Intrinsic value of Hailiang Education Group Inc. - HLG

Previous Close

$63.12

  Intrinsic Value

$215.04

stock screener

  Rating & Target

str. buy

+241%

Previous close

$63.12

 
Intrinsic value

$215.04

 
Up/down potential

+241%

 
Rating

str. buy

We calculate the intrinsic value of HLG 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, %
  41.50
  37.85
  34.57
  31.61
  28.95
  26.55
  24.40
  22.46
  20.71
  19.14
  17.73
  16.45
  15.31
  14.28
  13.35
  12.52
  11.76
  11.09
  10.48
  9.93
  9.44
  8.99
  8.59
  8.23
  7.91
  7.62
  7.36
  7.12
  6.91
  6.72
Revenue, $m
  250
  345
  465
  611
  788
  998
  1,241
  1,520
  1,835
  2,186
  2,573
  2,997
  3,456
  3,949
  4,476
  5,037
  5,629
  6,253
  6,908
  7,594
  8,311
  9,059
  9,837
  10,647
  11,490
  12,365
  13,275
  14,221
  15,203
  16,225
Variable operating expenses, $m
  154
  209
  277
  362
  463
  584
  724
  884
  1,065
  1,267
  1,479
  1,723
  1,986
  2,270
  2,573
  2,895
  3,236
  3,594
  3,971
  4,365
  4,777
  5,207
  5,654
  6,120
  6,604
  7,108
  7,631
  8,174
  8,739
  9,326
Fixed operating expenses, $m
  26
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
Total operating expenses, $m
  180
  235
  304
  389
  491
  612
  753
  914
  1,095
  1,298
  1,511
  1,755
  2,019
  2,304
  2,608
  2,930
  3,272
  3,631
  4,009
  4,404
  4,816
  5,247
  5,695
  6,162
  6,647
  7,152
  7,676
  8,220
  8,786
  9,374
Operating income, $m
  71
  110
  161
  222
  297
  385
  488
  606
  739
  888
  1,062
  1,242
  1,436
  1,645
  1,869
  2,106
  2,357
  2,622
  2,900
  3,190
  3,494
  3,811
  4,141
  4,485
  4,842
  5,214
  5,599
  6,000
  6,417
  6,851
EBITDA, $m
  104
  153
  214
  290
  381
  489
  614
  758
  920
  1,102
  1,302
  1,520
  1,758
  2,012
  2,285
  2,574
  2,881
  3,203
  3,542
  3,897
  4,267
  4,654
  5,056
  5,475
  5,911
  6,363
  6,834
  7,323
  7,831
  8,359
Interest expense (income), $m
  0
  0
  2
  4
  7
  11
  16
  21
  28
  35
  43
  52
  62
  73
  85
  98
  112
  126
  142
  158
  175
  193
  212
  231
  251
  272
  294
  317
  341
  365
  391
Earnings before tax, $m
  71
  108
  156
  215
  286
  370
  467
  579
  704
  845
  1,010
  1,179
  1,363
  1,560
  1,771
  1,994
  2,231
  2,480
  2,742
  3,015
  3,301
  3,600
  3,910
  4,234
  4,570
  4,919
  5,282
  5,660
  6,052
  6,460
Tax expense, $m
  19
  29
  42
  58
  77
  100
  126
  156
  190
  228
  273
  318
  368
  421
  478
  538
  602
  670
  740
  814
  891
  972
  1,056
  1,143
  1,234
  1,328
  1,426
  1,528
  1,634
  1,744
Net income, $m
  52
  79
  114
  157
  209
  270
  341
  422
  514
  617
  737
  861
  995
  1,139
  1,292
  1,456
  1,628
  1,810
  2,001
  2,201
  2,410
  2,628
  2,855
  3,091
  3,336
  3,591
  3,856
  4,132
  4,418
  4,716

