Intrinsic value of Bright Scholar Education Holdings ADR - BEDU

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$18.36

  Intrinsic Value

$12.04

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  Rating & Target

sell

-34%

Previous close

$18.36

 
Intrinsic value

$12.04

 
Up/down potential

-34%

 
Rating

sell

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

We calculate the intrinsic value of BEDU 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 2.1

 

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, %
  39.81
  28.30
  25.97
  23.87
  21.99
  20.29
  18.76
  17.38
  16.14
  15.03
  14.03
  13.12
  12.31
  11.58
  10.92
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.29
  7.07
  6.86
  6.67
  6.51
  6.35
  6.22
  6.10
Revenue, $m
  151
  194
  244
  302
  369
  444
  527
  618
  718
  826
  942
  1,066
  1,197
  1,335
  1,481
  1,634
  1,794
  1,962
  2,136
  2,317
  2,506
  2,703
  2,907
  3,119
  3,339
  3,568
  3,806
  4,054
  4,311
  4,579
  4,859
Variable operating expenses, $m
 
  134
  169
  209
  254
  305
  362
  425
  494
  567
  647
  730
  820
  915
  1,015
  1,120
  1,229
  1,344
  1,463
  1,588
  1,717
  1,851
  1,991
  2,136
  2,287
  2,444
  2,607
  2,777
  2,954
  3,137
  3,329
Fixed operating expenses, $m
 
  45
  46
  47
  49
  50
  51
  52
  54
  55
  56
  58
  59
  61
  62
  64
  65
  67
  69
  70
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
  92
Total operating expenses, $m
  148
  179
  215
  256
  303
  355
  413
  477
  548
  622
  703
  788
  879
  976
  1,077
  1,184
  1,294
  1,411
  1,532
  1,658
  1,789
  1,925
  2,067
  2,214
  2,367
  2,526
  2,691
  2,863
  3,042
  3,227
  3,421
Operating income, $m
  3
  14
  29
  46
  66
  88
  113
  141
  171
  204
  239
  278
  318
  360
  404
  451
  500
  551
  604
  660
  717
  777
  840
  905
  972
  1,042
  1,115
  1,191
  1,270
  1,352
  1,438
EBITDA, $m
  13
  27
  45
  66
  90
  116
  146
  179
  215
  254
  296
  341
  389
  440
  493
  548
  607
  668
  731
  798
  867
  938
  1,013
  1,090
  1,171
  1,255
  1,342
  1,433
  1,527
  1,625
  1,727
Interest expense (income), $m
  0
  0
  -1
  1
  2
  4
  6
  8
  10
  13
  16
  18
  22
  25
  29
  32
  36
  40
  45
  49
  54
  59
  64
  69
  74
  80
  86
  92
  98
  105
  112
Earnings before tax, $m
  3
  14
  30
  46
  64
  85
  108
  133
  161
  191
  223
  259
  296
  335
  376
  419
  464
  510
  559
  610
  663
  719
  776
  836
  898
  962
  1,029
  1,099
  1,172
  1,247
  1,326
Tax expense, $m
  3
  4
  8
  12
  17
  23
  29
  36
  43
  52
  60
  70
  80
  90
  101
  113
  125
  138
  151
  165
  179
  194
  210
  226
  242
  260
  278
  297
  316
  337
  358
Net income, $m
  -5
  11
  22
  33
  47
  62
  79
  97
  117
  139
  163
  189
  216
  244
  274
  306
  338
  373
  408
  446
  484
  525
  566
  610
  655
  702
  751
  802
  855
  910
  968

