Intrinsic value of China Petroleum&Chemical ADR - SNP

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$81.33

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$81.33

 
Intrinsic value

$19.83

 
Up/down potential

-76%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of SNP 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 2015), $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 99.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2015(a)
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -28.56
  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
  292,076
  297,918
  304,770
  312,602
  321,396
  331,139
  341,830
  353,472
  366,074
  379,650
  394,220
  409,807
  426,439
  444,148
  462,969
  482,940
  504,104
  526,507
  550,198
  575,230
  601,661
  629,549
  658,960
  689,961
  722,625
  757,027
  793,248
  831,373
  871,491
  913,697
  958,091
Variable operating expenses, $m
 
  290,170
  296,842
  304,468
  313,030
  322,518
  332,927
  344,263
  356,533
  369,752
  383,938
  399,025
  415,220
  432,463
  450,788
  470,233
  490,841
  512,654
  535,722
  560,096
  585,831
  612,985
  641,623
  671,808
  703,612
  737,109
  772,377
  809,499
  848,562
  889,657
  932,883
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
  283,826
  290,170
  296,842
  304,468
  313,030
  322,518
  332,927
  344,263
  356,533
  369,752
  383,938
  399,025
  415,220
  432,463
  450,788
  470,233
  490,841
  512,654
  535,722
  560,096
  585,831
  612,985
  641,623
  671,808
  703,612
  737,109
  772,377
  809,499
  848,562
  889,657
  932,883
Operating income, $m
  8,250
  7,748
  7,928
  8,134
  8,365
  8,622
  8,903
  9,209
  9,541
  9,898
  10,281
  10,782
  11,220
  11,686
  12,181
  12,706
  13,263
  13,853
  14,476
  15,135
  15,830
  16,564
  17,338
  18,153
  19,013
  19,918
  20,871
  21,874
  22,929
  24,040
  25,208
EBITDA, $m
  22,192
  21,989
  22,495
  23,073
  23,722
  24,442
  25,231
  26,090
  27,020
  28,022
  29,098
  30,248
  31,476
  32,783
  34,172
  35,646
  37,208
  38,862
  40,610
  42,458
  44,409
  46,467
  48,638
  50,926
  53,337
  55,877
  58,550
  61,364
  64,325
  67,440
  70,717
Interest expense (income), $m
  1,178
  945
  1,018
  1,101
  1,196
  1,303
  1,422
  1,551
  1,693
  1,846
  2,011
  2,188
  2,377
  2,580
  2,795
  3,023
  3,266
  3,523
  3,795
  4,083
  4,387
  4,709
  5,048
  5,405
  5,782
  6,178
  6,597
  7,037
  7,500
  7,987
  8,500
Earnings before tax, $m
  8,142
  6,803
  6,910
  7,033
  7,169
  7,319
  7,482
  7,658
  7,848
  8,052
  8,270
  8,594
  8,842
  9,106
  9,386
  9,683
  9,997
  10,329
  10,681
  11,051
  11,443
  11,855
  12,290
  12,748
  13,231
  13,739
  14,274
  14,837
  15,429
  16,052
  16,708
Tax expense, $m
  1,825
  1,837
  1,866
  1,899
  1,936
  1,976
  2,020
  2,068
  2,119
  2,174
  2,233
  2,320
  2,387
  2,459
  2,534
  2,614
  2,699
  2,789
  2,884
  2,984
  3,089
  3,201
  3,318
  3,442
  3,572
  3,710
  3,854
  4,006
  4,166
  4,334
  4,511
Net income, $m
  4,693
  4,966
  5,044
  5,134
  5,233
  5,343
  5,462
  5,590
  5,729
  5,878
  6,037
  6,274
  6,455
  6,648
  6,852
  7,069
  7,298
  7,541
  7,797
  8,067
  8,353
  8,654
  8,972
  9,306
  9,659
  10,030
  10,420
  10,831
  11,264
  11,718
  12,197

