originated in China and designed to cater to the needs of China's high net worth population.

FINANCIAL RATIOS  of  Noah Holdings ADR (NOAH)

Valuation Ratios
P/E Ratio 11.9
Price to Sales 3.1
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 11.2
Price to Free Cash Flow 13.2
Growth Rates
Sales Growth Rate 10.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.6%
Cap. Spend. - 3 Yr. Gr. Rate 16.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 16.7%
Total Debt to Equity 16.7%
Interest Coverage 36
Management Effectiveness
Return On Assets 12.8%
Ret/ On Assets - 3 Yr. Avg. 16%
Return On Total Capital 18.3%
Ret/ On T. Cap. - 3 Yr. Avg. 22%
Return On Equity 21.7%
Return On Equity - 3 Yr. Avg. 24.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 32.6%
EBITDA Margin - 3 Yr. Avg. 35.1%
Operating Margin 26.5%
Oper. Margin - 3 Yr. Avg. 29.7%
Pre-Tax Margin 29.3%
Pre-Tax Margin - 3 Yr. Avg. 32.9%
Net Profit Margin 25.7%
Net Profit Margin - 3 Yr. Avg. 26.7%
Effective Tax Rate 21.7%
Eff/ Tax Rate - 3 Yr. Avg. 22.5%
Payout Ratio 0%

NOAH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NOAH stock intrinsic value calculation we used $362 million for the last fiscal year's total revenue generated by Noah Holdings ADR. The default revenue input number comes from 2016 income statement of Noah Holdings 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 NOAH stock valuation model: a) initial revenue growth rate of 6.1% 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 NOAH is calculated based on our internal credit rating of Noah Holdings 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 Noah Holdings 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 NOAH stock the variable cost ratio is equal to 71.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7 million in the base year in the intrinsic value calculation for NOAH 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 3.8% for Noah Holdings ADR.

Corporate tax rate of 27% is the nominal tax rate for Noah Holdings 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 NOAH 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 NOAH are equal to 9.1%.

Life of production assets of 3.7 years is the average useful life of capital assets used in Noah Holdings 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 NOAH is equal to -5%. 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 - $480 million for Noah Holdings 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 56.464 million for Noah Holdings 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 Noah Holdings ADR at the current share price and the inputted number of shares is $2.2 billion.

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COMPANY NEWS

▶ 3 Ways To Play China's Rate Decision   [Oct-09-17 01:35PM  Benzinga]
▶ Blackstone Earns Relative Strength Rating Upgrade   [03:00AM  Investor's Business Daily]
▶ Noah posts 2Q profit   [Aug-28-17 10:17PM  Associated Press]
▶ Stock With 1,631% EPS Growth And 5.9% Dividend Tests Buy Zone   [Jul-28-17 04:16PM  Investor's Business Daily]
▶ Noah Holdings Rated Investment Grade By S&P   [Jul-24-17 06:00AM  PR Newswire]
▶ ETFs with exposure to Noah Holdings Ltd. : July 3, 2017   [Jul-03-17 03:32PM  Capital Cube]
▶ ETFs with exposure to Noah Holdings Ltd. : June 1, 2017   [Jun-01-17 02:00PM  Capital Cube]
▶ Noah posts 1Q profit   [May-15-17 07:17PM  Associated Press]
▶ Trumps Role in the Markets Current Guessing Game   [Apr-19-17 07:37AM  Market Realist]
▶ ETFs with exposure to Noah Holdings Ltd. : April 7, 2017   [Apr-07-17 05:09PM  Capital Cube]
▶ Noah posts 4Q profit   [Feb-27-17 05:32PM  Associated Press]
▶ Noah Holdings (NOAH) Enters Oversold Territory   [Dec-13-16 09:28AM  Zacks]
▶ Is Forward Air Corporation (FWRD) a Good Stock to Invest in?   [Dec-05-16 03:37PM  at Insider Monkey]
▶ Tiger Pacific Capitals Bets on China Lead to Big Q3   [Nov-07-16 02:34PM  at Insider Monkey]
▶ NOAH HOLDINGS LTD Financials   [01:04PM  EDGAR Online Financials]
▶ Best Asian Stocks to Buy Now According to Tiger Pacific Capital   [Feb-13-16 09:26AM  at Insider Monkey]
Financial statements of NOAH
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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