Intrinsic value of Fanhua ADR - FANH

Previous Close

$24.28

  Intrinsic Value

$5.07

stock screener

  Rating & Target

str. sell

-79%

Previous close

$24.28

 
Intrinsic value

$5.07

 
Up/down potential

-79%

 
Rating

str. sell

We calculate the intrinsic value of FANH 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 1.6

 

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, %
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  649
  683
  717
  754
  792
  832
  874
  918
  964
  1,013
  1,064
  1,117
  1,174
  1,233
  1,294
  1,359
  1,428
  1,499
  1,574
  1,653
  1,736
  1,823
  1,915
  2,011
  2,111
  2,217
  2,328
  2,444
  2,567
  2,695
Variable operating expenses, $m
  651
  684
  718
  755
  793
  833
  875
  919
  965
  1,014
  1,063
  1,116
  1,172
  1,231
  1,293
  1,358
  1,426
  1,498
  1,573
  1,652
  1,734
  1,821
  1,913
  2,008
  2,109
  2,214
  2,325
  2,442
  2,564
  2,692
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
  651
  684
  718
  755
  793
  833
  875
  919
  965
  1,014
  1,063
  1,116
  1,172
  1,231
  1,293
  1,358
  1,426
  1,498
  1,573
  1,652
  1,734
  1,821
  1,913
  2,008
  2,109
  2,214
  2,325
  2,442
  2,564
  2,692
Operating income, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
EBITDA, $m
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
Earnings before tax, $m
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
Tax expense, $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
Net income, $m
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19

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
  391
  411
  432
  454
  477
  501
  526
  553
  581
  610
  640
  673
  707
  742
  779
  818
  860
  903
  948
  995
  1,045
  1,098
  1,153
  1,210
  1,271
  1,335
  1,402
  1,472
  1,545
  1,623
Adjusted assets (=assets-cash), $m
  391
  411
  432
  454
  477
  501
  526
  553
  581
  610
  640
  673
  707
  742
  779
  818
  860
  903
  948
  995
  1,045
  1,098
  1,153
  1,210
  1,271
  1,335
  1,402
  1,472
  1,545
  1,623
Revenue / Adjusted assets
  1.660
  1.662
  1.660
  1.661
  1.660
  1.661
  1.662
  1.660
  1.659
  1.661
  1.663
  1.660
  1.661
  1.662
  1.661
  1.661
  1.660
  1.660
  1.660
  1.661
  1.661
  1.660
  1.661
  1.662
  1.661
  1.661
  1.660
  1.660
  1.661
  1.661
Average production assets, $m
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  46
  48
  50
  53
  55
  58
  61
  64
  67
Working capital, $m
  84
  89
  93
  98
  103
  108
  114
  119
  125
  132
  138
  145
  153
  160
  168
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
  288
  303
  318
  334
  350
Total debt, $m
  7
  14
  21
  29
  37
  45
  54
  63
  73
  83
  94
  105
  117
  130
  143
  156
  171
  186
  202
  218
  236
  254
  273
  294
  315
  337
  360
  385
  411
  438
Total liabilities, $m
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  224
  235
  247
  260
  273
  286
  301
  316
  332
  348
  366
  384
  403
  424
  445
  467
  491
  515
  541
  568
Total equity, $m
  254
  267
  281
  295
  310
  326
  342
  359
  377
  396
  416
  437
  459
  482
  507
  532
  559
  587
  616
  647
  679
  714
  749
  787
  826
  868
  911
  957
  1,004
  1,055
Total liabilities and equity, $m
  391
  411
  432
  454
  477
  501
  526
  552
  580
  609
  640
  672
  706
  742
  780
  818
  860
  903
  948
  995
  1,045
  1,098
  1,152
  1,211
  1,271
  1,335
  1,402
  1,472
  1,545
  1,623
Debt-to-equity ratio
  0.030
  0.050
  0.070
  0.100
  0.120
  0.140
  0.160
  0.180
  0.190
  0.210
  0.230
  0.240
  0.260
  0.270
  0.280
  0.290
  0.310
  0.320
  0.330
  0.340
  0.350
  0.360
  0.360
  0.370
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
Adjusted equity ratio
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
Depreciation, amort., depletion, $m
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Funds from operations, $m
  4
  4
  4
  3
  3
  3
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -5
  -5
  -6
Change in working capital, $m
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
Cash from operations, $m
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
Maintenance CAPEX, $m
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -15
  -16
Free cash flow, $m
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -38
Issuance/(repayment) of debt, $m
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
Issuance/(repurchase) of shares, $m
  13
  14
  15
  16
  18
  19
  20
  21
  22
  24
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
Cash from financing (excl. dividends), $m  
  20
  21
  22
  24
  26
  27
  29
  30
  32
  34
  34
  36
  38
  40
  43
  46
  48
  51
  54
  57
  59
  63
  66
  70
  74
  78
  82
  87
  92
  96
Total cash flow (excl. dividends), $m
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  46
  48
  50
  53
  55
  58
Retained Cash Flow (-), $m
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -22
  -24
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
Prev. year cash balance distribution, $m
  344
  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
  347
  2
  2
  2
  2
  1
  1
  1
  0
  0
  0
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
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
  333
  2
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  98.0
  96.0
  93.9
  91.9
  90.0
  88.0
  86.0
  84.1
  82.2
  80.3
  78.6
  76.9
  75.2
  73.6
  71.9
  70.3
  68.7
  67.1
  65.5
  64.0
  62.5
  61.0
  59.5
  58.1
  56.7
  55.3
  53.9
  52.6
  51.3
  50.0

