Intrinsic value of DASAN Zhone Solutions - DZSI

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$14.97

  Intrinsic Value

$14.63

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  Rating & Target

hold

-2%

Previous close

$14.97

 
Intrinsic value

$14.63

 
Up/down potential

-2%

 
Rating

hold

We calculate the intrinsic value of DZSI 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 0.2

 

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, %
  14.20
  13.28
  12.45
  11.71
  11.04
  10.43
  9.89
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
Revenue, $m
  282
  320
  359
  402
  446
  492
  541
  592
  645
  700
  758
  817
  880
  944
  1,011
  1,081
  1,153
  1,229
  1,307
  1,389
  1,474
  1,562
  1,655
  1,751
  1,851
  1,956
  2,065
  2,180
  2,299
  2,424
Variable operating expenses, $m
  242
  274
  308
  344
  382
  421
  463
  506
  552
  599
  647
  698
  751
  806
  863
  923
  985
  1,049
  1,116
  1,186
  1,258
  1,334
  1,412
  1,495
  1,580
  1,670
  1,763
  1,861
  1,963
  2,069
Fixed operating expenses, $m
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  44
  45
  46
  47
  49
  50
  51
  52
  53
  54
  55
  56
  58
  59
  60
  62
  63
  64
  66
  67
Total operating expenses, $m
  278
  311
  345
  382
  421
  461
  504
  548
  595
  643
  691
  743
  797
  853
  912
  973
  1,036
  1,101
  1,169
  1,240
  1,313
  1,390
  1,470
  1,554
  1,640
  1,732
  1,826
  1,925
  2,029
  2,136
Operating income, $m
  4
  9
  14
  20
  25
  31
  37
  44
  51
  58
  66
  74
  82
  91
  99
  109
  118
  128
  138
  149
  160
  172
  184
  197
  211
  225
  239
  255
  271
  288
EBITDA, $m
  8
  13
  19
  24
  31
  37
  44
  51
  58
  66
  74
  82
  91
  100
  109
  119
  129
  140
  151
  163
  175
  187
  200
  214
  228
  243
  259
  276
  293
  311
Interest expense (income), $m
  1
  1
  2
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
Earnings before tax, $m
  3
  7
  12
  16
  21
  26
  32
  37
  43
  49
  57
  63
  70
  78
  85
  93
  101
  110
  119
  128
  137
  148
  158
  169
  181
  193
  206
  219
  233
  247
Tax expense, $m
  1
  2
  3
  4
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  49
  52
  55
  59
  63
  67
Net income, $m
  2
  5
  9
  12
  15
  19
  23
  27
  31
  36
  41
  46
  51
  57
  62
  68
  74
  80
  87
  93
  100
  108
  115
  124
  132
  141
  150
  160
  170
  180

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
  182
  206
  232
  259
  287
  317
  349
  381
  416
  451
  488
  527
  567
  608
  652
  696
  743
  792
  842
  895
  950
  1,007
  1,066
  1,128
  1,193
  1,260
  1,331
  1,404
  1,481
  1,562
Adjusted assets (=assets-cash), $m
  182
  206
  232
  259
  287
  317
  349
  381
  416
  451
  488
  527
  567
  608
  652
  696
  743
  792
  842
  895
  950
  1,007
  1,066
  1,128
  1,193
  1,260
  1,331
  1,404
  1,481
  1,562
Revenue / Adjusted assets
  1.549
  1.553
  1.547
  1.552
  1.554
  1.552
  1.550
  1.554
  1.550
  1.552
  1.553
  1.550
  1.552
  1.553
  1.551
  1.553
  1.552
  1.552
  1.552
  1.552
  1.552
  1.551
  1.553
  1.552
  1.552
  1.552
  1.551
  1.553
  1.552
  1.552
Average production assets, $m
  14
  15
  17
  19
  21
  24
  26
  28
  31
  34
  36
  39
  42
  45
  49
  52
  55
  59
  63
  67
  71
  75
  79
  84
  89
  94
  99
  105
  110
  116
Working capital, $m
  60
  67
  76
  85
  94
  104
  114
  125
  136
  148
  160
  172
  186
  199
  213
  228
  243
  259
  276
  293
  311
  330
  349
  369
  391
  413
  436
  460
  485
  511
Total debt, $m
  32
  45
  59
  74
  89
  105
  122
  140
  158
  178
  198
  218
  240
  262
  286
  310
  335
  361
  389
  417
  447
  477
  510
  543
  578
  614
  653
  692
  734
  777
Total liabilities, $m
  98
  111
  125
  140
  155
  171
  188
  206
  224
  244
  264
  284
  306
  329
  352
  376
  401
  428
  455
  483
  513
  544
  576
  609
  644
  681
  719
  758
  800
  843
Total equity, $m
  84
  95
  107
  119
  132
  146
  160
  175
  191
  208
  225
  242
  261
  280
  300
  320
  342
  364
  387
  412
  437
  463
  490
  519
  549
  580
  612
  646
  681
  718
Total liabilities and equity, $m
  182
  206
  232
  259
  287
  317
  348
  381
  415
  452
  489
  526
  567
  609
  652
  696
  743
  792
  842
  895
  950
  1,007
  1,066
  1,128
  1,193
  1,261
  1,331
  1,404
  1,481
  1,561
Debt-to-equity ratio
  0.380
  0.480
  0.550
  0.620
  0.670
  0.720
  0.760
  0.800
  0.830
  0.860
  0.880
  0.900
  0.920
  0.940
  0.950
  0.970
  0.980
  0.990
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.050
  1.060
  1.070
  1.070
  1.080
  1.080
Adjusted equity ratio
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  5
  9
  12
  15
  19
  23
  27
  31
  36
  41
  46
  51
  57
  62
  68
  74
  80
  87
  93
  100
  108
  115
  124
  132
  141
  150
  160
  170
  180
Depreciation, amort., depletion, $m
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
Funds from operations, $m
  6
  10
  13
  17
  21
  25
  29
  34
  39
  44
  49
  54
  60
  66
  72
  78
  85
  92
  99
  107
  115
  123
  131
  140
  150
  160
  170
  181
  192
  204
Change in working capital, $m
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
Cash from operations, $m
  -1
  2
  5
  8
  11
  15
  19
  23
  28
  32
  37
  41
  47
  52
  58
  63
  70
  76
  83
  89
  97
  104
  112
  120
  129
  137
  147
  156
  167
  177
Maintenance CAPEX, $m
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
Cash from investing activities, $m
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -15
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Free cash flow, $m
  -5
  -3
  0
  2
  5
  9
  12
  16
  19
  23
  27
  31
  36
  40
  45
  50
  56
  61
  67
  73
  79
  86
  92
  100
  107
  115
  123
  131
  140
  149
Issuance/(repayment) of debt, $m
  12
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  40
  42
  43
Issuance/(repurchase) of shares, $m
  8
  6
  3
  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
Cash from financing (excl. dividends), $m  
  20
  19
  17
  16
  15
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  40
  42
  43
Total cash flow (excl. dividends), $m
  15
  16
  17
  18
  21
  25
  29
  33
  38
  42
  47
  52
  57
  63
  69
  75
  81
  87
  94
  101
  109
  116
  125
  133
  142
  151
  161
  171
  182
  193
Retained Cash Flow (-), $m
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
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
  5
  5
  5
  5
  8
  11
  14
  18
  22
  26
  30
  34
  39
  44
  49
  54
  59
  65
  71
  77
  84
  90
  97
  104
  112
  120
  128
  137
  146
  156
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
  5
  4
  4
  4
  6
  8
  10
  11
  13
  14
  14
  15
  15
  15
  14
  14
  13
  12
  11
  10
  9
  7
  6
  5
  4
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  96.9
  95.0
  94.0
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8
  93.8

