Intrinsic value of SORL Auto Parts - SORL

Previous Close

$5.07

  Intrinsic Value

$16.26

stock screener

  Rating & Target

str. buy

+221%

  Value-price divergence*

-130%

Previous close

$5.07

 
Intrinsic value

$16.26

 
Up/down potential

+221%

 
Rating

str. buy

 
Value-price divergence*

-130%

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

We calculate the intrinsic value of SORL 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 0.1

 

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, %
  24.20
  21.60
  19.94
  18.45
  17.10
  15.89
  14.80
  13.82
  12.94
  12.15
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
Revenue, $m
  272
  331
  397
  470
  550
  638
  732
  833
  941
  1,055
  1,176
  1,303
  1,436
  1,575
  1,720
  1,872
  2,029
  2,193
  2,363
  2,540
  2,724
  2,916
  3,114
  3,321
  3,536
  3,759
  3,992
  4,235
  4,487
  4,751
  5,025
Variable operating expenses, $m
 
  281
  337
  399
  467
  541
  622
  707
  799
  896
  998
  1,106
  1,219
  1,337
  1,460
  1,589
  1,723
  1,862
  2,006
  2,157
  2,313
  2,475
  2,644
  2,819
  3,002
  3,192
  3,389
  3,595
  3,810
  4,033
  4,266
Fixed operating expenses, $m
 
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  33
  33
  34
  35
  36
  37
  38
Total operating expenses, $m
  249
  299
  356
  418
  487
  561
  643
  728
  821
  918
  1,021
  1,130
  1,243
  1,362
  1,485
  1,615
  1,750
  1,889
  2,034
  2,186
  2,342
  2,505
  2,675
  2,851
  3,035
  3,225
  3,423
  3,630
  3,846
  4,070
  4,304
Operating income, $m
  23
  31
  41
  52
  63
  76
  90
  104
  120
  137
  155
  173
  193
  213
  234
  257
  280
  304
  329
  355
  382
  410
  439
  470
  501
  534
  569
  604
  642
  681
  721
EBITDA, $m
  30
  40
  51
  64
  77
  92
  109
  126
  144
  164
  185
  207
  230
  254
  279
  305
  332
  360
  390
  420
  452
  485
  519
  555
  592
  631
  671
  713
  757
  803
  850
Interest expense (income), $m
  1
  1
  2
  3
  5
  7
  8
  10
  12
  15
  17
  20
  22
  25
  28
  31
  34
  38
  41
  45
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  95
Earnings before tax, $m
  25
  31
  39
  48
  58
  69
  81
  94
  108
  122
  137
  153
  170
  188
  206
  225
  245
  266
  288
  310
  334
  358
  383
  409
  437
  465
  495
  526
  558
  591
  626
Tax expense, $m
  4
  8
  11
  13
  16
  19
  22
  25
  29
  33
  37
  41
  46
  51
  56
  61
  66
  72
  78
  84
  90
  97
  103
  111
  118
  126
  134
  142
  151
  160
  169
Net income, $m
  19
  22
  29
  35
  43
  51
  59
  69
  79
  89
  100
  112
  124
  137
  151
  165
  179
  194
  210
  226
  244
  261
  280
  299
  319
  340
  361
  384
  407
  432
  457