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9,918
  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
  208,781
  202,803
  207,467
  212,799
  218,785
  225,418
  232,696
  240,621
  249,199
  258,441
  268,359
  278,970
  290,292
  302,347
  315,159
  328,754
  343,161
  358,412
  374,539
  391,580
  409,572
  428,556
  448,577
  469,681
  491,916
  515,335
  539,992
  565,945
  593,255
  621,986
  652,206
Adjusted assets (=assets-cash), $m
  198,863
  202,803
  207,467
  212,799
  218,785
  225,418
  232,696
  240,621
  249,199
  258,441
  268,359
  278,970
  290,292
  302,347
  315,159
  328,754
  343,161
  358,412
  374,539
  391,580
  409,572
  428,556
  448,577
  469,681
  491,916
  515,335
  539,992
  565,945
  593,255
  621,986
  652,206
Revenue / Adjusted assets
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
Average production assets, $m
  127,746
  130,190
  133,184
  136,607
  140,450
  144,708
  149,380
  154,467
  159,974
  165,907
  172,274
  179,086
  186,354
  194,093
  202,317
  211,045
  220,293
  230,083
  240,436
  251,376
  262,926
  275,113
  287,966
  301,513
  315,787
  330,821
  346,649
  363,310
  380,842
  399,286
  418,686
Working capital, $m
  -18,841
  -12,215
  -12,496
  -12,817
  -13,177
  -13,577
  -14,015
  -14,492
  -15,009
  -15,566
  -16,163
  -16,802
  -17,484
  -18,210
  -18,982
  -19,801
  -20,668
  -21,587
  -22,558
  -23,584
  -24,668
  -25,812
  -27,017
  -28,288
  -29,628
  -31,038
  -32,523
  -34,086
  -35,731
  -37,462
  -39,282
Total debt, $m
  36,919
  29,080
  31,459
  34,179
  37,232
  40,614
  44,326
  48,368
  52,743
  57,456
  62,514
  67,926
  73,700
  79,848
  86,382
  93,316
  100,663
  108,441
  116,666
  125,357
  134,533
  144,215
  154,425
  165,188
  176,528
  188,472
  201,047
  214,283
  228,211
  242,864
  258,276
Total liabilities, $m
  111,267
  103,429
  105,808
  108,528
  111,581
  114,963
  118,675
  122,717
  127,092
  131,805
  136,863
  142,275
  148,049
  154,197
  160,731
  167,665
  175,012
  182,790
  191,015
  199,706
  208,882
  218,564
  228,774
  239,537
  250,877
  262,821
  275,396
  288,632
  302,560
  317,213
  332,625
Total equity, $m
  97,513
  99,373
  101,659
  104,272
  107,205
  110,455
  114,021
  117,904
  122,108
  126,636
  131,496
  136,695
  142,243
  148,150
  154,428
  161,090
  168,149
  175,622
  183,524
  191,874
  200,690
  209,993
  219,803
  230,144
  241,039
  252,514
  264,596
  277,313
  290,695
  304,773
  319,581
Total liabilities and equity, $m
  208,780
  202,802
  207,467
  212,800
  218,786
  225,418
  232,696
  240,621
  249,200
  258,441
  268,359
  278,970
  290,292
  302,347
  315,159
  328,755
  343,161
  358,412
  374,539
  391,580
  409,572
  428,557
  448,577
  469,681
  491,916
  515,335
  539,992
  565,945
  593,255
  621,986
  652,206
Debt-to-equity ratio
  0.379
  0.290
  0.310
  0.330
  0.350
  0.370
  0.390
  0.410
  0.430
  0.450
  0.480
  0.500
  0.520
  0.540
  0.560
  0.580
  0.600
  0.620
  0.640
  0.650
  0.670
  0.690
  0.700
  0.720
  0.730
  0.750
  0.760
  0.770
  0.790
  0.800
  0.810
Adjusted equity ratio
  0.440
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,693
  4,966
  5,044
  5,134
  5,233
  5,343
  5,462
  5,590
  5,729
  5,878
  6,037
  6,274
  6,455
  6,648
  6,852
  7,069
  7,298
  7,541
  7,797
  8,067
  8,353
  8,654
  8,972
  9,306
  9,659
  10,030
  10,420
  10,831
  11,264
  11,718
  12,197
Depreciation, amort., depletion, $m
  13,942
  14,242
  14,567
  14,939
  15,357
  15,820
  16,328
  16,881
  17,479
  18,124
  18,816
  19,466
  20,256
  21,097
  21,991
  22,940
  23,945
  25,009
