Intrinsic value of China New Borun Corporation - BORN

Previous Close

$0.91

  Intrinsic Value

$10.85

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  Rating & Target

str. buy

+999%

Previous close

$0.91

 
Intrinsic value

$10.85

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of BORN 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 0001), $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
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  341
  360
  379
  399
  420
  442
  465
  489
  514
  541
  569
  598
  629
  661
  694
  730
  767
  805
  846
  889
  934
  981
  1,030
  1,082
  1,137
  1,194
  1,254
  1,317
  1,383
  1,452
Variable operating expenses, $m
  159
  167
  176
  185
  195
  205
  216
  227
  239
  251
  262
  275
  289
  304
  319
  336
  353
  371
  389
  409
  430
  451
  474
  498
  523
  549
  577
  606
  636
  668
Fixed operating expenses, $m
  151
  155
  158
  161
  165
  169
  172
  176
  180
  184
  188
  192
  196
  201
  205
  210
  214
  219
  224
  229
  234
  239
  244
  250
  255
  261
  266
  272
  278
  284
Total operating expenses, $m
  310
  322
  334
  346
  360
  374
  388
  403
  419
  435
  450
  467
  485
  505
  524
  546
  567
  590
  613
  638
  664
  690
  718
  748
  778
  810
  843
  878
  914
  952
Operating income, $m
  31
  38
  45
  52
  60
  68
  77
  86
  96
  106
  119
  131
  143
  156
  170
  184
  200
  216
  233
  251
  270
  291
  312
  335
  359
  384
  411
  439
  468
  500
EBITDA, $m
  50
  58
  66
  74
  83
  92
  102
  113
  124
  135
  148
  161
  175
  189
  205
  221
  238
  256
  276
  296
  317
  340
  364
  389
  416
  444
  474
  505
  538
  573
Interest expense (income), $m
  5
  9
  10
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
Earnings before tax, $m
  22
  28
  35
  42
  49
  57
  66
  74
  84
  94
  106
  117
  129
  142
  155
  169
  183
  199
  216
  233
  252
  271
  292
  314
  337
  361
  387
  414
  442
  473
Tax expense, $m
  6
  8
  9
  11
  13
  15
  18
  20
  23
  25
  29
  32
  35
  38
  42
  46
  50
  54
  58
  63
  68
  73
  79
  85
  91
  97
  104
  112
  119
  128
Net income, $m
  16
  21
  25
  31
  36
  42
  48
  54
  61
  68
  77
  86
  94
  103
  113
  123
  134
  145
  157
  170
  184
  198
  213
  229
  246
  263
  282
  302
  323
  345

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
  419
  441
  464
  489
  515
  542
  570
  599
  630
  663
  697
  733
  770
  810
  851
  894
  939
  987
  1,037
  1,089
  1,144
  1,202
  1,263
  1,326
  1,393
  1,463
  1,536
  1,614
  1,695
  1,780
Adjusted assets (=assets-cash), $m
  419
  441
  464
  489
  515
  542
  570
  599
  630
  663
  697
  733
  770
  810
  851
  894
  939
  987
  1,037
  1,089
  1,144
  1,202
  1,263
  1,326
  1,393
  1,463
  1,536
  1,614
  1,695
  1,780
Revenue / Adjusted assets
  0.814
  0.816
  0.817
  0.816
  0.816
  0.815
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.817
  0.816
  0.816
  0.817
  0.817
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
  0.816
Average production assets, $m
  138
  145
  153
  161
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309
  325
  341
  358
  376
  395
  415
  436
  458
  481
  505
  531
  557
  585
Working capital, $m
  171
  180
  189
  200
  210
  221
  233
  245
  257
  271
  284
  299
  314
  330
  347
  365
  383
  403
  423
  444
  467
  490
  515
  541
  568
  597
  627
  658
  691
  726
Total debt, $m
  155
  160
  165
  170
  176
  182
  188
  195
  202
  209
  216
  224
  232
  241
  250
  260
  270
  280
  291
  303
  315
  328
  341
  355
  370
  386
  402
  419
  437
  456
Total liabilities, $m
  92
  97
  103
  108
  114
  120
  126
  132
  139
  147
  154
  162
  170
  179
  188
  198
  208
  218
  229
  241
  253
  266
  279
  293
  308
  323
  340
  357
  375
  393
Total equity, $m
  326
  343
  362
  381
  401
  422
  444
  467
  491
  516
  543
  571
  600
  631
  663
  696
  732
  769
  808
  849
  891
  936
  984
  1,033
  1,085
  1,140
  1,197
  1,257
  1,320
  1,386
Total liabilities and equity, $m
  418
  440
  465
  489
  515
  542
  570
  599
  630
  663
  697
  733
  770
  810
  851
  894
  940
  987
  1,037
  1,090
  1,144
  1,202
  1,263
  1,326
  1,393
  1,463
  1,537
  1,614
  1,695
  1,779
Debt-to-equity ratio
  0.470
  0.460
  0.460
  0.450
  0.440
  0.430
  0.420
  0.420
  0.410
  0.400
  0.400
  0.390
  0.390
  0.380
  0.380
  0.370
  0.370
  0.360
  0.360
  0.360
  0.350
  0.350
  0.350
  0.340
  0.340
  0.340
  0.340
  0.330
  0.330
  0.330
Adjusted equity ratio
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779
  0.779

