Intrinsic value of China HGS Real Estate, Inc. - HGSH

Previous Close

$0.93

  Intrinsic Value

$4.46

stock screener

  Rating & Target

str. buy

+379%

Previous close

$0.93

 
Intrinsic value

$4.46

 
Up/down potential

+379%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as HGSH.

We calculate the intrinsic value of HGSH 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 0.0

 

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
  66
  68
  70
  72
  74
  76
  79
  81
  84
  88
  91
  95
  99
  103
  107
  112
  117
  122
  128
  134
  140
  147
  154
  161
  168
  177
  185
  194
  203
  213
Variable operating expenses, $m
  28
  28
  28
  27
  27
  27
  27
  27
  26
  26
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
Fixed operating expenses, $m
  28
  28
  29
  29
  30
  31
  31
  32
  33
  34
  34
  35
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
Total operating expenses, $m
  56
  56
  57
  56
  57
  58
  58
  59
  59
  60
  26
  27
  28
  28
  28
  28
  29
  29
  30
  30
  31
  31
  32
  32
  33
  33
  33
  33
  34
  34
Operating income, $m
  11
  12
  13
  15
  16
  18
  20
  23
  25
  28
  65
  68
  72
  75
  79
  84
  88
  93
  98
  104
  109
  116
  122
  129
  136
  144
  152
  161
  170
  180
EBITDA, $m
  56
  57
  59
  61
  63
  65
  68
  71
  74
  77
  81
  85
  89
  93
  98
  103
  109
  115
  121
  127
  134
  141
  149
  157
  166
  175
  185
  195
  206
  217
Interest expense (income), $m
  5
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
Earnings before tax, $m
  4
  5
  6
  7
  8
  10
  12
  14
  16
  18
  54
  57
  60
  63
  66
  70
  73
  77
  82
  86
  91
  96
  101
  107
  113
  120
  126
  134
  141
  149
Tax expense, $m
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
Net income, $m
  3
  4
  4
  5
  6
  7
  9
  10
  11
  13
  39
  41
  44
  46
  48
  51
  53
  56
  60
  63
  66
  70
  74
  78
  83
  87
  92
  97
  103
  109

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
  377
  385
  395
  406
  419
  432
  447
  463
  480
  498
  518
  539
  562
  585
  611
  637
  666
  696
  727
  761
  796
  833
  872
  914
  957
  1,003
  1,051
  1,102
  1,155
  1,211
Adjusted assets (=assets-cash), $m
  377
  385
  395
  406
  419
  432
  447
  463
  480
  498
  518
  539
  562
  585
  611
  637
  666
  696
  727
  761
  796
  833
  872
  914
  957
  1,003
  1,051
  1,102
  1,155
  1,211
Revenue / Adjusted assets
  0.175
  0.177
  0.177
  0.177
  0.177
  0.176
  0.177
  0.175
  0.175
  0.177
  0.176
  0.176
  0.176
  0.176
  0.175
  0.176
  0.176
  0.175
  0.176
  0.176
  0.176
  0.176
  0.177
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
Average production assets, $m
  350
  358
  367
  377
  389
  401
  415
  430
  446
  463
  481
  501
  521
  543
  567
  592
  618
  646
  675
  706
  739
  774
  810
  848
  889
  931
  976
  1,023
  1,073
  1,125
Working capital, $m
  33
  34
  35
  36
  37
  38
  39
  41
  42
  44
  46
  47
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
Total debt, $m
  129
  134
  140
  146
  153
  160
  169
  178
  187
  198
  209
  220
  233
  246
  260
  276
  291
  308
  326
  345
  364
  385
  407
  431
  455
  481
  508
  536
  566
  598
Total liabilities, $m
  211
  216
  222
  228
  235
  242
  251
  260
  269
  280
  291
  302
  315
  328
  343
  358
  373
  390
  408
  427
  447
  467
  489
  513
  537
  563
  590
  618
  648
  680
Total equity, $m
  165
  169
  174
  178
  184
  190
  196
  203
  211
  219
  227
  237
  247
  257
  268
  280
  292
  305
  319
  334
  349
  366
  383
  401
  420
  440
  461
  484
  507
  532
Total liabilities and equity, $m
  376
  385
  396
  406
  419
  432
  447
  463
  480
  499
  518
  539
  562
  585
  611
  638
  665
  695
  727
  761
  796
  833
  872
  914
  957
  1,003
  1,051
  1,102
  1,155
  1,212
Debt-to-equity ratio
  0.780
  0.790
  0.800
  0.820
  0.830
  0.850
  0.860
  0.870
  0.890
  0.900
  0.920
  0.930
  0.940
  0.960
  0.970
  0.980
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.120
Adjusted equity ratio
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  4
  4
  5
  6
  7
  9
  10
  11
  13
  39
  41
  44
  46
  48
  51
  53
  56
  60
  63
  66
  70
  74
  78
  83
  87
  92
  97
  103
  109
Depreciation, amort., depletion, $m
  45
  46
  46
  46
  47
  47
  47
  48
  48
  49
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
Funds from operations, $m
  48
  49
  50
  51
  53
  54
  56
  58
  60
  62
  56
  58
  61
  64
  67
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  118
  125
  132
  139
  146
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
Cash from operations, $m
  48
  48
  49
  50
  52
  53
  55
  56
  58
  61
  54
  56
  59
  62
  65
  68
  72
  75
  79
  83
  88
  93
  98
  103
  108
  114
  121
  127
  134
  141
Maintenance CAPEX, $m
  -11
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
New CAPEX, $m
  -7
  -8
  -9
  -10
  -11
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -52
Cash from investing activities, $m
  -18
  -20
  -21
  -22
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -36
  -38
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -62
  -65
  -68
  -73
  -76
  -80
  -84
  -88
Free cash flow, $m
  29
  29
  28
  28
  28
  28
  28
  28
  28
  29
  20
  21
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  40
  42
  45
  47
  50
  54
Issuance/(repayment) of debt, $m
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
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  
  6
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
Total cash flow (excl. dividends), $m
  35
  34
  34
  34
  35
  35
  36
  37
  38
  39
  31
  32
  34
  36
  37
  39
  41
  44
  46
  49
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
Retained Cash Flow (-), $m
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
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
  31
  30
  29
  29
  29
  29
  29
  30
  30
  31
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
Discount rate, %
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
  29
  25
  22
  20
  18
  16
  14
  12
  10
  9
  5
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  99.4
  99.2
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1

