Intrinsic value of Hollysys Automation Technologies, Ltd. - HOLI

Previous Close

$20.30

  Intrinsic Value

$85.99

stock screener

  Rating & Target

str. buy

+324%

Previous close

$20.30

 
Intrinsic value

$85.99

 
Up/down potential

+324%

 
Rating

str. buy

We calculate the intrinsic value of HOLI 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 1.2

 

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, %
  25.20
  23.18
  21.36
  19.73
  18.25
  16.93
  15.74
  14.66
  13.70
  12.83
  12.04
  11.34
  10.71
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
  6.45
  6.31
  6.17
  6.06
  5.95
Revenue, $m
  677
  834
  1,013
  1,212
  1,434
  1,676
  1,940
  2,224
  2,529
  2,854
  3,197
  3,560
  3,941
  4,340
  4,758
  5,193
  5,648
  6,120
  6,612
  7,123
  7,654
  8,206
  8,779
  9,375
  9,995
  10,640
  11,311
  12,009
  12,736
  13,494
Variable operating expenses, $m
  301
  369
  446
  532
  628
  733
  847
  969
  1,101
  1,241
  1,382
  1,539
  1,703
  1,876
  2,056
  2,245
  2,441
  2,645
  2,858
  3,079
  3,308
  3,547
  3,794
  4,052
  4,320
  4,599
  4,889
  5,190
  5,505
  5,832
Fixed operating expenses, $m
  187
  191
  195
  200
  204
  209
  213
  218
  223
  227
  232
  238
  243
  248
  254
  259
  265
  271
  277
  283
  289
  295
  302
  309
  315
  322
  329
  337
  344
  352
Total operating expenses, $m
  488
  560
  641
  732
  832
  942
  1,060
  1,187
  1,324
  1,468
  1,614
  1,777
  1,946
  2,124
  2,310
  2,504
  2,706
  2,916
  3,135
  3,362
  3,597
  3,842
  4,096
  4,361
  4,635
  4,921
  5,218
  5,527
  5,849
  6,184
Operating income, $m
  190
  275
  372
  481
  602
  735
  880
  1,037
  1,205
  1,385
  1,583
  1,784
  1,995
  2,216
  2,448
  2,690
  2,942
  3,204
  3,477
  3,761
  4,057
  4,364
  4,683
  5,015
  5,360
  5,719
  6,093
  6,482
  6,888
  7,310
EBITDA, $m
  207
  294
  394
  505
  630
  766
  915
  1,076
  1,248
  1,432
  1,627
  1,833
  2,049
  2,276
  2,514
  2,761
  3,020
  3,289
  3,569
  3,860
  4,163
  4,477
  4,804
  5,144
  5,498
  5,866
  6,249
  6,648
  7,064
  7,497
Interest expense (income), $m
  1
  1
  6
  12
  18
  26
  34
  43
  52
  63
  74
  85
  98
  111
  125
  140
  155
  171
  187
  204
  222
  241
  260
  280
  301
  323
  345
  369
  393
  419
  445
Earnings before tax, $m
  188
  268
  360
  462
  576
  701
  838
  985
  1,143
  1,311
  1,497
  1,686
  1,883
  2,091
  2,308
  2,535
  2,771
  3,017
  3,273
  3,539
  3,816
  4,103
  4,402
  4,713
  5,037
  5,373
  5,724
  6,089
  6,469
  6,865
Tax expense, $m
  51
  72
  97
  125
  156
  189
  226
  266
  309
  354
  404
  455
  509
  565
  623
  684
  748
  815
  884
  956
  1,030
  1,108
  1,189
  1,273
  1,360
  1,451
  1,545
  1,644
  1,747
  1,854
Net income, $m
  137
  196
  263
  337
  421
  512
  612
  719
  834
  957
  1,093
  1,230
  1,375
  1,526
  1,685
  1,850
  2,023
  2,202
  2,389
  2,584
  2,786
  2,996
  3,214
  3,441
  3,677
  3,923
  4,178
  4,445
  4,722
  5,012

