Intrinsic value of Bright Scholar Education Holdings ADR - BEDU

Previous Close

$16.21

  Intrinsic Value

$51.60

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  Rating & Target

str. buy

+218%

Previous close

$16.21

 
Intrinsic value

$51.60

 
Up/down potential

+218%

 
Rating

str. buy

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 2017), $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 1.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  29.30
  26.87
  24.68
  22.71
  20.94
  19.35
  17.91
  16.62
  15.46
  14.41
  13.47
  12.63
  11.86
  11.18
  10.56
  10.00
  9.50
  9.05
  8.65
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
Revenue, $m
  260
  330
  411
  504
  610
  728
  859
  1,001
  1,156
  1,323
  1,501
  1,691
  1,891
  2,103
  2,325
  2,557
  2,800
  3,054
  3,318
  3,592
  3,878
  4,175
  4,484
  4,805
  5,138
  5,485
  5,845
  6,220
  6,610
  7,016
Variable operating expenses, $m
  90
  113
  141
  172
  207
  247
  291
  339
  391
  447
  504
  568
  636
  707
  781
  859
  941
  1,026
  1,115
  1,207
  1,303
  1,403
  1,507
  1,615
  1,727
  1,843
  1,964
  2,090
  2,221
  2,358
Fixed operating expenses, $m
  103
  105
  108
  110
  113
  115
  118
  120
  123
  126
  128
  131
  134
  137
  140
  143
  146
  149
  153
  156
  160
  163
  167
  170
  174
  178
  182
  186
  190
  194
Total operating expenses, $m
  193
  218
  249
  282
  320
  362
  409
  459
  514
  573
  632
  699
  770
  844
  921
  1,002
  1,087
  1,175
  1,268
  1,363
  1,463
  1,566
  1,674
  1,785
  1,901
  2,021
  2,146
  2,276
  2,411
  2,552
Operating income, $m
  67
  111
  163
  222
  290
  366
  450
  542
  642
  750
  868
  991
  1,122
  1,259
  1,403
  1,555
  1,713
  1,878
  2,050
  2,229
  2,415
  2,609
  2,810
  3,020
  3,237
  3,464
  3,699
  3,944
  4,199
  4,464
EBITDA, $m
  81
  128
  183
  247
  319
  400
  490
  589
  696
  811
  934
  1,066
  1,205
  1,352
  1,506
  1,667
  1,836
  2,012
  2,196
  2,387
  2,586
  2,793
  3,008
  3,231
  3,463
  3,705
  3,956
  4,217
  4,489
  4,773
Interest expense (income), $m
  0
  0
  3
  7
  11
  16
  21
  27
  34
  41
  49
  58
  67
  77
  87
  98
  110
  122
  134
  147
  161
  175
  190
  205
  221
  238
  255
  273
  292
  311
  331
Earnings before tax, $m
  67
  108
  156
  212
  274
  345
  423
  508
  601
  701
  810
  924
  1,045
  1,172
  1,305
  1,445
  1,591
  1,744
  1,903
  2,068
  2,240
  2,419
  2,605
  2,798
  2,999
  3,209
  3,426
  3,652
  3,888
  4,133
Tax expense, $m
  18
  29
  42
  57
  74
  93
  114
  137
  162
  189
  219
  250
  282
  316
  352
  390
  430
  471
  514
  558
  605
  653
  703
  756
  810
  866
  925
  986
  1,050
  1,116
Net income, $m
  49
  79
  114
  154
  200
  252
  309
  371
  439
  512
  592
  675
  763
  855
  953
  1,055
  1,162
  1,273
  1,389
  1,510
  1,635
  1,766
  1,902
  2,043
  2,190
  2,342
  2,501
  2,666
  2,838
  3,017

