Intrinsic value of Hailiang Education Group ADR - HLG

Previous Close

$63.75

  Intrinsic Value

$20.86

stock screener

  Rating & Target

str. sell

-67%

Previous close

$63.75

 
Intrinsic value

$20.86

 
Up/down potential

-67%

 
Rating

str. sell

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, %
  27.20
  24.98
  22.98
  21.18
  19.57
  18.11
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
Revenue, $m
  159
  199
  245
  297
  355
  419
  489
  566
  648
  736
  830
  929
  1,034
  1,144
  1,260
  1,380
  1,506
  1,637
  1,773
  1,915
  2,063
  2,216
  2,375
  2,541
  2,713
  2,892
  3,078
  3,271
  3,473
  3,683
Variable operating expenses, $m
  107
  133
  163
  198
  236
  279
  325
  376
  431
  489
  550
  616
  685
  758
  835
  915
  998
  1,085
  1,175
  1,269
  1,367
  1,468
  1,574
  1,684
  1,798
  1,916
  2,039
  2,168
  2,301
  2,440
Fixed operating expenses, $m
  18
  19
  19
  20
  20
  21
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  35
Total operating expenses, $m
  125
  152
  182
  218
  256
  300
  346
  397
  453
  511
  573
  639
  709
  782
  860
  940
  1,024
  1,112
  1,202
  1,297
  1,395
  1,497
  1,604
  1,714
  1,829
  1,948
  2,071
  2,201
  2,335
  2,475
Operating income, $m
  34
  47
  62
  79
  98
  120
  143
  168
  196
  225
  257
  290
  325
  362
  400
  440
  482
  526
  571
  618
  667
  718
  772
  827
  884
  944
  1,006
  1,070
  1,138
  1,208
EBITDA, $m
  55
  73
  94
  117
  144
  173
  205
  239
  277
  317
  360
  405
  453
  503
  556
  611
  668
  728
  791
  855
  923
  993
  1,066
  1,141
  1,220
  1,302
  1,387
  1,475
  1,568
  1,664
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  6
  7
  8
  10
  12
  13
  15
  17
  19
  21
  24
  26
  28
  31
  34
  36
  39
  42
  45
  49
  52
  56
  59
  63
Earnings before tax, $m
  34
  47
  61
  77
  95
  115
  137
  161
  187
  215
  246
  277
  310
  344
  381
  419
  458
  500
  543
  587
  634
  682
  732
  784
  839
  895
  954
  1,015
  1,078
  1,145
Tax expense, $m
  9
  13
  16
  21
  26
  31
  37
  44
  51
  58
  66
  75
  84
  93
  103
  113
  124
  135
  146
  159
  171
  184
  198
  212
  226
  242
  258
  274
  291
  309
Net income, $m
  25
  34
  44
  56
  69
  84
  100
  118
  137
  157
  179
  202
  226
  251
  278
  306
  335
  365
  396
  429
  463
  498
  534
  573
  612
  653
  696
  741
  787
  836

