Intrinsic value of DASAN Zhone Solutions, Inc. - DZSI

Previous Close

$12.97

  Intrinsic Value

$13.55

stock screener

  Rating & Target

hold

+4%

Previous close

$12.97

 
Intrinsic value

$13.55

 
Up/down potential

+4%

 
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, %
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.64
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
Revenue, $m
  307
  333
  360
  387
  416
  447
  478
  511
  544
  580
  616
  655
  694
  736
  779
  824
  871
  920
  971
  1,025
  1,081
  1,139
  1,201
  1,265
  1,332
  1,402
  1,475
  1,552
  1,633
  1,718
Variable operating expenses, $m
  253
  275
  297
  320
  344
  369
  394
  421
  449
  478
  508
  539
  572
  606
  642
  679
  718
  758
  800
  844
  890
  939
  989
  1,042
  1,097
  1,155
  1,216
  1,279
  1,346
  1,415
Fixed operating expenses, $m
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  56
  57
  58
  60
  61
  62
  64
  65
  66
  68
  69
  71
  72
  74
  76
  77
  79
  81
  83
Total operating expenses, $m
  297
  320
  343
  367
  392
  418
  444
  472
  501
  531
  563
  595
  629
  664
  702
  740
  780
  822
  865
  910
  958
  1,008
  1,060
  1,114
  1,171
  1,231
  1,293
  1,358
  1,427
  1,498
Operating income, $m
  9
  13
  17
  21
  25
  29
  34
  38
  43
  48
  54
  59
  65
  71
  78
  84
  91
  98
  106
  114
  122
  131
  141
  150
  160
  171
  182
  194
  207
  220
EBITDA, $m
  12
  16
  20
  24
  28
  33
  37
  42
  47
  52
  58
  64
  70
  76
  83
  90
  97
  104
  112
  121
  129
  139
  148
  158
  169
  180
  192
  204
  217
  231
Interest expense (income), $m
  1
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
Earnings before tax, $m
  7
  10
  13
  17
  20
  24
  27
  31
  35
  39
  44
  49
  54
  59
  64
  69
  75
  81
  88
  94
  101
  109
  117
  125
  133
  142
  152
  162
  172
  183
Tax expense, $m
  2
  3
  4
  5
  5
  6
  7
  8
  9
  11
  12
  13
  14
  16
  17
  19
  20
  22
  24
  25
  27
  29
  31
  34
  36
  38
  41
  44
  47
  50
Net income, $m
  5
  8
  10
  12
  15
  17
  20
  23
  26
  29
  32
  36
  39
  43
  47
  51
  55
  59
  64
  69
  74
  79
  85
  91
  97
  104
  111
  118
  126
  134