DASAN Zhone Solutions, Inc., formerly Zhone Technologies, Inc., designs, develops and manufactures communications network equipment for telecommunications operators and enterprises across the world. The Company's products provide enterprise solutions that enable both network service providers and enterprises to deliver high speed fiber access, while transporting voice, video and data to the end user. In addition to its product offerings in its core business, it offers FiberLAN Passive Optical local area network (LAN), which provides an alternative to switched copper-based LANs. The customers of its FiberLAN business include hospitality, government, education, manufacturing and business enterprises. Its products span two categories: SLMS Products, and Legacy, Service and Other Products. Its SLMS Products include Broadband Aggregation and Service, Customer Premise Equipment (CPE), Zhone Management System and FiberLAN Passive Optical LAN.

FINANCIAL RATIOS  of  DASAN Zhone Solutions (DZSI)

Valuation Ratios
P/E Ratio -16.3
Price to Sales 1.6
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 61.3
Price to Free Cash Flow 81.7
Growth Rates
Sales Growth Rate 7.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 9.1%
Total Debt to Equity 36.4%
Interest Coverage -13
Management Effectiveness
Return On Assets -12.2%
Ret/ On Assets - 3 Yr. Avg. -4%
Return On Total Capital -19.6%
Ret/ On T. Cap. - 3 Yr. Avg. -7%
Return On Equity -28%
Return On Equity - 3 Yr. Avg. -10.2%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 27.3%
Gross Margin - 3 Yr. Avg. 27.6%
EBITDA Margin -6.7%
EBITDA Margin - 3 Yr. Avg. -1.3%
Operating Margin -8.7%
Oper. Margin - 3 Yr. Avg. -2.9%
Pre-Tax Margin -9.3%
Pre-Tax Margin - 3 Yr. Avg. -3.1%
Net Profit Margin -10%
Net Profit Margin - 3 Yr. Avg. -3.6%
Effective Tax Rate -7.1%
Eff/ Tax Rate - 3 Yr. Avg. 8.7%
Payout Ratio 0%

DZSI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DZSI stock intrinsic value calculation we used $247.114 million for the last fiscal year's total revenue generated by DASAN Zhone Solutions. The default revenue input number comes from 0001 income statement of DASAN Zhone Solutions. 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 DZSI stock valuation model: a) initial revenue growth rate of 14.2% 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 DZSI is calculated based on our internal credit rating of DASAN Zhone Solutions, 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 DASAN Zhone Solutions.
    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 DZSI stock the variable cost ratio is equal to 85.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $35 million in the base year in the intrinsic value calculation for DZSI 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 5.5% for DASAN Zhone Solutions.

Corporate tax rate of 27% is the nominal tax rate for DASAN Zhone Solutions. 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 DZSI 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 DZSI are equal to 4.8%.

Life of production assets of 4.7 years is the average useful life of capital assets used in DASAN Zhone Solutions 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 DZSI is equal to 21.1%. 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 - $73.233 million for DASAN Zhone Solutions - 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 16.498 million for DASAN Zhone Solutions 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 DASAN Zhone Solutions at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ DZS to Announce Third Quarter 2018 Results on November 8th   [Oct-09-18 09:05AM  GlobeNewswire]
▶ DZS Announces Intent to Acquire KEYMILE   [Oct-08-18 09:34AM  GlobeNewswire]
▶ DZS Wins LG U+ Contract for 5G Wireless Backhaul Solution   [Sep-14-18 08:05AM  GlobeNewswire]
▶ When Should You Buy DASAN Zhone Solutions Inc (NASDAQ:DZSI)?   [Apr-19-18 04:34PM  Simply Wall St.]

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