Intrinsic value of China Automotive Systems, Inc. - CAAS

Previous Close

$2.28

  Intrinsic Value

$9.30

stock screener

  Rating & Target

str. buy

+308%

Previous close

$2.28

 
Intrinsic value

$9.30

 
Up/down potential

+308%

 
Rating

str. buy

We calculate the intrinsic value of CAAS 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 0.1

 

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, %
  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
  509
  521
  534
  549
  566
  584
  604
  625
  649
  674
  700
  729
  759
  791
  825
  861
  900
  940
  983
  1,028
  1,076
  1,126
  1,179
  1,235
  1,293
  1,355
  1,420
  1,489
  1,561
  1,637
Variable operating expenses, $m
  483
  494
  506
  520
  536
  553
  571
  591
  612
  635
  647
  674
  702
  731
  763
  796
  832
  869
  909
  951
  995
  1,041
  1,090
  1,142
  1,196
  1,253
  1,313
  1,377
  1,444
  1,514
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
  483
  494
  506
  520
  536
  553
  571
  591
  612
  635
  647
  674
  702
  731
  763
  796
  832
  869
  909
  951
  995
  1,041
  1,090
  1,142
  1,196
  1,253
  1,313
  1,377
  1,444
  1,514
Operating income, $m
  26
  27
  28
  29
  30
  31
  33
  34
  36
  38
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
EBITDA, $m
  54
  55
  57
  58
  60
  62
  64
  66
  69
  72
  74
  77
  81
  84
  88
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
Interest expense (income), $m
  1
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
Earnings before tax, $m
  22
  22
  23
  23
  24
  24
  25
  26
  27
  27
  41
  42
  43
  44
  45
  46
  47
  49
  50
  52
  53
  55
  56
  58
  60
  62
  64
  66
  69
  71
Tax expense, $m
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  11
  11
  12
  12
  12
  12
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  19
Net income, $m
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  30
  30
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  44
  45
  47
  48
  50
  52

