Intrinsic value of Gulf Resources, Inc. - GURE

Previous Close

$1.22

  Intrinsic Value

$7.31

stock screener

  Rating & Target

str. buy

+500%

Previous close

$1.22

 
Intrinsic value

$7.31

 
Up/down potential

+500%

 
Rating

str. buy

We calculate the intrinsic value of GURE 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
  110
  113
  116
  119
  122
  126
  131
  135
  140
  146
  152
  158
  164
  171
  179
  186
  195
  203
  213
  222
  233
  244
  255
  267
  280
  293
  307
  322
  338
  354
Variable operating expenses, $m
  15
  15
  15
  16
  16
  16
  16
  16
  17
  17
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
Fixed operating expenses, $m
  86
  88
  90
  92
  94
  96
  98
  100
  102
  104
  107
  109
  111
  114
  116
  119
  122
  124
  127
  130
  133
  136
  139
  142
  145
  148
  151
  154
  158
  161
Total operating expenses, $m
  101
  103
  105
  108
  110
  112
  114
  116
  119
  121
  115
  117
  119
  123
  125
  128
  132
  134
  138
  141
  145
  148
  152
  155
  159
  163
  166
  170
  175
  179
Operating income, $m
  9
  10
  11
  12
  13
  15
  17
  19
  22
  24
  37
  41
  45
  49
  53
  58
  63
  69
  75
  82
  88
  96
  104
  112
  121
  131
  141
  152
  163
  175
EBITDA, $m
  38
  39
  40
  42
  44
  46
  49
  52
  56
  59
  64
  68
  73
  79
  84
  91
  97
  104
  112
  120
  129
  138
  148
  159
  170
  182
  194
  208
  222
  237
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Earnings before tax, $m
  9
  10
  10
  11
  13
  15
  17
  19
  21
  24
  37
  40
  44
  48
  53
  58
  63
  69
  75
  81
  88
  95
  103
  112
  120
  130
  140
  151
  162
  174
Tax expense, $m
  2
  3
  3
  3
  3
  4
  4
  5
  6
  7
  10
  11
  12
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  33
  35
  38
  41
  44
  47
Net income, $m
  7
  7
  8
  8
  9
  11
  12
  14
  16
  18
  27
  30
  32
  35
  39
  42
  46
  50
  54
  59
  64
  70
  75
  81
  88
  95
  102
  110
  118
  127

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
  185
  189
  194
  200
  206
  212
  220
  227
  236
  245
  255
  265
  276
  288
  300
  313
  327
  342
  357
  374
  391
  410
  429
  449
  470
  493
  517
  542
  568
  595
Adjusted assets (=assets-cash), $m
  185
  189
  194
  200
  206
  212
  220
  227
  236
  245
  255
  265
  276
  288
  300
  313
  327
  342
  357
  374
  391
  410
  429
  449
  470
  493
  517
  542
  568
  595
Revenue / Adjusted assets
  0.595
  0.598
  0.598
  0.595
  0.592
  0.594
  0.595
  0.595
  0.593
  0.596
  0.596
  0.596
  0.594
  0.594
  0.597
  0.594
  0.596
  0.594
  0.597
  0.594
  0.596
  0.595
  0.594
  0.595
  0.596
  0.594
  0.594
  0.594
  0.595
  0.595
Average production assets, $m
  119
  122
  125
  128
  132
  137
  141
  146
  152
  158
  164
  170
  178
  185
  193
  201
  210
  220
  230
  240
  252
  263
  276
  289
  303
  317
  332
  348
  365
  383
Working capital, $m
  30
  31
  32
  33
  34
  35
  36
  37
  38
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  93
  97
Total debt, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
  14
Total liabilities, $m
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
Total equity, $m
  180
  184
  189
  194
  200
  206
  213
  221
  229
  238
  247
  257
  268
  279
  291
  304
  318
  332
  347
  363
  380
  398
  416
  436
  457
  479
  502
  526
  551
  578
Total liabilities and equity, $m
  185
  189
  195
  200
  206
  212
  219
  228
  236
  245
  254
  265
  276
  287
  300
  313
  327
  342
  357
  374
  391
  410
  428
  449
  471
  493
  517
  542
  567
  595
Debt-to-equity ratio
  0.010
  0.010
  0.010
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
  0.020
Adjusted equity ratio
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971
  0.971