  26,134
  27,323
  28,579
  29,904
  31,301
  32,773
  34,325
  35,959
  37,679
  39,490
  41,396
  43,401
  45,509
Funds from operations, $m
  23,644
  19,208
  19,612
  20,073
  20,590
  21,162
  21,789
  22,471
  23,208
  24,002
  24,854
  25,740
  26,711
  27,745
  28,843
  30,008
  31,243
  32,550
  33,931
  35,391
  36,932
  38,558
  40,272
  42,079
  43,983
  45,988
  48,099
  50,321
  52,659
  55,119
  57,706
Change in working capital, $m
  -345
  -240
  -281
  -321
  -361
  -399
  -438
  -477
  -517
  -557
  -597
  -639
  -682
  -726
  -772
  -819
  -868
  -919
  -971
  -1,026
  -1,084
  -1,143
  -1,206
  -1,271
  -1,339
  -1,410
  -1,485
  -1,563
  -1,645
  -1,730
  -1,820
Cash from operations, $m
  23,989
  19,715
  19,893
  20,394
  20,951
  21,562
  22,227
  22,948
  23,725
  24,559
  25,451
  26,379
  27,393
  28,471
  29,615
  30,827
  32,111
  33,468
  34,903
  36,417
  38,016
  39,701
  41,478
  43,351
  45,323
  47,399
  49,585
  51,884
  54,304
  56,849
  59,526
Maintenance CAPEX, $m
  0
  -13,885
  -14,151
  -14,477
  -14,849
  -15,266
  -15,729
  -16,237
  -16,790
  -17,389
  -18,033
  -18,725
  -19,466
  -20,256
  -21,097
  -21,991
  -22,940
  -23,945
  -25,009
  -26,134
  -27,323
  -28,579
  -29,904
  -31,301
  -32,773
  -34,325
  -35,959
  -37,679
  -39,490
  -41,396
  -43,401
New CAPEX, $m
  -13,810
  -2,444
  -2,994
  -3,423
  -3,843
  -4,258
  -4,672
  -5,087
  -5,507
  -5,933
  -6,367
  -6,812
  -7,268
  -7,739
  -8,225
  -8,727
  -9,249
  -9,790
  -10,353
  -10,939
  -11,550
  -12,187
  -12,853
  -13,548
  -14,274
  -15,034
  -15,829
  -16,661
  -17,532
  -18,444
  -19,400
Cash from investing activities, $m
  -16,920
  -16,329
  -17,145
  -17,900
  -18,692
  -19,524
  -20,401
  -21,324
  -22,297
  -23,322
  -24,400
  -25,537
  -26,734
  -27,995
  -29,322
  -30,718
  -32,189
  -33,735
  -35,362
  -37,073
  -38,873
  -40,766
  -42,757
  -44,849
  -47,047
  -49,359
  -51,788
  -54,340
  -57,022
  -59,840
  -62,801
Free cash flow, $m
  7,069
  3,385
  2,747
  2,495
  2,260
  2,038
  1,826
  1,624
  1,428
  1,237
  1,051
  842
  659
  476
  293
  109
  -78
  -267
  -460
  -656
  -858
  -1,065
  -1,278
  -1,498
  -1,725
  -1,959
  -2,203
  -2,455
  -2,718
  -2,991
  -3,275
Issuance/(repayment) of debt, $m
  -9,056
  2,079
  2,379
  2,719
  3,053
  3,383
  3,712
  4,042
  4,375
  4,713
  5,058
  5,412
  5,774
  6,148
  6,534
  6,933
  7,348
  7,778
  8,225
  8,691
  9,176
  9,682
  10,211
  10,763
  11,340
  11,944
  12,575
  13,236
  13,928
  14,653
  15,412
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  137
  316
  498
  685
  878
  1,076
  1,280
  1,491
  1,710
  1,936
  2,171
  2,416
  2,670
Cash from financing (excl. dividends), $m  
  4,850
  2,079
  2,379
  2,719
  3,053
  3,383
  3,712
  4,042
  4,375
  4,713
  5,058
  5,412
  5,774
  6,148
  6,534
  6,933
  7,348
  7,778
  8,362
  9,007
  9,674
  10,367
  11,089
  11,839
  12,620
  13,435
  14,285
  15,172
  16,099
  17,069
  18,082
Total cash flow (excl. dividends), $m
  11,962
  5,464
  5,126
  5,214
  5,313
  5,420
  5,538
  5,666
  5,803
  5,951
  6,109
  6,253
  6,433
  6,624
  6,827
  7,042
  7,270
  7,511
  7,765
  8,034
  8,318
  8,617
  8,933
  9,265
  9,615
  9,984
  10,372
  10,781
  11,210
  11,662
  12,138
Retained Cash Flow (-), $m
  -11,716
  -1,860
  -2,286
  -2,613
  -2,933
  -3,250
  -3,566
  -3,883
  -4,203
  -4,528
  -4,860
  -5,199
  -5,548
  -5,907
  -6,278
  -6,662
  -7,059
  -7,473
  -7,902
  -8,350
  -8,816
  -9,303
  -9,810
  -10,341
  -10,895
  -11,475
  -12,082
  -12,717
  -13,382
  -14,078
  -14,808
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
 