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
  1,397
  1,720
  2,088
  2,500
  2,956
  3,456
  4,000
  4,587
  5,215
  5,884
  6,592
  7,340
  8,125
  8,949
  9,810
  10,708
  11,644
  12,619
  13,632
  14,686
  15,781
  16,919
  18,101
  19,330
  20,608
  21,938
  23,321
  24,761
  26,261
  27,824
Adjusted assets (=assets-cash), $m
  1,397
  1,720
  2,088
  2,500
  2,956
  3,456
  4,000
  4,587
  5,215
  5,884
  6,592
  7,340
  8,125
  8,949
  9,810
  10,708
  11,644
  12,619
  13,632
  14,686
  15,781
  16,919
  18,101
  19,330
  20,608
  21,938
  23,321
  24,761
  26,261
  27,824
Revenue / Adjusted assets
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
Average production assets, $m
  132
  163
  197
  236
  280
  327
  378
  434
  493
  556
  623
  694
  768
  846
  928
  1,013
  1,101
  1,193
  1,289
  1,389
  1,492
  1,600
  1,712
  1,828
  1,949
  2,075
  2,206
  2,342
  2,484
  2,631
Working capital, $m
  308
  379
  460
  550
  651
  761
  881
  1,010
  1,148
  1,295
  1,452
  1,616
  1,789
  1,970
  2,160
  2,358
  2,564
  2,779
  3,002
  3,234
  3,475
  3,725
  3,986
  4,256
  4,538
  4,830
  5,135
  5,452
  5,782
  6,126
Total debt, $m
  116
  222
  342
  476
  626
  789
  967
  1,159
  1,364
  1,583
  1,815
  2,059
  2,316
  2,585
  2,867
  3,161
  3,467
  3,785
  4,117
  4,461
  4,819
  5,192
  5,578
  5,980
  6,398
  6,833
  7,285
  7,756
  8,246
  8,757
Total liabilities, $m
  457
  563
  683
  817
  967
  1,130
  1,308
  1,500
  1,705
  1,924
  2,156
  2,400
  2,657
  2,926
  3,208
  3,502
  3,808
  4,126
  4,458
  4,802
  5,160
  5,532
  5,919
  6,321
  6,739
  7,174
  7,626
  8,097
  8,587
  9,098
Total equity, $m
  940
  1,158
  1,405
  1,682
  1,989
  2,326
  2,692
  3,087
  3,509
  3,960
  4,436
  4,940
  5,468
  6,022
  6,602
  7,207
  7,837
  8,493
  9,175
  9,884
  10,621
  11,386
  12,182
  13,009
  13,869
  14,764
  15,695
  16,664
  17,673
  18,725
Total liabilities and equity, $m
  1,397
  1,721
  2,088
  2,499
  2,956
  3,456
  4,000
  4,587
  5,214
  5,884
  6,592
  7,340
  8,125
  8,948
  9,810
  10,709
  11,645
  12,619
  13,633
  14,686
  15,781
  16,918
  18,101
  19,330
  20,608
  21,938
  23,321
  24,761
  26,260
  27,823
Debt-to-equity ratio
  0.120
  0.190
  0.240
  0.280
  0.310
  0.340
  0.360
  0.380
  0.390
  0.400
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
  0.440
  0.450
  0.450
  0.450
  0.450
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.470
  0.470
  0.470
Adjusted equity ratio
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673
  0.673