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
  304
  419
  564
  742
  957
  1,211
  1,506
  1,845
  2,227
  2,653
  3,123
  3,637
  4,194
  4,793
  5,432
  6,112
  6,831
  7,589
  8,384
  9,217
  10,086
  10,993
  11,938
  12,921
  13,944
  15,006
  16,110
  17,258
  18,450
  19,690
Adjusted assets (=assets-cash), $m
  304
  419
  564
  742
  957
  1,211
  1,506
  1,845
  2,227
  2,653
  3,123
  3,637
  4,194
  4,793
  5,432
  6,112
  6,831
  7,589
  8,384
  9,217
  10,086
  10,993
  11,938
  12,921
  13,944
  15,006
  16,110
  17,258
  18,450
  19,690
Revenue / Adjusted assets
  0.822
  0.823
  0.824
  0.823
  0.823
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
  0.824
Average production assets, $m
  156
  215
  289
  381
  491
  622
  773
  947
  1,143
  1,362
  1,603
  1,867
  2,153
  2,460
  2,789
  3,138
  3,507
  3,896
  4,304
  4,731
  5,178
  5,644
  6,129
  6,633
  7,158
  7,703
  8,270
  8,859
  9,472
  10,108
Working capital, $m
  -94
  -130
  -175
  -230
  -296
  -375
  -467
  -572
  -690
  -822
  -968
  -1,127
  -1,299
  -1,485
  -1,683
  -1,894
  -2,117
  -2,351
  -2,598
  -2,855
  -3,125
  -3,406
  -3,699
  -4,003
  -4,320
  -4,649
  -4,991
  -5,347
  -5,716
  -6,100
Total debt, $m
  35
  81
  139
  209
  295
  395
  513
  647
  799
  968
  1,155
  1,359
  1,580
  1,817
  2,071
  2,341
  2,627
  2,927
  3,243
  3,574
  3,919
  4,279
  4,654
  5,044
  5,450
  5,872
  6,311
  6,766
  7,240
  7,732
Total liabilities, $m
  121
  166
  224
  295
  380
  481
  598
  732
  884
  1,053
  1,240
  1,444
  1,665
  1,903
  2,157
  2,427
  2,712
  3,013
  3,328
  3,659
  4,004
  4,364
  4,740
  5,130
  5,536
  5,957
  6,396
  6,851
  7,325
  7,817
Total equity, $m
  183
  253
  340
  447
  577
  730
  908
  1,112
  1,343
  1,600
  1,883
  2,193
  2,529
  2,890
  3,276
  3,686
  4,119
  4,576
  5,056
  5,558
  6,082
  6,629
  7,199
  7,792
  8,408
  9,049
  9,715
  10,407
  11,126
  11,873
Total liabilities and equity, $m
  304
  419
  564
  742
  957
  1,211
  1,506
  1,844
  2,227
  2,653
  3,123
  3,637
  4,194
  4,793
  5,433
  6,113
  6,831
  7,589
  8,384
  9,217
  10,086
  10,993
  11,939
  12,922
  13,944
  15,006
  16,111
  17,258
  18,451
  19,690
Debt-to-equity ratio
  0.190
  0.320
  0.410
  0.470
  0.510
  0.540
  0.560
  0.580
  0.590
  0.610
  0.610
  0.620
  0.620
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
Adjusted equity ratio
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603
  0.603

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  52
  79
  114
  157
  209
  270
  341
  422
  514
  617
  737
  861
  995
  1,139
  1,292
  1,456
  1,628
  1,810
  2,001
  2,201
  2,410
  2,628
  2,855
  3,091
  3,336
  3,591
  3,856
  4,132
  4,418
  4,716
Depreciation, amort., depletion, $m
  34
  42
  53
  67
  84
  103
  126
  152
  181
  214
  239
  279
  321
  367
  416
  468
  523
  581
  642
  706
  773
  842
  915
  990
  1,068
  1,150
  1,234
  1,322
  1,414
  1,509
Funds from operations, $m
  85
  122
  168
  224
  292
  373
  467
  574
  695
  830
  977
  1,140
  1,316
  1,506
  1,709
  1,924
  2,152
  2,392
  2,644
  2,907
  3,183
  3,470
  3,769
  4,081
  4,404
  4,741
  5,090
  5,454
  5,832
  6,224
Change in working capital, $m
  -28
  -36
  -45
  -55
  -67
  -79
  -92
  -105
  -118
  -132
  -146
  -159
  -173
  -186
  -198
  -211
  -223
  -235
  -246
  -258
  -269
  -281
  -293
  -305
  -317
  -329
  -342
  -356
  -369
  -384
Cash from operations, $m
  113
  157
  212
  279
  359
  452
  558
  679
  814
  962
  1,122
  1,299
  1,489
  1,691
  1,907
  2,135
  2,375
  2,626
  2,890
  3,165
  3,452
  3,751
  4,062
  4,385
  4,721
  5,070
  5,433
  5,809
  6,201
  6,608
Maintenance CAPEX, $m
  -16
  -23
  -32
  -43
  -57
  -73
  -93
  -115
  -141
  -171
  -203
  -239
  -279
  -321
  -367
  -416
  -468
  -523
  -581
  -642
  -706
  -773
  -842
  -915
  -990
  -1,068
  -1,150
  -1,234
  -1,322
  -1,414
New CAPEX, $m
  -46
  -59
  -74
  -91
  -110
  -130
  -152
  -174
  -196
  -219
  -241
  -264
  -286
  -307
  -328
  -349
  -369
  -389
  -408
  -427
  -447
  -466
  -485
  -505
  -525
  -545
  -567
  -589
  -612
  -636
Cash from investing activities, $m
  -62
  -82
  -106
  -134
  -167
  -203
  -245
  -289
  -337
  -390
  -444
  -503
  -565
  -628
  -695
  -765
  -837
  -912
  -989
  -1,069
  -1,153
  -1,239
  -1,327
  -1,420
  -1,515
  -1,613
  -1,717
  -1,823
  -1,934
  -2,050
Free cash flow, $m
  51
  75
  106
  145
  192
  248
  314
  390
  476
  573
  678
  796
  924
  1,063
  1,211
  1,370
  1,537
  1,714
  1,900
  2,096
  2,300
  2,513
  2,735
  2,966
  3,206
  3,456
  3,716
  3,986
  4,267
  4,558
Issuance/(repayment) of debt, $m
  35
  46
  57
  71
  85
  101
  117
  134
  152
  169
  187
  204
  221
  238
  254
  270
  285
  301
  316
  331
  345
  360
  375
  390
  406
  422
  438
  456
  473
  492
Issuance/(repurchase) of shares, $m
  2
  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  
  37
  46
  57
  71
  85
  101
  117
  134
  152
  169
  187
  204
  221
  238
  254
  270
  285
  301
  316
  331
  345
  360
  375
  390
  406
  422
  438
  456
  473
  492
Total cash flow (excl. dividends), $m
  88
  121
  163
  215
  277
  349
  431
  524
  628
  742
  864
  1,000
  1,145
  1,300
  1,465
  1,639
  1,823
  2,015
  2,216
  2,426
  2,645
  2,873
  3,110
  3,356
  3,612
  3,878
  4,154
  4,442
  4,740
  5,050
Retained Cash Flow (-), $m
  -54
  -69
  -87
  -107
  -130
  -153
  -178
  -204
  -230
  -257
  -284
  -310
  -336
  -361
  -386
  -410
  -434
  -457
  -479
  -502
  -524
  -547
  -570
  -593
  -616
  -641
  -666
  -692
  -719
  -748
Prev. year cash balance distribution, $m
  71
  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
  105
  51
  76
  108
  147
  195
  253
  320
  397
  485
  581
  690
  809
  939
  1,079
  1,229
  1,389
  1,558
  1,737
  1,924
  2,120
  2,326
  2,540
  2,763
  2,996
  3,237
  3,489
  3,750
  4,021
  4,303
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
  101
  47
  66
  89
  114
  142
  171
  200
  228
  254
  276
  294
  308
  315
  317
  312
  302
  287
  267
  244
  219
  193
  166
  141
  117
  94
  75
  58
  44
  32
Current shareholders' claim on cash, %
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8