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  21
  25
  31
  36
  42
  48
  54
  61
  68
  77
  86
  94
  103
  113
  123
  134
  145
  157
  170
  184
  198
  213
  229
  246
  263
  282
  302
  323
  345
Depreciation, amort., depletion, $m
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  49
  52
  55
  57
  60
  63
  66
  70
  73
Funds from operations, $m
  35
  41
  46
  53
  59
  66
  73
  81
  89
  98
  106
  116
  126
  137
  148
  160
  173
  186
  200
  215
  231
  247
  265
  283
  303
  324
  345
  368
  393
  418
Change in working capital, $m
  9
  9
  10
  10
  10
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  31
  33
  35
Cash from operations, $m
  26
  31
  37
  43
  49
  55
  62
  69
  76
  84
  92
  101
  111
  121
  131
  142
  154
  166
  180
  194
  208
  224
  240
  257
  276
  295
  315
  337
  360
  383
Maintenance CAPEX, $m
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -66
  -70
New CAPEX, $m
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Cash from investing activities, $m
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -41
  -42
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -77
  -80
  -84
  -88
  -93
  -98
Free cash flow, $m
  3
  7
  11
  15
  20
  25
  30
  36
  41
  48
  54
  61
  68
  76
  84
  93
  102
  112
  123
  134
  145
  158
  171
  185
  199
  215
  231
  248
  267
  286
Issuance/(repayment) of debt, $m
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
Issuance/(repurchase) of shares, $m
  1
  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  
  6
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
Total cash flow (excl. dividends), $m
  8
  12
  16
  21
  26
  31
  36
  42
  48
  55
  61
  69
  76
  85
  93
  103
  112
  123
  134
  145
  158
  171
  184
  199
  214
  230
  247
  265
  284
  305
Retained Cash Flow (-), $m
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
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
  -9
  -6
  -2
  2
  6
  10
  14
  19
  24
  30
  35
  41
  47
  54
  61
  69
  77
  86
  95
  104
  115
  126
  137
  149
  162
  176
  190
  205
  221
  238
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
  -8
  -5
  -2
  1
  4
  7
  10
  12
  14
  15
  16
  17
  18
  18
  18
  18
  17
  16
  15
  13
  12
  10
  9
  8
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6
  99.6

China New Borun Corporation (New Borun) is a producer and distributor of corn-based edible alcohol in the People's Republic of China. The Company also produces Distillers Dried Grains with Solubles high-protein feed (DDGS Feed), liquid carbon dioxide and crude corn oil as by-products of edible alcohol production and chlorinated polyethylene (CPE) and foam insulation that are used in a range of industries. The Company's segments include Corn-base edible alcohol and its by-products, CPE and Foam insulation. The Company's edible alcohol products are primarily sold as an ingredient to producers of baijiu who further blend its products into finished products sold under various brand names throughout China. The Company's facilities are located in Shouguang, Shandong Province and the other in Daqing, Heilongjiang Province.

FINANCIAL RATIOS  of  China New Borun Corporation (BORN)

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 1
Price to Free Cash Flow 1.1
Growth Rates
Sales Growth Rate -19.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate -48.6%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 15.6%
Total Debt to Equity 64.1%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 3.4%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 8.4%
Gross Margin - 3 Yr. Avg. 9.9%
EBITDA Margin 11.3%
EBITDA Margin - 3 Yr. Avg. 12.9%
Operating Margin 6.1%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 4.9%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 25.2%
Payout Ratio 0%

BORN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BORN stock intrinsic value calculation we used $324 million for the last fiscal year's total revenue generated by China New Borun Corporation. The default revenue input number comes from 0001 income statement of China New Borun Corporation. 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 BORN stock valuation model: a) initial revenue growth rate of 5.4% 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 BORN is calculated based on our internal credit rating of China New Borun Corporation, 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 New Borun Corporation.
    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 BORN stock the variable cost ratio is equal to 46.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $148 million in the base year in the intrinsic value calculation for BORN 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 6.2% for China New Borun Corporation.

Corporate tax rate of 27% is the nominal tax rate for China New Borun Corporation. 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 BORN 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 BORN are equal to 40.3%.

Life of production assets of 8 years is the average useful life of capital assets used in China New Borun Corporation 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 BORN 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 - $309.189587817 million for China New Borun Corporation - 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 25.730 million for China New Borun Corporation 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 New Borun Corporation at the current share price and the inputted number of shares is $0.0 billion.

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