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  301
  356
  427
  506
  593
  687
  789
  898
  1,014
  1,137
  1,267
  1,404
  1,547
  1,697
  1,854
  2,017
  2,187
  2,363
  2,547
  2,737
  2,936
  3,142
  3,356
  3,579
  3,810
  4,051
  4,302
  4,563
  4,835
  5,119
  5,415
Adjusted assets (=assets-cash), $m
  293
  356
  427
  506
  593
  687
  789
  898
  1,014
  1,137
  1,267
  1,404
  1,547
  1,697
  1,854
  2,017
  2,187
  2,363
  2,547
  2,737
  2,936
  3,142
  3,356
  3,579
  3,810
  4,051
  4,302
  4,563
  4,835
  5,119
  5,415
Revenue / Adjusted assets
  0.928
  0.930
  0.930
  0.929
  0.927
  0.929
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
  0.928
Average production assets, $m
  56
  68
  82
  97
  113
  131
  151
  172
  194
  217
  242
  268
  296
  324
  354
  386
  418
  452
  487
  523
  561
  601
  642
  684
  728
  774
  822
  872
  924
  979
  1,035
Working capital, $m
  100
  145
  174
  206
  241
  279
  321
  365
  412
  462
  515
  571
  629
  690
  753
  820
  889
  961
  1,035
  1,113
  1,193
  1,277
  1,364
  1,455
  1,549
  1,647
  1,749
  1,855
  1,965
  2,081
  2,201
Total debt, $m
  27
  52
  90
  131
  177
  226
  280
  337
  398
  463
  532
  603
  679
  758
  840
  926
  1,015
  1,108
  1,205
  1,305
  1,409
  1,518
  1,630
  1,747
  1,869
  1,996
  2,128
  2,265
  2,408
  2,558
  2,713
Total liabilities, $m
  162
  187
  225
  266
  312
  361
  415
  472
  533
  598
  667
  738
  814
  893
  975
  1,061
  1,150
  1,243
  1,340
  1,440
  1,544
  1,653
  1,765
  1,882
  2,004
  2,131
  2,263
  2,400
  2,543
  2,693
  2,848
Total equity, $m
  139
  169
  203
  240
  281
  326
  374
  426
  481
  539
  601
  665
  733
  804
  879
  956
  1,036
  1,120
  1,207
  1,298
  1,392
  1,489
  1,591
  1,696
  1,806
  1,920
  2,039
  2,163
  2,292
  2,426
  2,567
Total liabilities and equity, $m
  301
  356
  428
  506
  593
  687
  789
  898
  1,014
  1,137
  1,268
  1,403
  1,547
  1,697
  1,854
  2,017
  2,186
  2,363
  2,547
  2,738
  2,936
  3,142
  3,356
  3,578
  3,810
  4,051
  4,302
  4,563
  4,835
  5,119
  5,415
Debt-to-equity ratio
  0.194
  0.310
  0.440
  0.550
  0.630
  0.700
  0.750
  0.790
  0.830
  0.860
  0.880
  0.910
  0.930
  0.940
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.040
  1.040
  1.050
  1.050
  1.050
  1.060
Adjusted equity ratio
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474
  0.474

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  22
  29
  35
  43
  51
  59
  69
  79
  89
  100
  112
  124
  137
  151
  165
  179
  194
  210
  226
  244
  261
  280
  299
  319
  340
  361
  384
  407
  432
  457
Depreciation, amort., depletion, $m
  7
  9
  10
  12
  14
  16
  19
  21
  24
  27
  30
  34
  37
  41
  44
  48
  52
  56
  61
  65
  70
  75
  80
  86
  91
  97
  103
  109
  116
  122
  129
Funds from operations, $m
  -18
  31
  39
  47
  57
  67
  78
  90
  103
  116
  131
  146
  161
  178
  195
  213
  231
  251
  271
  292
  314
  336
  360
  384
  410
  436
  464
  493
  523
  554
  587
Change in working capital, $m
  -23
  26
  29
  32
  35
  38
  41
  44
  47
  50
  53
  56
  58
  61
  64
  66
  69
  72
  75
  78
  81
  84
  87
  91
  94
  98
  102
  106
  111
  115
  120
Cash from operations, $m
  5
  5
  10
  15
  22
  29
  37
  46
  56
  66
  78
  90
  103
  117
  131
  146
  162
  179
  196
  214
  233
  253
  273
  294
  316
  338
  362
  387
  412
  439
  466
Maintenance CAPEX, $m
  0
  -7
  -9
  -10
  -12
  -14
  -16
  -19
  -21
  -24
  -27
  -30
  -34
  -37
  -41
  -44
  -48
  -52
  -56
  -61
  -65
  -70
  -75
  -80
  -86
  -91
  -97
  -103
  -109
  -116
  -122
New CAPEX, $m
  -16
  -12
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -57
Cash from investing activities, $m
  38
  -19
  -23
  -25
  -29
  -32
  -35
  -40
  -43
  -48
  -52
  -56
  -61
  -66
  -71
  -75
  -80
  -86
  -91
  -97
  -103
  -109
  -116
  -123
  -130
  -137
  -145
  -153
  -161
  -170
  -179
Free cash flow, $m
  43
  -14
  -12
  -10
  -7
  -3
  1
  6
  12
  18
  26
  34
  42
  51
  61
  71
  82
  93
  105
  117
  130
  143
  157
  171
  186
  201
  217
  234
  251
  269
  287
Issuance/(repayment) of debt, $m
  4
  33
  37
  41
  46
  50
  54
  57
  61
  65
  68
  72
  75
  79
  82
  86
  89
  93
  97
  100
  104
  108
  113
  117
  122
  127
  132
  137
  143
  149
  156
Issuance/(repurchase) of shares, $m
  0
  7
  5
  2
  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  
  -67
  40
  42
  43
  46
  50
  54
  57
  61
  65
  68
  72
  75
  79
  82
  86
  89
  93
  97
  100
  104
  108
  113
  117
  122
  127
  132
  137
  143
  149
  156
Total cash flow (excl. dividends), $m
  -22
  27
  30
  34
  38
  46
  54
  63
  73
  83
  94
  105
  117
  130
  143
  157
  171
  186
  201
  217
  234
  251
  269
  288
  308
  328
  349
  371
  394
  418
  443
Retained Cash Flow (-), $m
  61
  -30
  -34
  -37
  -41
  -45
  -48
  -52
  -55
  -58
  -62
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -110
  -114
  -119
  -124
  -129
  -135
  -140
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
  -3
  -4
  -3
  1
  6
  12
  18
  25
  32
  41
  50
  59
  69
  79
  91
  102
  114
  127
  140
  154
  168
  183
  198
  214
  230
  247
  265
  284
  303
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
  -3
  -3
  -2
  1
  5
  8
  11
  14
  17
  19
  21
  22
  23
  23
  23
  22
  21
  20
  18
  16
  14
  12
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  92.9
  89.0
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6