  3,604
  2,840
  2,602
  2,379
  2,170
  1,972
  1,782
  1,600
  1,422
  1,249
  1,054
  885
  717
  549
  381
  210
  38
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
 
  3,455
  2,600
  2,264
  1,959
  1,682
  1,431
  1,204
  1,000
  817
  655
  500
  378
  273
  184
  112
  53
  8
  0
  0
  0
  0
  0
  0
  0
  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
  99.9
  99.8
  99.5
  99.2
  98.8
  98.3
  97.8
  97.2
  96.5
  95.8
  95.1
  94.3
  93.5

China Petroleum & Chemical Corporation, an energy and chemical company, engages in the oil and gas, and chemical operations and businesses in the People’s Republic of China. It operates through Exploration and Production, Refining, Marketing and Distribution, Chemicals, and Corporate and Others segments. The company explores and develops oil fields, and produces and sells crude oil and natural gas; processes and purifies crude oil into refined petroleum products; and manufactures and sells petroleum products. It also owns and operates oil depots and service stations; and distributes and sells refined petroleum products, such as gasoline and diesel through wholesale and retail sales networks. In addition, the company manufactures and sells petrochemical products, derivative petrochemical products, and other chemical products, such as basic organic chemicals, synthetic resins, synthetic fiber monomers and polymers, synthetic fibers, synthetic rubbers, and chemical fertilizers. Further, it is also involved in the pipeline transportation of crude oil and natural gas; and production and supplies electricity and coal. Additionally, the company engages in the import and export of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development, and application of technologies and information. China Petroleum & Chemical Corporation was founded in 2000 and is headquartered in Beijing, the People’s Republic of China. China Petroleum & Chemical Corporation operates as a subsidiary of China Petrochemical Corporation.