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  137
  196
  263
  337
  421
  512
  612
  719
  834
  957
  1,093
  1,230
  1,375
  1,526
  1,685
  1,850
  2,023
  2,202
  2,389
  2,584
  2,786
  2,996
  3,214
  3,441
  3,677
  3,923
  4,178
  4,445
  4,722
  5,012
Depreciation, amort., depletion, $m
  17
  20
  22
  25
  28
  31
  35
  39
  43
  47
  44
  49
  54
  60
  66
  72
  78
  85
  91
  99
  106
  113
  121
  130
  138
  147
  156
  166
  176
  187
Funds from operations, $m
  155
  215
  285
  362
  448
  543
  646
  758
  877
  1,005
  1,137
  1,280
  1,429
  1,586
  1,751
  1,922
  2,101
  2,287
  2,481
  2,682
  2,891
  3,109
  3,335
  3,570
  3,815
  4,070
  4,335
  4,611
  4,898
  5,198
Change in working capital, $m
  62
  71
  81
  91
  100
  110
  120
  129
  138
  147
  156
  165
  173
  181
  190
  198
  206
  215
  223
  232
  241
  251
  260
  271
  281
  293
  305
  317
  330
  344
Cash from operations, $m
  93
  144
  204
  272
  348
  433
  527
  629
  739
  857
  981
  1,115
  1,256
  1,405
  1,561
  1,724
  1,895
  2,072
  2,258
  2,450
  2,650
  2,858
  3,075
  3,300
  3,534
  3,777
  4,030
  4,294
  4,568
  4,854
Maintenance CAPEX, $m
  -7
  -9
  -12
  -14
  -17
  -20
  -23
  -27
  -31
  -35
  -39
  -44
  -49
  -54
  -60
  -66
  -72
  -78
  -85
  -91
  -99
  -106
  -113
  -121
  -130
  -138
  -147
  -156
  -166
  -176
New CAPEX, $m
  -27
  -31
  -35
  -39
  -43
  -47
  -51
  -55
  -59
  -63
  -67
  -71
  -74
  -78
  -81
  -85
  -89
  -92
  -96
  -100
  -104
  -108
  -112
  -116
  -121
  -126
  -131
  -136
  -142
  -148
Cash from investing activities, $m
  -34
  -40
  -47
  -53
  -60
  -67
  -74
  -82
  -90
  -98
  -106
  -115
  -123
  -132
  -141
  -151
  -161
  -170
  -181
  -191
  -203
  -214
  -225
  -237
  -251
  -264
  -278
  -292
  -308
  -324
Free cash flow, $m
  59
  104
  157
  219
  288
  366
  452
  546
  649
  759
  875
  1,000
  1,133
  1,273
  1,420
  1,574
  1,734
  1,902
  2,077
  2,259
  2,448
  2,645
  2,850
  3,062
  3,283
  3,513
  3,752
  4,001
  4,260
  4,530
Issuance/(repayment) of debt, $m
  92
  106
  120
  135
  149
  164
  178
  192
  205
  219
  232
  244
  257
  269
  282
  294
  306
  319
  331
  345
  358
  372
  387
  402
  418
  435
  452
  471
  490
  511
Issuance/(repurchase) of shares, $m
  53
  22
  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  
  145
  128
  120
  135
  149
  164
  178
  192
  205
  219
  232
  244
  257
  269
  282
  294
  306
  319
  331
  345
  358
  372
  387
  402
  418
  435
  452
  471
  490
  511
Total cash flow (excl. dividends), $m
  204
  232
  277
  353
  437
  530
  630
  738
  854
  978
  1,106
  1,245
  1,390
  1,542
  1,701
  1,867
  2,041
  2,221
  2,408
  2,603
  2,806
  3,017
  3,236
  3,464
  3,701
  3,948
  4,205
  4,472
  4,751
  5,041
Retained Cash Flow (-), $m
  -190
  -218
  -247
  -277
  -307
  -337
  -366
  -395
  -423
  -450
  -477
  -503
  -529
  -554
  -579
  -605
  -630
  -656
  -682
  -709
  -737
  -766
  -796
  -827
  -860
  -895
  -931
  -969
  -1,009
  -1,052
Prev. year cash balance distribution, $m
  92
  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
  106
  14
  30
  76
  130
  193
  264
  343
  431
  528
  630
  742
  861
  988
  1,122
  1,263
  1,410
  1,565
  1,726
  1,894
  2,069
  2,251
  2,440
  2,637
  2,841
  3,053
  3,274
  3,503
  3,741
  3,989
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
  13
  26
  63
  101
  140
  178
  215
  248
  277
  299
  316
  327
  332
  329
  321
  307
  288
  266
  241
  214
  187
  160
  134
  111
  89
  70
  54
  41
  30
Current shareholders' claim on cash, %
  95.4
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9
  93.9