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
  731
  748
  767
  789
  813
  839
  868
  899
  932
  968
  1,006
  1,047
  1,090
  1,136
  1,185
  1,237
  1,292
  1,351
  1,412
  1,477
  1,545
  1,618
  1,694
  1,774
  1,858
  1,947
  2,041
  2,139
  2,243
  2,352
Adjusted assets (=assets-cash), $m
  731
  748
  767
  789
  813
  839
  868
  899
  932
  968
  1,006
  1,047
  1,090
  1,136
  1,185
  1,237
  1,292
  1,351
  1,412
  1,477
  1,545
  1,618
  1,694
  1,774
  1,858
  1,947
  2,041
  2,139
  2,243
  2,352
Revenue / Adjusted assets
  0.696
  0.697
  0.696
  0.696
  0.696
  0.696
  0.696
  0.695
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.697
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
  0.696
Average production assets, $m
  117
  119
  122
  126
  130
  134
  138
  143
  149
  154
  160
  167
  174
  181
  189
  197
  206
  215
  225
  235
  246
  258
  270
  283
  296
  310
  325
  341
  357
  375
Working capital, $m
  108
  111
  114
  117
  121
  124
  129
  133
  138
  143
  149
  155
  162
  168
  176
  183
  192
  200
  209
  219
  229
  240
  251
  263
  275
  289
  303
  317
  332
  349
Total debt, $m
  81
  91
  102
  115
  129
  144
  161
  179
  198
  219
  242
  265
  291
  318
  346
  377
  409
  442
  478
  516
  556
  598
  642
  689
  738
  790
  845
  902
  963
  1,026
Total liabilities, $m
  426
  436
  447
  460
  474
  489
  506
  524
  543
  564
  586
  610
  636
  663
  691
  721
  753
  787
  823
  861
  901
  943
  987
  1,034
  1,083
  1,135
  1,190
  1,247
  1,308
  1,371
Total equity, $m
  305
  312
  320
  329
  339
  350
  362
  375
  389
  404
  419
  437
  455
  474
  494
  516
  539
  563
  589
  616
  644
  675
  706
  740
  775
  812
  851
  892
  935
  981
Total liabilities and equity, $m
  731
  748
  767
  789
  813
  839
  868
  899
  932
  968
  1,005
  1,047
  1,091
  1,137
  1,185
  1,237
  1,292
  1,350
  1,412
  1,477
  1,545
  1,618
  1,693
  1,774
  1,858
  1,947
  2,041
  2,139
  2,243
  2,352
Debt-to-equity ratio
  0.270
  0.290
  0.320
  0.350
  0.380
  0.410
  0.440
  0.480
  0.510
  0.540
  0.580
  0.610
  0.640
  0.670
  0.700
  0.730
  0.760
  0.790
  0.810
  0.840
  0.860
  0.890
  0.910
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.050
Adjusted equity ratio
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  30
  30
  31
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  44
  45
  47
  48
  50
  52
Depreciation, amort., depletion, $m
  28
  29
  29
  30
  30
  31
  31
  32
  33
  33
  22
  23
  23
  24
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
Funds from operations, $m
  44
  45
  46
  47
  47
  48
  50
  51
  52
  53
  51
  53
  55
  56
  58
  60
  62
  65
  67
  69
  72
  75
  78
  81
  84
  87
  91
  95
  98
  103
Change in working capital, $m
  2
  2
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
Cash from operations, $m
  42
  42
  43
  43
  44
  45
  45
  46
  47
  48
  46
  47
  48
  50
  51
  53
  54
  56
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  83
  86
Maintenance CAPEX, $m
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
New CAPEX, $m
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
Cash from investing activities, $m
  -17
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -26
  -27
  -29
  -30
  -30
  -32
  -34
  -36
  -37
  -39
  -40
  -43
  -45
  -47
  -49
  -51
  -54
  -57
  -60
  -63
  -65
Free cash flow, $m
  24
  24
  24
  23
  23
  23
  23
  23
  22
  22
  19
  19
  19
  19
  19
  19
  19
  19
  19
  19
  19
  19
  19
  20
  20
  20
  20
  20
  21
  21
Issuance/(repayment) of debt, $m
  8
  10
  11
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  57
  60
  64
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  
  8
  10
  11
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  57
  60
  64
Total cash flow (excl. dividends), $m
  33
  34
  35
  36
  37
  38
  39
  41
  42
  43
  41
  43
  44
  46
  47
  49
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
Retained Cash Flow (-), $m
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
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
  27
  27
  27
  27
  27
  27
  27
  28
  28
  28
  25
  26
  26
  26
  27
  27
  28
  29
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  38
  39
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
  26
  25
  23
  22
  21
  20
  19
  17
  16
  15
  12
  11
  10
  9
  8
  7
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
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
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China Automotive Systems, Inc., (China Automotive) is a holding company. The Company, through its subsidiary, Great Genesis Holdings Limited (Genesis), owns interests in over eight Sino-joint ventures and over five subsidiaries in the People's Republic of China (PRC), which manufacture power steering systems and/or related products for various segments of the automobile industry. Genesis also owns interests in a Brazil-based trading company, which engages mainly in the import and sales of automotive parts in Brazil. Henglong USA Corporation (HLUSA), which is a subsidiary of the Company, engages in marketing of automotive parts in North America, and provides after sales service and research and development support. The Company's geographical segments include the United States, China and other foreign countries. One of its subsidiaries, Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., focuses on power steering parts for light duty vehicles.

FINANCIAL RATIOS  of  China Automotive Systems, Inc. (CAAS)

Valuation Ratios
P/E Ratio 3.1
Price to Sales 0.2
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow -2.6
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7%
Cap. Spend. - 3 Yr. Gr. Rate 21.7%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 40%
Interest Coverage 26
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 5.5%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 7.7%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 17.5%
Gross Margin - 3 Yr. Avg. 18.1%
EBITDA Margin 8.7%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 5%
Oper. Margin - 3 Yr. Avg. 7.1%
Pre-Tax Margin 5.4%
Pre-Tax Margin - 3 Yr. Avg. 7.5%
Net Profit Margin 5%
Net Profit Margin - 3 Yr. Avg. 6.1%
Effective Tax Rate 12%
Eff/ Tax Rate - 3 Yr. Avg. 13.2%
Payout Ratio 4.3%

CAAS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAAS stock intrinsic value calculation we used $499 million for the last fiscal year's total revenue generated by China Automotive Systems, Inc.. The default revenue input number comes from 0001 income statement of China Automotive Systems, Inc.. 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 CAAS 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 CAAS is calculated based on our internal credit rating of China Automotive Systems, Inc., 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 Automotive Systems, Inc..
    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 CAAS stock the variable cost ratio is equal to 95%.

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 CAAS 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 China Automotive Systems, Inc..

Corporate tax rate of 27% is the nominal tax rate for China Automotive Systems, Inc.. 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 CAAS 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 CAAS are equal to 22.9%.

Life of production assets of 7.4 years is the average useful life of capital assets used in China Automotive Systems, Inc. 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 CAAS is equal to 21.3%. 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 - $299.448 million for China Automotive Systems, Inc. - 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 31.645 million for China Automotive Systems, Inc. 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 Automotive Systems, Inc. at the current share price and the inputted number of shares is $0.1 billion.

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