SORL Auto Parts, Inc., through its interests in the Ruili Group Ruian Auto Parts Co., Ltd., a Sino-foreign joint venture (Joint Venture), develops, manufactures and distributes automotive brake systems and other safety related auto parts to automotive original equipment manufacturers (OEMs), and the related aftermarket both in China and abroad. The Company operates through two segments: Commercial Vehicle Brake Systems and Passenger Vehicle Brake Systems. The Company's products are principally used in different types of commercial vehicles, such as trucks and buses, and include a range of products covering approximately 65 categories and over 2,000 specifications in automotive brake systems. The Company sells its products to approximately 70 vehicle manufacturers, including all of the primary truck manufacturers in China.

FINANCIAL RATIOS  of  SORL Auto Parts (SORL)

Valuation Ratios
P/E Ratio 5.2
Price to Sales 0.4
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow -8.9
Growth Rates
Sales Growth Rate 24.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 433.3%
Cap. Spend. - 3 Yr. Gr. Rate 26.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 19.4%
Interest Coverage 26
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 7.5%
Return On Equity 11.2%
Return On Equity - 3 Yr. Avg. 8.4%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 26.8%
Gross Margin - 3 Yr. Avg. 27.3%
EBITDA Margin 12.1%
EBITDA Margin - 3 Yr. Avg. 11.5%
Operating Margin 8.5%
Oper. Margin - 3 Yr. Avg. 7.9%
Pre-Tax Margin 9.2%
Pre-Tax Margin - 3 Yr. Avg. 8.2%
Net Profit Margin 7%
Net Profit Margin - 3 Yr. Avg. 6.3%
Effective Tax Rate 16%
Eff/ Tax Rate - 3 Yr. Avg. 14.8%
Payout Ratio 0%

SORL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SORL stock intrinsic value calculation we used $272 million for the last fiscal year's total revenue generated by SORL Auto Parts. The default revenue input number comes from 2016 income statement of SORL Auto Parts. 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 SORL stock valuation model: a) initial revenue growth rate of 21.6% 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 SORL is calculated based on our internal credit rating of SORL Auto Parts, 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 SORL Auto Parts.
    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 SORL stock the variable cost ratio is equal to 84.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $18 million in the base year in the intrinsic value calculation for SORL 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 3.7% for SORL Auto Parts.

Corporate tax rate of 27% is the nominal tax rate for SORL Auto Parts. 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 SORL 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 SORL are equal to 20.6%.

Life of production assets of 8 years is the average useful life of capital assets used in SORL Auto Parts 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 SORL is equal to 43.8%. 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 - $139 million for SORL Auto Parts - 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 18.563 million for SORL Auto Parts 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 SORL Auto Parts at the current share price and the inputted number of shares is $0.1 billion.

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Financial statements of SORL
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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