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7
  7
  8
  8
  9
  11
  12
  14
  16
  18
  27
  30
  32
  35
  39
  42
  46
  50
  54
  59
  64
  70
  75
  81
  88
  95
  102
  110
  118
  127
Depreciation, amort., depletion, $m
  29
  29
  30
  30
  31
  32
  32
  33
  34
  35
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  41
  42
  44
  47
  49
  51
  54
  56
  59
  62
Funds from operations, $m
  35
  36
  37
  39
  40
  42
  44
  47
  50
  53
  53
  57
  61
  65
  70
  75
  80
  85
  92
  98
  105
  112
  120
  128
  137
  146
  156
  166
  177
  189
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  35
  36
  37
  38
  39
  41
  43
  46
  48
  51
  52
  55
  59
  63
  68
  72
  78
  83
  89
  95
  102
  109
  117
  125
  133
  142
  152
  162
  173
  184
Maintenance CAPEX, $m
  -19
  -19
  -20
  -20
  -21
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -47
  -49
  -51
  -54
  -56
  -59
New CAPEX, $m
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
Cash from investing activities, $m
  -21
  -22
  -23
  -24
  -25
  -25
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -37
  -38
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -54
  -57
  -61
  -63
  -66
  -70
  -73
  -77
Free cash flow, $m
  14
  14
  14
  14
  15
  16
  17
  18
  19
  21
  20
  22
  25
  27
  30
  33
  36
  40
  44
  48
  52
  57
  62
  67
  73
  79
  86
  93
  100
  108
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
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  
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Total cash flow (excl. dividends), $m
  13
  14
  14
  14
  15
  16
  17
  18
  19
  21
  20
  23
  25
  27
  30
  33
  37
  40
  44
  48
  53
  57
  62
  68
  74
  80
  86
  93
  101
  109
Retained Cash Flow (-), $m
  -3
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Prev. year cash balance distribution, $m
  206
  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
  216
  10
  9
  9
  9
  9
  10
  10
  11
  12
  11
  13
  14
  16
  18
  20
  23
  26
  29
  32
  36
  40
  44
  48
  53
  58
  63
  69
  75
  82
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
  207
  9
  8
  7
  7
  7
  7
  7
  6
  6
  5
  5
  5
  5
  5
  5
  5
  5
  4
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
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
  100.0
  100.0
  100.0

Gulf Resources, Inc. is a holding company. The Company manufactures and trades bromine and crude salt; manufactures and sells chemical products used in oil and gas field exploration, oil and gas distribution, oil field drilling, wastewater processing, papermaking chemical agents and inorganic chemicals, and manufactures and sells materials for human and animal antibiotics. The Company operates in three segments: bromine, crude salt and chemical products. Crude salt is the principal material in alkali production, as well as chlorine alkali production and is used in the chemical, food and beverage, and other industries. Its Chemical products include Hydroxyl guar gum, Demulsified agent, Corrosion inhibitor for acidizing, Bactericide, Iron ion stabilizer, Flocculants agent, Bromopropane, Solid lubricant, Polyether lubricant and Chlorantraniliprole. Its production sites are located in the Shandong Province in northeastern China.

FINANCIAL RATIOS  of  Gulf Resources, Inc. (GURE)

Valuation Ratios
P/E Ratio 1.6
Price to Sales 0.4
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 1
Price to Free Cash Flow 1.5
Growth Rates
Sales Growth Rate -8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26.1%
Cap. Spend. - 3 Yr. Gr. Rate 41.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0.6%
Total Debt to Equity 0.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 10%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 10.4%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 36.2%
Gross Margin - 3 Yr. Avg. 32.3%
EBITDA Margin 49%
EBITDA Margin - 3 Yr. Avg. 46.8%
Operating Margin 31.5%
Oper. Margin - 3 Yr. Avg. 26.8%
Pre-Tax Margin 32.2%
Pre-Tax Margin - 3 Yr. Avg. 27%
Net Profit Margin 24.2%
Net Profit Margin - 3 Yr. Avg. 20.3%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 24.8%
Payout Ratio 0%

GURE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GURE stock intrinsic value calculation we used $108 million for the last fiscal year's total revenue generated by Gulf Resources, Inc.. The default revenue input number comes from 0001 income statement of Gulf Resources, 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 GURE 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 GURE is calculated based on our internal credit rating of Gulf Resources, 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 Gulf Resources, 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 GURE stock the variable cost ratio is equal to 13.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $84 million in the base year in the intrinsic value calculation for GURE 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 6.6% for Gulf Resources, Inc..

Corporate tax rate of 27% is the nominal tax rate for Gulf Resources, 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 GURE 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 GURE are equal to 108.1%.

Life of production assets of 6.2 years is the average useful life of capital assets used in Gulf Resources, 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 GURE is equal to 27.4%. 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 - $381.962196 million for Gulf Resources, 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 46.804 million for Gulf Resources, 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 Gulf Resources, Inc. at the current share price and the inputted number of shares is $0.1 billion.

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