FINANCIAL RATIOS  of  China Petroleum&Chemical ADR (SNP)

Valuation Ratios
P/E Ratio 2098.2
Price to Sales 33.7
Price to Book 101
Price to Tangible Book
Price to Cash Flow 410.5
Price to Free Cash Flow 967.4
Growth Rates
Sales Growth Rate -28.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.6%
Cap. Spend. - 3 Yr. Gr. Rate -8.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 20.7%
Total Debt to Equity 37.9%
Interest Coverage 8
Management Effectiveness
Return On Assets 2.7%
Ret/ On Assets - 3 Yr. Avg. 4%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. 5.5%
Return On Equity 5.1%
Return On Equity - 3 Yr. Avg. 8.5%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 25.3%
Gross Margin - 3 Yr. Avg. 19.8%
EBITDA Margin 8%
EBITDA Margin - 3 Yr. Avg. 6.7%
Operating Margin 2.8%
Oper. Margin - 3 Yr. Avg. 2.9%
Pre-Tax Margin 2.8%
Pre-Tax Margin - 3 Yr. Avg. 2.8%
Net Profit Margin 1.6%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate 22.4%
Eff/ Tax Rate - 3 Yr. Avg. 25.1%
Payout Ratio 74.6%

SNP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SNP stock intrinsic value calculation we used $292076 million for the last fiscal year's total revenue generated by China Petroleum&Chemical ADR. The default revenue input number comes from 2015 income statement of China Petroleum&Chemical 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 SNP 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 4.3%, whose default value for SNP is calculated based on our internal credit rating of China Petroleum&Chemical 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 Petroleum&Chemical 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 SNP stock the variable cost ratio is equal to 97.4%.

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 SNP 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 China Petroleum&Chemical ADR.

Corporate tax rate of 27% is the nominal tax rate for China Petroleum&Chemical 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 SNP 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 SNP are equal to 43.7%.

Life of production assets of 9.2 years is the average useful life of capital assets used in China Petroleum&Chemical 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 SNP is equal to -4.1%. 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 - $97513 million for China Petroleum&Chemical 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 1218.01 million for China Petroleum&Chemical 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 Petroleum&Chemical ADR at the current share price and the inputted number of shares is $99.1 billion.


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COMPANY NEWS

▶ China Petro&Chm posts 1Q profit   [Apr-27-17 12:23PM  Associated Press]
▶ New Strong Buy Stocks for April 11th   [Apr-11-17 10:30AM  Zacks]
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▶ Sinopec Now Offers Best Dividend Yield Among Asia Oil Majors   [Mar-26-17 10:40PM  at Barrons.com]
▶ [$$] Sinopec 2016 Earnings Expected to Rise   [Mar-23-17 12:07PM  at The Wall Street Journal]
▶ Dividends? 4 Cash Cow Oil Companies   [Feb-07-17 08:55PM  at Barrons.com]
▶ Why Credit Suisse Turned Bullish On Sinopec   [Jan-12-17 10:51PM  at Barrons.com]
▶ PetroChina Has 37% Upside: Morgan Stanley   [Jan-10-17 09:50PM  at Barrons.com]
▶ [$$] China Smog Alerts Signal New Outlook   [Dec-20-16 12:21AM  at The Wall Street Journal]
▶ [$$] China's Sinopec Revives Plan for Up to $10 Billion IPO of Retail Unit   [Dec-13-16 11:56PM  at The Wall Street Journal]
▶ Sinopec's Obscenely Profitable Pipeline   [02:34AM  at Bloomberg]
▶ [$$] Sinopec to Sell 50% Pipeline Stake   [09:20AM  at The Wall Street Journal]
▶ [$$] Chinas Anbang Insurance Plans First International Bond Issue   [Nov-25-16 12:16AM  at The Wall Street Journal]
▶ [$$] China's Anbang Insurance Plans First International Bond Issue   [Nov-24-16 05:14AM  at The Wall Street Journal]
▶ [$$] China Oil Companies' Push Into U.S. Faces Uncertainty After Election   [Nov-13-16 02:51AM  at The Wall Street Journal]
▶ Big Oils Shrinking Act Has More to Go in China   [Oct-30-16 12:00PM  at Bloomberg]
Stock chart of SNP Financial statements of SNP Annual reports of SNP
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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