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
Total assets, $m
  388
  493
  615
  754
  912
  1,089
  1,284
  1,497
  1,728
  1,977
  2,244
  2,527
  2,827
  3,143
  3,475
  3,822
  4,185
  4,564
  4,959
  5,370
  5,797
  6,241
  6,702
  7,182
  7,680
  8,198
  8,737
  9,297
  9,880
  10,487
Adjusted assets (=assets-cash), $m
  388
  493
  615
  754
  912
  1,089
  1,284
  1,497
  1,728
  1,977
  2,244
  2,527
  2,827
  3,143
  3,475
  3,822
  4,185
  4,564
  4,959
  5,370
  5,797
  6,241
  6,702
  7,182
  7,680
  8,198
  8,737
  9,297
  9,880
  10,487
Revenue / Adjusted assets
  0.670
  0.669
  0.668
  0.668
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
Average production assets, $m
  114
  145
  181
  222
  268
  320
  378
  441
  509
  582
  660
  744
  832
  925
  1,023
  1,125
  1,232
  1,344
  1,460
  1,581
  1,706
  1,837
  1,973
  2,114
  2,261
  2,413
  2,572
  2,737
  2,908
  3,087
Working capital, $m
  -23
  -29
  -37
  -45
  -54
  -65
  -76
  -89
  -103
  -118
  -134
  -150
  -168
  -187
  -207
  -228
  -249
  -272
  -295
  -320
  -345
  -372
  -399
  -428
  -457
  -488
  -520
  -554
  -588
  -624
Total debt, $m
  56
  123
  201
  290
  391
  504
  629
  766
  914
  1,073
  1,244
  1,425
  1,617
  1,819
  2,032
  2,254
  2,486
  2,729
  2,982
  3,244
  3,518
  3,802
  4,097
  4,404
  4,723
  5,055
  5,399
  5,758
  6,131
  6,520
Total liabilities, $m
  249
  315
  393
  483
  584
  697
  821
  958
  1,106
  1,266
  1,436
  1,617
  1,809
  2,011
  2,224
  2,446
  2,679
  2,921
  3,174
  3,437
  3,710
  3,994
  4,289
  4,596
  4,915
  5,247
  5,591
  5,950
  6,323
  6,712
Total equity, $m
  140
  177
  221
  271
  328
  392
  462
  539
  622
  712
  808
  910
  1,018
  1,131
  1,251
  1,376
  1,507
  1,643
  1,785
  1,933
  2,087
  2,247
  2,413
  2,585
  2,765
  2,951
  3,145
  3,347
  3,557
  3,775
Total liabilities and equity, $m
  389
  492
  614
  754
  912
  1,089
  1,283
  1,497
  1,728
  1,978
  2,244
  2,527
  2,827
  3,142
  3,475
  3,822
  4,186
  4,564
  4,959
  5,370
  5,797
  6,241
  6,702
  7,181
  7,680
  8,198
  8,736
  9,297
  9,880
  10,487
Debt-to-equity ratio
  0.400
  0.690
  0.910
  1.070
  1.190
  1.290
  1.360
  1.420
  1.470
  1.510
  1.540
  1.570
  1.590
  1.610
  1.620
  1.640
  1.650
  1.660
  1.670
  1.680
  1.690
  1.690
  1.700
  1.700
  1.710
  1.710
  1.720
  1.720
  1.720
  1.730
Adjusted equity ratio
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360
  0.360