Fanhua Inc., formerly CNinsure Inc., is an independent online-to-offline financial services provider in China. The Company distributes a range of property, casualty and life insurance products underwritten by domestic and foreign insurance companies operating in China to individual and institutional customers, and provides insurance claims adjusting services. Its segments include insurance agency, which provides a range of property, casualty and life insurance products to individual customers; insurance brokerage, which provides commercial lines of property and casualty insurance, group life insurance programs and risk management consulting services to businesses and reinsurance brokerage services to insurance companies, and claims adjusting, which provides claims adjusting services to self-insured entities or insurance companies that choose to outsource some or all of their claims adjustment functions. The Company's distribution and service network covers over 29 provinces in China.

FINANCIAL RATIOS  of  Fanhua ADR (FANH)

Valuation Ratios
P/E Ratio 1229.9
Price to Sales 41.6
Price to Book 59.4
Price to Tangible Book
Price to Cash Flow 2176
Price to Free Cash Flow 9429.3
Growth Rates
Sales Growth Rate 66.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 900%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 4.8%
Return On Equity - 3 Yr. Avg. 5.4%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 23.2%
Gross Margin - 3 Yr. Avg. 24%
EBITDA Margin 3.8%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 0.3%
Oper. Margin - 3 Yr. Avg. 1.4%
Pre-Tax Margin 3.1%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 6%
Effective Tax Rate 19%
Eff/ Tax Rate - 3 Yr. Avg. 15%
Payout Ratio 0%

FANH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FANH stock intrinsic value calculation we used $617.967503023 million for the last fiscal year's total revenue generated by Fanhua ADR. The default revenue input number comes from 0001 income statement of Fanhua 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 FANH stock valuation model: a) initial revenue growth rate of 5.1% 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 FANH is calculated based on our internal credit rating of Fanhua 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 Fanhua 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 FANH stock the variable cost ratio is equal to 100.2%.

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 FANH 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 Fanhua ADR.

Corporate tax rate of 27% is the nominal tax rate for Fanhua 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 FANH 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 FANH are equal to 2.5%.

Life of production assets of 3.8 years is the average useful life of capital assets used in Fanhua 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 FANH is equal to 13%. 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 - $586.011336155 million for Fanhua 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 65.01 million for Fanhua 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 Fanhua ADR at the current share price and the inputted number of shares is $1.6 billion.

RELATED COMPANIES Price Int.Val. Rating
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AJG Arthur J. Gall 77.37 134.03  str.buy
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MMC Marsh&McLennan 87.32 92.92  hold

COMPANY NEWS

▶ Fanhua Expands Share Purchase Program   [07:24AM  GlobeNewswire]

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