Intrinsic value of Ossen Innovation ADR - OSN

Previous Close

$1.97

  Intrinsic Value

$2.24

stock screener

  Rating & Target

hold

+14%

  Value-price divergence*

0%

Previous close

$1.97

 
Intrinsic value

$2.24

 
Up/down potential

+14%

 
Rating

hold

 
Value-price divergence*

0%

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

We calculate the intrinsic value of OSN 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 0.0

 

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, %
  -0.85
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  117
  119
  122
  125
  129
  133
  137
  142
  147
  152
  158
  164
  171
  178
  185
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
  384
Variable operating expenses, $m
 
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  62
  66
  69
Fixed operating expenses, $m
 
  90
  92
  95
  97
  100
  102
  105
  107
  110
  113
  115
  118
  121
  124
  127
  131
  134
  137
  141
  144
  148
  151
  155
  159
  163
  167
  171
  176
  180
  185
Total operating expenses, $m
  108
  111
  114
  117
  120
  124
  127
  130
  133
  137
  141
  144
  149
  153
  157
  162
  167
  172
  176
  182
  187
  193
  198
  204
  211
  217
  224
  231
  238
  246
  254
Operating income, $m
  9
  8
  8
  8
  9
  9
  10
  12
  13
  15
  17
  19
  22
  25
  28
  31
  35
  39
  44
  48
  54
  59
  65
  72
  78
  86
  94
  102
  111
  120
  131
EBITDA, $m
  10
  8
  8
  8
  9
  10
  11
  12
  14
  15
  18
  20
  22
  25
  29
  32
  36
  40
  44
  49
  54
  60
  66
  73
  79
  87
  95
  103
  112
  122
  132
Interest expense (income), $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Earnings before tax, $m
  6
  6
  6
  6
  7
  7
  8
  9
  11
  13
  15
  17
  19
  22
  25
  28
  32
  36
  40
  45
  49
  55
  61
  67
  73
  80
  88
  96
  104
  114
  123
Tax expense, $m
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
Net income, $m
  5
  4
  4
  5
  5
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  21
  23
  26
  29
  32
  36
  40
  44
  49
  53
  59
  64
  70
  76
  83
  90

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
  140
  143
  146
  150
  154
  159
  164
  169
  175
  182
  189
  196
  204
  213
  222
  231
  242
  252
  264
  276
  288
  302
  316
  331
  346
  363
  380
  398
  418
  438
  459
Adjusted assets (=assets-cash), $m
  140
  143
  146
  150
  154
  159
  164
  169
  175
  182
  189
  196
  204
  213
  222
  231
  242
  252
  264
  276
  288
  302
  316
  331
  346
  363
  380
  398
  418
  438
  459
Revenue / Adjusted assets
  0.836
  0.832
  0.836
  0.833
  0.838
  0.836
  0.835
  0.840
  0.840
  0.835
  0.836
  0.837
  0.838
  0.836
  0.833
  0.835
  0.835
  0.837
  0.833
  0.833
  0.837
  0.834
  0.835
  0.834
  0.835
  0.835
  0.837
  0.837
  0.835
  0.836
  0.837
Average production assets, $m
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
Working capital, $m
  101
  60
  61
  63
  64
  66
  68
  71
  73
  76
  79
  82
  85
  89
  93
  97
  101
  105
  110
  115
  121
  126
  132
  138
  145
  152
  159
  167
  175
  183
  192
Total debt, $m
  34
  35
  36
  37
  39
  41
  42
  44
  47
  49
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  92
  97
  102
  108
  113
  120
  126
  133
  140
  148
Total liabilities, $m
  50
  51
  52
  53
  55
  57
  58
  60
  63
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  124
  129
  136
  142
  149
  156
  164
Total equity, $m
  90
  92
  94
  96
  99
  102
  105
  109
  113
  117
  121
  126
  131
  137
  143
  149
  155
  162
  170
  177
  185
  194
  203
  213
  223
  233
  244
  256
  269
  282
  295
Total liabilities and equity, $m
  140
  143
  146
  149
  154
  159
  163
  169
  176
  182
  188
  196
  204
  213
  222
  232
  241
  252
  264
  275
  288
  302
  316
  331
  347
  362
  380
  398
  418
  438
  459
Debt-to-equity ratio
  0.378
  0.380
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
  0.440
  0.450
  0.450
  0.460
  0.460
  0.460
  0.470
  0.470
  0.480
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
Adjusted equity ratio
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  4
  4
  5
  5
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  21
  23
  26
  29
  32
  36
  40
  44
  49
  53
  59
  64
  70
  76
  83
  90
Depreciation, amort., depletion, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Funds from operations, $m
  25
  5
  5
  5
  5
  6
  7
  7
  8
  10
  11
  13
  15
  17
  19
  21
  24
  27
  30
  33
  37
  41
  45
  50
  54
  60
  65
  71
  77
  84
  91
Change in working capital, $m
  9
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  16
  4
  3
  3
  4
  4
  4
  5
  6
  7
  8
  10
  11
  13
  15
  17
  20
  22
  25
  28
  32
  35
  39
  43
  48
  53
  58
  64
  69
  76
  82
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
New CAPEX, $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
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
Free cash flow, $m
  16
  3
  3
  3
  3
  3
  4
  4
  5
  6
  7
  9
  10
  12
  14
  16
  19
  21
  24
  27
  30
  34
  38
  42
  47
  51
  56
  62
  68
  74
  81
Issuance/(repayment) of debt, $m
  -10
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -8
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Total cash flow (excl. dividends), $m
  -1
  4
  4
  4
  4
  5
  6
  6
  7
  9
  10
  12
  13
  15
  17
  20
  22
  25
  28
  31
  35
  39
  43
  47
  52
  57
  63
  68
  75
  81
  88
Retained Cash Flow (-), $m
  3
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
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
 