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  56
  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
  179
  158
  199
  246
  300
  361
  429
  504
  585
  673
  767
  868
  975
  1,088
  1,206
  1,331
  1,461
  1,597
  1,739
  1,887
  2,041
  2,201
  2,367
  2,540
  2,719
  2,906
  3,099
  3,301
  3,511
  3,729
  3,957
Adjusted assets (=assets-cash), $m
  123
  158
  199
  246
  300
  361
  429
  504
  585
  673
  767
  868
  975
  1,088
  1,206
  1,331
  1,461
  1,597
  1,739
  1,887
  2,041
  2,201
  2,367
  2,540
  2,719
  2,906
  3,099
  3,301
  3,511
  3,729
  3,957
Revenue / Adjusted assets
  1.228
  1.228
  1.226
  1.228
  1.230
  1.230
  1.228
  1.226
  1.227
  1.227
  1.228
  1.228
  1.228
  1.227
  1.228
  1.228
  1.228
  1.229
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
  1.228
Average production assets, $m
  68
  87
  109
  135
  165
  198
  235
  276
  321
  369
  421
  476
  535
  597
  662
  731
  802
  877
  955
  1,036
  1,120
  1,208
  1,299
  1,394
  1,493
  1,595
  1,701
  1,812
  1,927
  2,047
  2,172
Working capital, $m
  -63
  -153
  -192
  -238
  -291
  -350
  -415
  -487
  -566
  -651
  -742
  -840
  -943
  -1,052
  -1,167
  -1,288
  -1,414
  -1,546
  -1,683
  -1,826
  -1,975
  -2,130
  -2,290
  -2,458
  -2,631
  -2,812
  -2,999
  -3,194
  -3,397
  -3,609
  -3,829
Total debt, $m
  0
  -20
  17
  60
  108
  163
  224
  291
  364
  443
  528
  619
  715
  817
  924
  1,036
  1,153
  1,276
  1,403
  1,536
  1,675
  1,819
  1,968
  2,124
  2,285
  2,453
  2,627
  2,809
  2,998
  3,194
  3,399
Total liabilities, $m
  162
  142
  179
  222
  270
  325
  386
  453
  526
  605
  690
  781
  877
  979
  1,086
  1,198
  1,315
  1,438
  1,565
  1,698
  1,837
  1,981
  2,130
  2,286
  2,447
  2,615
  2,789
  2,971
  3,160
  3,356
  3,561
Total equity, $m
  17
  16
  20
  25
  30
  36
  43
  50
  58
  67
  77
  87
  97
  109
  121
  133
  146
  160
  174
  189
  204
  220
  237
  254
  272
  291
  310
  330
  351
  373
  396
Total liabilities and equity, $m
  179
  158
  199
  247
  300
  361
  429
  503
  584
  672
  767
  868
  974
  1,088
  1,207
  1,331
  1,461
  1,598
  1,739
  1,887
  2,041
  2,201
  2,367
  2,540
  2,719
  2,906
  3,099
  3,301
  3,511
  3,729
  3,957
Debt-to-equity ratio
  0.000
  -1.270
  0.850
  2.420
  3.610
  4.520
  5.220
  5.780
  6.230
  6.590
  6.890
  7.130
  7.340
  7.510
  7.660
  7.780
  7.890
  7.990
  8.070
  8.140
  8.210
  8.260
  8.320
  8.360
  8.400
  8.440
  8.480
  8.510
  8.540
  8.570
  8.590
Adjusted equity ratio
  -0.317
  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
  -5
  11
  22
  33
  47
  62
  79
  97
  117
  139
  163
  189
  216
  244
  274
  306
  338
  373
  408
  446
  484
  525
  566
  610
  655
  702
  751
  802
  855
  910
  968
Depreciation, amort., depletion, $m
  10
  13
  16
  20
  23
  28
  33
  38
  44
  51
  58
  64
  71
  80
  88
  97
  107
  117
  127
  138
  149
  161
  173
  186
  199
  213
  227
  242
  257
  273
  290
Funds from operations, $m
  79
  24
  38
  53
  70
  90
  111
  136
  162
  190
  221
  253
  287
  324
  363
  403
  445
  490
  536
  584
  634
  686
  740
  796
  854
  915
  978
  1,044
  1,112
  1,183
  1,258
Change in working capital, $m
  27
  -34
  -40
  -46
  -52
  -59
  -66
  -72
  -79
  -85
  -91
  -97
  -103
  -109
  -115
  -121
  -126
  -132
  -137
  -143
  -149
  -155
  -161
  -167
  -174
  -180
  -188
  -195
  -203
  -211
  -220
Cash from operations, $m
  52
  57
  77
  99
  123
  149
  177
  208
  240
  275
  312
  350
  391
  433
  478
  524
  572
  621
  673
  727
  782
  840
  900
  963
  1,028
  1,095
  1,166
  1,239
  1,315
  1,395
  1,478
Maintenance CAPEX, $m
  0
  -9
  -12
  -15
  -18
  -22
  -26
  -31
  -37
  -43
  -49
  -56
  -64
  -71
  -80
  -88
  -97
  -107
  -117
  -127
  -138
  -149
  -161
  -173
  -186
  -199
  -213
  -227
  -242
  -257
  -273
New CAPEX, $m
  -13
  -19
  -22
  -26
  -30
  -33
  -37
  -41
  -45
  -48
  -52
  -55
  -59
  -62
  -65
  -68
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -98
  -102
  -106
  -111
  -115
  -120
  -125
Cash from investing activities, $m
  5
  -28
  -34
  -41
  -48
  -55
  -63
  -72
  -82
  -91
  -101
  -111
  -123
  -133
  -145
  -156
  -169
  -182
  -195
  -208
  -222
  -237
  -252
  -268
  -284
  -301
  -319
  -338
  -357
  -377
  -398
Free cash flow, $m
  57
  29
  43
  58
  75
  93
  113
  135
  159
  184
  211
  239
  269
  300
  333
  367
  403
  440
  478
  518
  560
  603
  648
  695
  744
  794
  847
  901
  958
  1,018
  1,080
Issuance/(repayment) of debt, $m
  -40
  -20
  37
  43
  49
  55
  61
  67
  73
  79
  85
  91
  96
  102
  107
  112
  117
  123
  128
  133
  138
  144
  150
  155
  161
  168
  174
  181
  189
  197
  205
Issuance/(repurchase) of shares, $m
  0
  44
  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  
  -40
  24
  37
  43
  49
  55
  61
  67
  73
  79
  85
  91
  96
  102
  107
  112
  117
  123
  128
  133
  138
  144
  150
  155
  161
  168
  174
  181
  189
  197
  205
Total cash flow (excl. dividends), $m
  17
  53
  80
  101
  124
  148
  174
  202
  232
  263
  296
  329
  365
  402
  440
  479
  520
  562
  606
  651
  698
  747
  798
  850
  905
  962
  1,021
  1,083
  1,147
  1,214
  1,285
Retained Cash Flow (-), $m
  -23
  -55
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
Prev. year cash balance distribution, $m
 