China HGS Real Estate Inc., formerly China Agro Sciences Corp., is engaged in real estate development, primarily in the construction and sale of residential apartments, car parks and commercial properties. As of September 30, 2016, the Company had three types of real estate projects, including multi-layer apartment buildings, which were six stories or less; sub-high-rise apartment buildings, which were 7 to 11 stories; and high-rise apartment buildings, which were 12 to 33 stories. The Company's main projects located in Hanzhong City are Mingzhu Garden-Mingzhu Nanyuan, Mingzhu Beiyuan, Oriental Pearl Garden, Mingzhu Xinju and Liangzhou road related projects. In Yang County, its projects are Yangzhou Pearl Garden and Yangzhou Palace. Its Mingzhu Nanyuan project consists of multi-layer residential buildings, and sub-high-rise and high-rise residential buildings with commercial shops on the first floors.

FINANCIAL RATIOS  of  China HGS Real Estate, Inc. (HGSH)

Valuation Ratios
P/E Ratio 8.4
Price to Sales 1.1
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow -0.5
Price to Free Cash Flow -0.5
Growth Rates
Sales Growth Rate -50%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 1
Current Ratio 1.4
LT Debt to Equity 64.5%
Total Debt to Equity 70.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 13.9%
Return On Equity 3.2%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 26.3%
Gross Margin - 3 Yr. Avg. 36.1%
EBITDA Margin 28.9%
EBITDA Margin - 3 Yr. Avg. 35.5%
Operating Margin 15.8%
Oper. Margin - 3 Yr. Avg. 30.4%
Pre-Tax Margin 15.8%
Pre-Tax Margin - 3 Yr. Avg. 29.7%
Net Profit Margin 13.2%
Net Profit Margin - 3 Yr. Avg. 27.1%
Effective Tax Rate 16.7%
Eff/ Tax Rate - 3 Yr. Avg. 10.4%
Payout Ratio 0%

HGSH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HGSH stock intrinsic value calculation we used $65 million for the last fiscal year's total revenue generated by China HGS Real Estate, Inc.. The default revenue input number comes from 0001 income statement of China HGS Real Estate, 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 HGSH 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 8.5%, whose default value for HGSH is calculated based on our internal credit rating of China HGS Real Estate, 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 HGS Real Estate, 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 HGSH stock the variable cost ratio is equal to 43.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $27 million in the base year in the intrinsic value calculation for HGSH 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 HGS Real Estate, Inc..

Corporate tax rate of 27% is the nominal tax rate for China HGS Real Estate, 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 HGSH 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 HGSH are equal to 527.5%.

Life of production assets of 3996.7 years is the average useful life of capital assets used in China HGS Real Estate, 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 HGSH is equal to 50%. 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 - $161.677836 million for China HGS Real Estate, 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 45.049 million for China HGS Real Estate, 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 HGS Real Estate, Inc. at the current share price and the inputted number of shares is $0.0 billion.

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