  2
  2
  2
  2
  2
  2
  3
  4
  4
  5
  7
  8
  10
  12
  14
  16
  18
  21
  24
  27
  30
  34
  38
  42
  47
  51
  57
  62
  68
  75
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
 
  2
  2
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
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

Ossen Innovation Co., Ltd. manufactures and sells various plain surface prestressed steel materials, and rare earth coated and zinc coated prestressed steel materials in the People’s Republic of China. It offers plain surface products, including plain surface prestressed concrete (PC) strands that are used as precast concrete plates on the riding surface of bridges; and unbonded plain surface PC strands for the construction of bridges and buildings. The company also provides plain surface PC wires and indented PC wires, which are used in the construction of buildings; helical rib PC wires for the construction of railway ties or sleepers, and buildings; and coated prestressed products comprising zinc coated PC products and rare earth coated PC products. It markets and sells its products under the Ossen brand name. The company also exports its products to the United States, Canada, Spain, Japan, South Korea, Taiwan, Australia, South Africa, Saudi Arabia, and internationally. Ossen Innovation Co., Ltd. is headquartered in Shanghai, the People’s Republic of China.

FINANCIAL RATIOS  of  Ossen Innovation ADR (OSN)

Valuation Ratios
P/E Ratio 2.6
Price to Sales 0.1
Price to Book 0.1
Price to Tangible Book
Price to Cash Flow 0.8
Price to Free Cash Flow 0.8
Growth Rates
Sales Growth Rate -0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 7.8%
Total Debt to Equity 37.8%
Interest Coverage 4
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 3.8%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 5.5%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 13.7%
Gross Margin - 3 Yr. Avg. 12.6%
EBITDA Margin 7.7%
EBITDA Margin - 3 Yr. Avg. 8.4%
Operating Margin 7.7%
Oper. Margin - 3 Yr. Avg. 7.3%
Pre-Tax Margin 5.1%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 4.3%
Net Profit Margin - 3 Yr. Avg. 4.2%
Effective Tax Rate 16.7%
Eff/ Tax Rate - 3 Yr. Avg. 16.4%
Payout Ratio 0%

OSN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OSN stock intrinsic value calculation we used $117 million for the last fiscal year's total revenue generated by Ossen Innovation ADR. The default revenue input number comes from 2016 income statement of Ossen Innovation 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 OSN stock valuation model: a) initial revenue growth rate of 2% 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 OSN is calculated based on our internal credit rating of Ossen Innovation 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 Ossen Innovation 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 OSN stock the variable cost ratio is equal to 17.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $88 million in the base year in the intrinsic value calculation for OSN 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 5.1% for Ossen Innovation ADR.

Corporate tax rate of 27% is the nominal tax rate for Ossen Innovation 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 OSN 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 OSN are equal to 3.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Ossen Innovation 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 OSN is equal to 50%. 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 - $90 million for Ossen Innovation 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 19.269 million for Ossen Innovation 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 Ossen Innovation ADR at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Ossen Innovation Announces ADR Ratio Change   [Aug-16-16 08:00AM  PR Newswire]
▶ /C O R R E C T I O N -- Ossen Innovation Co., Ltd./   [Jun-30-16 08:07AM  PR Newswire]
▶ OSSEN INNOVATION CO. LTD. Financials   [Apr-27-16 01:04PM  EDGAR Online Financials]
▶ Ossen Innovation Announces Share Repurchase Program   [May-06  08:09AM  at noodls]
▶ 3 Stocks Pushing The Basic Materials Sector Higher   [Jul-22  04:01PM  at TheStreet]
▶ 3 Stocks Pushing The Basic Materials Sector Lower   [Jul-17  04:02PM  at TheStreet]
▶ Updated Research Report on Gerdau   [Apr-02  05:43PM  Zacks]
Stock chart of OSN Financial statements of OSN
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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