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
  228
  284
  350
  424
  507
  599
  699
  808
  926
  1,052
  1,186
  1,328
  1,477
  1,635
  1,799
  1,972
  2,151
  2,339
  2,533
  2,736
  2,947
  3,166
  3,393
  3,630
  3,875
  4,131
  4,397
  4,673
  4,961
  5,261
Adjusted assets (=assets-cash), $m
  228
  284
  350
  424
  507
  599
  699
  808
  926
  1,052
  1,186
  1,328
  1,477
  1,635
  1,799
  1,972
  2,151
  2,339
  2,533
  2,736
  2,947
  3,166
  3,393
  3,630
  3,875
  4,131
  4,397
  4,673
  4,961
  5,261
Revenue / Adjusted assets
  0.697
  0.701
  0.700
  0.700
  0.700
  0.699
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
Average production assets, $m
  146
  182
  224
  272
  325
  384
  448
  518
  594
  674
  760
  851
  947
  1,048
  1,154
  1,264
  1,379
  1,499
  1,624
  1,754
  1,889
  2,030
  2,176
  2,327
  2,485
  2,649
  2,819
  2,996
  3,181
  3,373
Working capital, $m
  -34
  -43
  -53
  -64
  -76
  -90
  -105
  -122
  -139
  -158
  -178
  -200
  -222
  -246
  -271
  -297
  -324
  -352
  -381
  -412
  -443
  -476
  -511
  -546
  -583
  -622
  -662
  -703
  -747
  -792
Total debt, $m
  12
  26
  42
  60
  80
  102
  127
  154
  182
  213
  246
  280
  317
  355
  395
  437
  481
  527
  575
  624
  675
  729
  784
  842
  902
  964
  1,029
  1,097
  1,167
  1,240
Total liabilities, $m
  56
  69
  85
  103
  124
  146
  171
  197
  226
  257
  289
  324
  360
  399
  439
  481
  525
  571
  618
  668
  719
  772
  828
  886
  946
  1,008
  1,073
  1,140
  1,211
  1,284
Total equity, $m
  172
  215
  264
  320
  383
  453
  529
  611
  700
  795
  897
  1,004
  1,117
  1,236
  1,360
  1,491
  1,626
  1,768
  1,915
  2,068
  2,228
  2,393
  2,565
  2,744
  2,930
  3,123
  3,324
  3,533
  3,751
  3,977
Total liabilities and equity, $m
  228
  284
  349
  423
  507
  599
  700
  808
  926
  1,052
  1,186
  1,328
  1,477
  1,635
  1,799
  1,972
  2,151
  2,339
  2,533
  2,736
  2,947
  3,165
  3,393
  3,630
  3,876
  4,131
  4,397
  4,673
  4,962
  5,261
Debt-to-equity ratio
  0.070
  0.120
  0.160
  0.190
  0.210
  0.230
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.280
  0.290
  0.290
  0.290
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
Adjusted equity ratio
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  34
  44
  56
  69
  84
  100
  118
  137
  157
  179
  202
  226
  251
  278
  306
  335
  365
  396
  429
  463
  498
  534
  573
  612
  653
  696
  741
  787
  836
Depreciation, amort., depletion, $m
  21
  26
  31
  38
  45
  53
  62
  71
  81
  92
  103
  115
  128
  142
  156
  171
  186
  203
  220
  237
  255
  274
  294
  314
  336
  358
  381
  405
  430
  456
Funds from operations, $m
  46
  60
  76
  94
  115
  137
  162
  189
  218
  249
  282
  317
  354
  393
  434
  477
  521
  567
  616
  666
  718
  772
  828
  887
  948
  1,011
  1,077
  1,146
  1,217
  1,292
Change in working capital, $m
  -7
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -42
  -43
  -45
Cash from operations, $m
  53
  68
  86
  105
  127
  151
  177
  205
  236
  268
  302
  339
  377
  417
  459
  502
  548
  596
  645
  696
  750
  805
  863
  923
  985
  1,050
  1,117
  1,187
  1,260
  1,337
Maintenance CAPEX, $m
  -15
  -20
  -25
  -30
  -37
  -44
  -52
  -61
  -70
  -80
  -91
  -103
  -115
  -128
  -142
  -156
  -171
  -186
  -203
  -220
  -237
  -255
  -274
  -294
  -314
  -336
  -358
  -381
  -405
  -430
New CAPEX, $m
  -31
  -36
  -42
  -48
  -53
  -59
  -64
  -70
  -75
  -81
  -86
  -91
  -96
  -101
  -106
  -110
  -115
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -164
  -170
  -177
  -185
  -192
Cash from investing activities, $m
  -46
  -56
  -67
  -78
  -90
  -103
  -116
  -131
  -145
  -161
  -177
  -194
  -211
  -229
  -248
  -266
  -286
  -306
  -328
  -350
  -372
  -395
  -420
  -446
  -472
  -500
  -528
  -558
  -590
  -622
Free cash flow, $m
  6
  12
  19
  27
  37
  48
  61
  75
  90
  107
  125
  145
  166
  188
  211
  236
  262
  289
  317
  347
  377
  409
  443
  477
  513
  550
  589
  629
  671
  714
Issuance/(repayment) of debt, $m
  12
  14
  16
  18
  20
  22
  25
  27
  29
  31
  33
  35
  37
  38
  40
  42
  44
  46
  48
  49
  51
  53
  56
  58
  60
  62
  65
  67
  70
  73
Issuance/(repurchase) of shares, $m
  12
  9
  5
  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  
  24
  23
  21
  18
  20
  22
  25
  27
  29
  31
  33
  35
  37
  38
  40
  42
  44
  46
  48
  49
  51
  53
  56
  58
  60
  62
  65
  67
  70
  73
Total cash flow (excl. dividends), $m
  30
  35
  40
  46
  57
  71
  85
  102
  119
  138
  158
  179
  202
  226
  252
  278
  306
  335
  365
  396
  429
  463
  498
  535
  573
  612
  654
  697
  741
  788
Retained Cash Flow (-), $m
  -37
  -43
  -49
  -56
  -63
  -69
  -76
  -83
  -89
  -95
  -101
  -107
  -113
  -119
  -125
  -130
  -136
  -142
  -147
  -153
  -159
  -165
  -172
  -179
  -186
  -193
  -201
  -209
  -218
  -227
Prev. year cash balance distribution, $m
  27
  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
  20
  -8
  -9
  -10
  -5
  1
  9
  19
  30
  43
  57
  72
  89
  107
  127
  148
  170
  193
  218
  243
  270
  297
  326
  356
  387
  419
  453
  487
  523
  561
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
  19
  -7
  -8
  -9
  -4
  1
  6
  12
  17
  22
  27
  31
  34
  36
  37
  38
  37
  36
  33
  31
  28
  25
  21
  18
  15
  12
  10
  8
  6
  4
Current shareholders' claim on cash, %
  99.1
  98.6
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4
  98.4

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 ADR (HLG)

Valuation Ratios
P/E Ratio 1092.3
Price to Sales 213.1
Price to Book 164.9
Price to Tangible Book
Price to Cash Flow 624.2
Price to Free Cash Flow 1008.3
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 $125.226739067 million for the last fiscal year's total revenue generated by Hailiang Education Group ADR. The default revenue input number comes from 0001 income statement of Hailiang Education Group 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 HLG stock valuation model: a) initial revenue growth rate of 27.2% 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 HLG is calculated based on our internal credit rating of Hailiang Education Group 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 Hailiang Education Group 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 HLG stock the variable cost ratio is equal to 67.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $18 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 ADR.

Corporate tax rate of 27% is the nominal tax rate for Hailiang Education Group 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 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 91.6%.

Life of production assets of 7.4 years is the average useful life of capital assets used in Hailiang Education Group 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 HLG is equal to -21.5%. 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 - $161.669063692 million for Hailiang Education Group 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 25.701 million for Hailiang Education Group 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 Hailiang Education Group ADR at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ Hailiang Education Receives Multiple Industry Awards   [Mar-20-17 07:16AM  PR Newswire]
▶ Hailiang Education Releases Fiscal 2016 Chairman Letter   [Jan-12-17 06:00AM  PR Newswire]
▶ Hailiang Education Elects New Independent Director   [Oct-17-16 06:00AM  PR Newswire]

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