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
  207
  224
  242
  261
  281
  301
  322
  344
  367
  391
  415
  441
  468
  496
  525
  555
  587
  620
  654
  691
  728
  768
  809
  852
  897
  945
  994
  1,046
  1,101
  1,158
Adjusted assets (=assets-cash), $m
  207
  224
  242
  261
  281
  301
  322
  344
  367
  391
  415
  441
  468
  496
  525
  555
  587
  620
  654
  691
  728
  768
  809
  852
  897
  945
  994
  1,046
  1,101
  1,158
Revenue / Adjusted assets
  1.483
  1.487
  1.488
  1.483
  1.480
  1.485
  1.484
  1.485
  1.482
  1.483
  1.484
  1.485
  1.483
  1.484
  1.484
  1.485
  1.484
  1.484
  1.485
  1.483
  1.485
  1.483
  1.485
  1.485
  1.485
  1.484
  1.484
  1.484
  1.483
  1.484
Average production assets, $m
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
Working capital, $m
  79
  85
  92
  99
  107
  114
  122
  131
  139
  148
  158
  168
  178
  188
  199
  211
  223
  236
  249
  262
  277
  292
  307
  324
  341
  359
  378
  397
  418
  440
Total debt, $m
  42
  52
  63
  74
  85
  97
  110
  123
  137
  151
  165
  181
  196
  213
  230
  248
  267
  287
  307
  329
  351
  374
  399
  424
  451
  479
  509
  539
  572
  605
Total liabilities, $m
  123
  133
  144
  155
  166
  178
  191
  204
  218
  232
  246
  262
  277
  294
  311
  329
  348
  368
  388
  410
  432
  455
  480
  505
  532
  560
  590
  620
  653
  686
Total equity, $m
  84
  91
  99
  106
  114
  123
  131
  140
  149
  159
  169
  180
  190
  202
  214
  226
  239
  252
  266
  281
  296
  312
  329
  347
  365
  384
  405
  426
  448
  471
Total liabilities and equity, $m
  207
  224
  243
  261
  280
  301
  322
  344
  367
  391
  415
  442
  467
  496
  525
  555
  587
  620
  654
  691
  728
  767
  809
  852
  897
  944
  995
  1,046
  1,101
  1,157
Debt-to-equity ratio
  0.490
  0.570
  0.640
  0.690
  0.750
  0.800
  0.840
  0.880
  0.910
  0.950
  0.980
  1.010
  1.030
  1.060
  1.080
  1.100
  1.120
  1.140
  1.150
  1.170
  1.180
  1.200
  1.210
  1.220
  1.240
  1.250
  1.260
  1.270
  1.280
  1.290
Adjusted equity ratio
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  8
  10
  12
  15
  17
  20
  23
  26
  29
  32
  36
  39
  43
  47
  51
  55
  59
  64
  69
  74
  79
  85
  91
  97
  104
  111
  118
  126
  134
Depreciation, amort., depletion, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Funds from operations, $m
  8
  10
  13
  15
  18
  21
  24
  27
  30
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  76
  81
  87
  93
  99
  106
  113
  120
  128
  136
  145
Change in working capital, $m
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  2
  4
  6
  8
  11
  13
  16
  18
  21
  24
  27
  30
  33
  37
  41
  44
  49
  53
  57
  62
  67
  72
  77
  83
  89
  95
  102
  108
  116
  123
Maintenance CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -13
  -14
Free cash flow, $m
  -1
  1
  3
  5
  7
  9
  11
  14
  16
  19
  22
  25
  28
  31
  34
  38
  41
  45
  49
  54
  58
  63
  67
  73
  78
  84
  90
  96
  103
  110
Issuance/(repayment) of debt, $m
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
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  
  11
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
Total cash flow (excl. dividends), $m
  10
  11
  13
  16
  19
  21
  24
  27
  30
  33
  36
  40
  44
  47
  52
  56
  60
  65
  70
  75
  80
  86
  92
  98
  105
  112
  119
  127
  135
  143
Retained Cash Flow (-), $m
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
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
  3
  4
  6
  8
  11
  13
  15
  18
  21
  24
  26
  29
  33
  36
  40
  43
  47
  51
  56
  60
  65
  70
  75
  81
  86
  93
  99
  106
  113
  120
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
  3
  4
  5
  7
  8
  9
  10
  11
  12
  12
  13
  13
  12
  12
  12
  11
  10
  9
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3
  99.3

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, Inc. (DZSI)

Valuation Ratios
P/E Ratio -14.2
Price to Sales 1.4
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 53.1
Price to Free Cash Flow 70.8
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 $282 million for the last fiscal year's total revenue generated by DASAN Zhone Solutions, Inc.. The default revenue input number comes from 0001 income statement of DASAN Zhone Solutions, 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 DZSI stock valuation model: a) initial revenue growth rate of 8.8% 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, 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 DASAN Zhone Solutions, 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 DZSI stock the variable cost ratio is equal to 82.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $43 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 6.4% for DASAN Zhone Solutions, Inc..

Corporate tax rate of 27% is the nominal tax rate for DASAN Zhone Solutions, 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 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 3.8%.

Life of production assets of 5.9 years is the average useful life of capital assets used in DASAN Zhone Solutions, 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 DZSI is equal to 25.6%. 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 - $77.239 million for DASAN Zhone Solutions, 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 16.597 million for DASAN Zhone Solutions, 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 DASAN Zhone Solutions, Inc. at the current share price and the inputted number of shares is $0.2 billion.

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