  56
  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
 
  55
  76
  96
  118
  142
  168
  195
  224
  254
  286
  319
  354
  390
  428
  467
  507
  549
  592
  637
  683
  731
  781
  833
  887
  943
  1,002
  1,063
  1,126
  1,193
  1,262
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
 
  52
  70
  84
  97
  110
  122
  132
  140
  146
  150
  152
  151
  148
  144
  137
  129
  119
  109
  98
  87
  76
  65
  55
  45
  37
  29
  23
  17
  13
  10
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Bright Scholar Education Holdings Limited is an operator of international and bilingual K-12 schools in China. The Company is engaged in providing international education to Chinese students. Its schools comprise international schools, bilingual schools and kindergartens. It offers a broad range of internationally-accredited curricula at its international schools. It also offers a range of complementary education services, including overseas camps and after-school programs. As of February 28, 2017, the Company had six international schools, which focus on internationally-accredited curricula and offer extracurricular activities and programs; 11 bilingual schools, which provide government-mandated curricula and developing students’ English proficiency; and 34 bilingual kindergartens, including 11 that deliver international curricula. As of February 28, 2017, the Company operated 51 schools.

FINANCIAL RATIOS  of  Bright Scholar Education Holdings ADR (BEDU)

Valuation Ratios
P/E Ratio -422.3
Price to Sales 14
Price to Book 124.2
Price to Tangible Book
Price to Cash Flow 40.6
Price to Free Cash Flow 54.1
Growth Rates
Sales Growth Rate 39.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31.6%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -3%
Ret/ On Assets - 3 Yr. Avg. -4.9%
Return On Total Capital -90.9%
Ret/ On T. Cap. - 3 Yr. Avg. 186.4%
Return On Equity -90.9%
Return On Equity - 3 Yr. Avg. 186.4%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 29.1%
Gross Margin - 3 Yr. Avg. 18.4%
EBITDA Margin 8.6%
EBITDA Margin - 3 Yr. Avg. 2.3%
Operating Margin 2%
Oper. Margin - 3 Yr. Avg. -4.4%
Pre-Tax Margin 2%
Pre-Tax Margin - 3 Yr. Avg. -4.4%
Net Profit Margin -3.3%
Net Profit Margin - 3 Yr. Avg. -4.9%
Effective Tax Rate 100%
Eff/ Tax Rate - 3 Yr. Avg. 40%
Payout Ratio 0%

BEDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BEDU stock intrinsic value calculation we used $151 million for the last fiscal year's total revenue generated by Bright Scholar Education Holdings ADR. The default revenue input number comes from 2016 income statement of Bright Scholar Education 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 BEDU stock valuation model: a) initial revenue growth rate of 28.3% 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 BEDU is calculated based on our internal credit rating of Bright Scholar Education 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 Bright Scholar Education 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 BEDU stock the variable cost ratio is equal to 69.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $44 million in the base year in the intrinsic value calculation for BEDU 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 Bright Scholar Education Holdings ADR.

Corporate tax rate of 27% is the nominal tax rate for Bright Scholar Education 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 BEDU 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 BEDU are equal to 44.7%.

Life of production assets of 7.5 years is the average useful life of capital assets used in Bright Scholar Education 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 BEDU is equal to -78.8%. 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 - $17 million for Bright Scholar Education 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 114.873 million for Bright Scholar Education 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 Bright Scholar Education Holdings ADR at the current share price and the inputted number of shares is $2.1 billion.

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Financial statements of BEDU
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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