Hollysys Automation Technologies Ltd. is a provider of automation and control technologies, and products. The Company's segments include Industrial Automation (IA), Rail Transportation (rail), Mechanical and Electrical (M&E), and Miscellaneous. Its technologies are applied through its industrial automation solution suite, including the Distributed Control Systems, Programmable Logic Controller, Real-time Management Information System, HolliAS Asset Management System, Operator Training System, Batch Application Package, Advanced Process Control Package (HolliAS APC Suite), Safety Instrumentation System (SIS), railway signaling system of Train Control Center, Automatic Train Protection, Subway Supervisory and Control platform, nuclear power non-safety automation and control system HolliAs-NMS DCS and other products. It serves customers in the industrial, railway, subway, nuclear power, and mechanical and electronic industries in China, Southeast Asia, India, Europe and the Middle East.

FINANCIAL RATIOS  of  Hollysys Automation Technologies, Ltd. (HOLI)

Valuation Ratios
P/E Ratio 17.8
Price to Sales 2.8
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 17.5
Price to Free Cash Flow 18.6
Growth Rates
Sales Growth Rate -20.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 37
Current Ratio 0.2
LT Debt to Equity 3.2%
Total Debt to Equity 4.3%
Interest Coverage 84
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 9.4%
Ret/ On T. Cap. - 3 Yr. Avg. 14.6%
Return On Equity 9.9%
Return On Equity - 3 Yr. Avg. 15.6%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 32.4%
Gross Margin - 3 Yr. Avg. 36.9%
EBITDA Margin 21.8%
EBITDA Margin - 3 Yr. Avg. 25.1%
Operating Margin 13.9%
Oper. Margin - 3 Yr. Avg. 20.1%
Pre-Tax Margin 19.2%
Pre-Tax Margin - 3 Yr. Avg. 22.7%
Net Profit Margin 16%
Net Profit Margin - 3 Yr. Avg. 18.6%
Effective Tax Rate 16.9%
Eff/ Tax Rate - 3 Yr. Avg. 15.9%
Payout Ratio 17.4%

HOLI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HOLI stock intrinsic value calculation we used $541 million for the last fiscal year's total revenue generated by Hollysys Automation Technologies, Ltd.. The default revenue input number comes from 0001 income statement of Hollysys Automation Technologies, Ltd.. 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 HOLI stock valuation model: a) initial revenue growth rate of 25.2% 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 HOLI is calculated based on our internal credit rating of Hollysys Automation Technologies, Ltd., 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 Hollysys Automation Technologies, Ltd..
    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 HOLI stock the variable cost ratio is equal to 44.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $183 million in the base year in the intrinsic value calculation for HOLI 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 Hollysys Automation Technologies, Ltd..

Corporate tax rate of 27% is the nominal tax rate for Hollysys Automation Technologies, Ltd.. 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 HOLI 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 HOLI are equal to 19.5%.

Life of production assets of 14.1 years is the average useful life of capital assets used in Hollysys Automation Technologies, Ltd. 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 HOLI is equal to 45.4%. 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 - $842.052 million for Hollysys Automation Technologies, Ltd. - 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 60.534 million for Hollysys Automation Technologies, Ltd. 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 Hollysys Automation Technologies, Ltd. at the current share price and the inputted number of shares is $1.2 billion.

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