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  49
  79
  114
  154
  200
  252
  309
  371
  439
  512
  592
  675
  763
  855
  953
  1,055
  1,162
  1,273
  1,389
  1,510
  1,635
  1,766
  1,902
  2,043
  2,190
  2,342
  2,501
  2,666
  2,838
  3,017
Depreciation, amort., depletion, $m
  14
  17
  20
  25
  29
  34
  40
  46
  53
  61
  66
  74
  83
  93
  102
  113
  123
  134
  146
  158
  171
  184
  197
  211
  226
  241
  257
  274
  291
  309
Funds from operations, $m
  63
  96
  134
  179
  230
  286
  349
  418
  492
  572
  658
  749
  846
  948
  1,055
  1,167
  1,285
  1,407
  1,535
  1,668
  1,806
  1,950
  2,099
  2,254
  2,416
  2,584
  2,758
  2,940
  3,129
  3,326
Change in working capital, $m
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -33
  -35
  -36
Cash from operations, $m
  68
  102
  142
  187
  239
  297
  360
  430
  506
  587
  673
  766
  864
  967
  1,075
  1,188
  1,306
  1,430
  1,558
  1,692
  1,831
  1,976
  2,126
  2,283
  2,445
  2,614
  2,790
  2,973
  3,164
  3,362
Maintenance CAPEX, $m
  -9
  -11
  -15
  -18
  -22
  -27
  -32
  -38
  -44
  -51
  -58
  -66
  -74
  -83
  -93
  -102
  -113
  -123
  -134
  -146
  -158
  -171
  -184
  -197
  -211
  -226
  -241
  -257
  -274
  -291
New CAPEX, $m
  -26
  -31
  -36
  -41
  -46
  -52
  -57
  -63
  -68
  -73
  -78
  -83
  -88
  -93
  -98
  -102
  -107
  -112
  -116
  -121
  -126
  -131
  -136
  -141
  -147
  -152
  -159
  -165
  -172
  -179
Cash from investing activities, $m
  -35
  -42
  -51
  -59
  -68
  -79
  -89
  -101
  -112
  -124
  -136
  -149
  -162
  -176
  -191
  -204
  -220
  -235
  -250
  -267
  -284
  -302
  -320
  -338
  -358
  -378
  -400
  -422
  -446
  -470
Free cash flow, $m
  33
  60
  91
  128
  170
  218
  271
  330
  394
  463
  537
  616
  701
  790
  885
  983
  1,087
  1,195
  1,308
  1,425
  1,548
  1,675
  1,807
  1,944
  2,087
  2,236
  2,390
  2,551
  2,718
  2,892
Issuance/(repayment) of debt, $m
  56
  67
  78
  89
  101
  113
  125
  137
  148
  159
  171
  181
  192
  202
  212
  222
  232
  242
  253
  263
  273
  284
  295
  307
  319
  332
  345
  359
  373
  389
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
Cash from financing (excl. dividends), $m  
  56
  67
  78
  89
  101
  113
  125
  137
  148
  159
  171
  181
  192
  202
  212
  222
  232
  242
  253
  263
  273
  284
  295
  307
  319
  332
  345
  359
  373
  389
Total cash flow (excl. dividends), $m
  90
  127
  169
  217
  271
  331
  396
  466
  542
  622
  707
  798
  893
  993
  1,097
  1,206
  1,319
  1,438
  1,560
  1,688
  1,821
  1,959
  2,102
  2,251
  2,406
  2,567
  2,735
  2,910
  3,091
  3,281
Retained Cash Flow (-), $m
  -31
  -38
  -44
  -50
  -57
  -64
  -70
  -77
  -83
  -90
  -96
  -102
  -108
  -114
  -119
  -125
  -131
  -136
  -142
  -148
  -154
  -160
  -166
  -173
  -179
  -186
  -194
  -202
  -210
  -219
Prev. year cash balance distribution, $m
  106
  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
  165
  89
  125
  167
  215
  267
  326
  389
  458
  533
  611
  696
  785
  879
  978
  1,081
  1,189
  1,301
  1,418
  1,540
  1,667
  1,799
  1,936
  2,079
  2,227
  2,381
  2,541
  2,708
  2,882
  3,062
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
  158
  81
  109
  138
  166
  194
  220
  243
  263
  279
  290
  297
  298
  295
  287
  275
  259
  240
  218
  196
  172
  149
  127
  106
  87
  69
  55
  42
  31
  23
Current shareholders' claim on cash, %
  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

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 76
Price to Sales 9.9
Price to Book 9.3
Price to Tangible Book
Price to Cash Flow 28.4
Price to Free Cash Flow 35.9
Growth Rates
Sales Growth Rate 27.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 7.7%
Cap. Spend. - 3 Yr. Gr. Rate -8.6%
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 8.8%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 22.5%
Ret/ On T. Cap. - 3 Yr. Avg. 27.2%
Return On Equity 22.5%
Return On Equity - 3 Yr. Avg. 27.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 35.4%
Gross Margin - 3 Yr. Avg. 25.5%
EBITDA Margin 24%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 16.1%
Oper. Margin - 3 Yr. Avg. 3%
Pre-Tax Margin 17.7%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 13%
Net Profit Margin - 3 Yr. Avg. 1.4%
Effective Tax Rate 17.6%
Eff/ Tax Rate - 3 Yr. Avg. 52.5%
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 $201 million for the last fiscal year's total revenue generated by Bright Scholar Education Holdings ADR. The default revenue input number comes from 2017 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 29.3% 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 34.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $101 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 5.4% 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%.

Life of production assets of 10 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 -8.9%. 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 - $215 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 105 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 $1.7 billion.

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COMPANY NEWS

▶ Bright Scholar: 1Q Earnings Snapshot   [Apr-24-18 05:40PM  Associated Press]
▶ Stay away from red-hot Chinese IPO market   [Nov-17-17 08:57PM  CNBC Videos]
▶ [$$] Triggering a Debt Bomb   [Nov-11-17 12:01AM  Barrons.com]
▶ Why is there a sudden rush of Chinese IPOs?   [Nov-09-17 05:50AM  CNBC]
▶ Bright Scholar Marketing Event & Business Updates   [Jun-10-17 12:00AM  PR Newswire]
▶ IPOs This Week: Software Maker Appian Plus 3 More Hopefuls   [May-21-17 10:29AM  24/7 Wall St.]
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