Hailiang Education Group Inc. is a holding company. The Company, through its subsidiaries Hailiang Education (HK) Limited (Hailiang HK) and Zhejiang Hailiang Education Consulting and Services Co., Ltd. (Hailiang Consulting), and consolidated affiliated entities, Zhejiang Hailiang Education Investment Co., Ltd. (Hailiang Investment), Zhuji Hailiang Foreign Language School (Foreign Language), Zhuji Private High School (Private High) and Zhuji Tianma Experimental School (Tianma Experimental), is principally engaged in provision of private K-12 educational services. These schools are located in Zhuji City, Zhejiang province in the People's Republic of China (the PRC). Through its schools, it offers educational programs that cover kindergarten through twelfth grade.

FINANCIAL RATIOS  of  Hailiang Education Group Inc. (HLG)

Valuation Ratios
P/E Ratio 1081.5
Price to Sales 211
Price to Book 163.2
Price to Tangible Book
Price to Cash Flow 618
Price to Free Cash Flow 998.3
Growth Rates
Sales Growth Rate 29.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -68%
Cap. Spend. - 3 Yr. Gr. Rate 74.1%
Financial Strength
Quick Ratio NaN
Current Ratio 1.3
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.1%
Ret/ On Assets - 3 Yr. Avg. 13.8%
Return On Total Capital 16.4%
Ret/ On T. Cap. - 3 Yr. Avg. 16.8%
Return On Equity 16.4%
Return On Equity - 3 Yr. Avg. 16.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 24.4%
Gross Margin - 3 Yr. Avg. 27.9%
EBITDA Margin 32.5%
EBITDA Margin - 3 Yr. Avg. 29.7%
Operating Margin 18.7%
Oper. Margin - 3 Yr. Avg. 19.7%
Pre-Tax Margin 19.5%
Pre-Tax Margin - 3 Yr. Avg. 20.4%
Net Profit Margin 19.5%
Net Profit Margin - 3 Yr. Avg. 20.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

HLG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HLG stock intrinsic value calculation we used $177 million for the last fiscal year's total revenue generated by Hailiang Education Group Inc.. The default revenue input number comes from 0001 income statement of Hailiang Education Group 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 HLG stock valuation model: a) initial revenue growth rate of 41.5% 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 HLG is calculated based on our internal credit rating of Hailiang Education Group 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 Hailiang Education Group 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 HLG stock the variable cost ratio is equal to 63.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $25 million in the base year in the intrinsic value calculation for HLG 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 Hailiang Education Group Inc..

Corporate tax rate of 27% is the nominal tax rate for Hailiang Education Group 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 HLG 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 HLG are equal to 62.3%.

Life of production assets of 6.7 years is the average useful life of capital assets used in Hailiang Education Group 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 HLG is equal to -37.6%. 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 - $200.251363636 million for Hailiang Education Group 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 25.735 million for Hailiang Education Group 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 Hailiang Education Group Inc. at the current share price and the inputted number of shares is $1.6 billion.

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