Intrinsic value of Hollysys Automation Technologies - HOLI

Previous Close

$20.13

  Intrinsic Value

$7.57

stock screener

  Rating & Target

str. sell

-62%

Previous close

$20.13

 
Intrinsic value

$7.57

 
Up/down potential

-62%

 
Rating

str. sell

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, %
  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
  441
  451
  462
  475
  490
  506
  523
  541
  561
  583
  606
  631
  657
  685
  714
  746
  779
  814
  851
  890
  931
  975
  1,020
  1,069
  1,120
  1,173
  1,229
  1,289
  1,351
  1,417
Variable operating expenses, $m
  204
  208
  214
  220
  226
  233
  241
  249
  258
  268
  274
  285
  297
  309
  323
  337
  352
  367
  384
  402
  420
  440
  461
  483
  506
  530
  555
  582
  610
  640
Fixed operating expenses, $m
  180
  184
  188
  192
  196
  201
  205
  209
  214
  219
  224
  229
  234
  239
  244
  249
  255
  260
  266
  272
  278
  284
  290
  297
  303
  310
  317
  324
  331
  338
Total operating expenses, $m
  384
  392
  402
  412
  422
  434
  446
  458
  472
  487
  498
  514
  531
  548
  567
  586
  607
  627
  650
  674
  698
  724
  751
  780
  809
  840
  872
  906
  941
  978
Operating income, $m
  57
  58
  61
  64
  67
  72
  77
  82
  89
  96
  109
  117
  127
  137
  148
  160
  172
  186
  200
  216
  233
  250
  269
  289
  311
  333
  358
  383
  410
  439
EBITDA, $m
  70
  71
  74
  77
  81
  86
  91
  97
  104
  111
  120
  129
  138
  149
  160
  173
  186
  200
  216
  232
  249
  268
  287
  308
  331
  354
  379
  406
  434
  464
Interest expense (income), $m
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
Earnings before tax, $m
  55
  57
  58
  61
  64
  68
  72
  77
  83
  89
  101
  109
  117
  126
  136
  146
  158
  170
  183
  197
  212
  228
  246
  264
  283
  304
  326
  349
  374
  400
Tax expense, $m
  15
  15
  16
  16
  17
  18
  20
  21
  22
  24
  27
  29
  32
  34
  37
  40
  43
  46
  49
  53
  57
  62
  66
  71
  76
  82
  88
  94
  101
  108
Net income, $m
  40
  41
  43
  44
  47
  50
  53
  56
  61
  65
  74
  79
  85
  92
  99
  107
  115
  124
  134
  144
  155
  167
  179
  193
  207
  222
  238
  255
  273
  292

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
  1,039
  1,063
  1,090
  1,121
  1,155
  1,192
  1,233
  1,277
  1,324
  1,375
  1,429
  1,487
  1,549
  1,615
  1,684
  1,758
  1,836
  1,919
  2,006
  2,099
  2,196
  2,298
  2,407
  2,520
  2,640
  2,767
  2,900
  3,040
  3,187
  3,342
Adjusted assets (=assets-cash), $m
  1,039
  1,063
  1,090
  1,121
  1,155
  1,192
  1,233
  1,277
  1,324
  1,375
  1,429
  1,487
  1,549
  1,615
  1,684
  1,758
  1,836
  1,919
  2,006
  2,099
  2,196
  2,298
  2,407
  2,520
  2,640
  2,767
  2,900
  3,040
  3,187
  3,342
Revenue / Adjusted assets
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
Average production assets, $m
  110
  112
  115
  118
  122
  126
  130
  135
  140
  145
  151
  157
  164
  170
  178
  186
  194
  203
  212
  222
  232
  243
  254
  266
  279
  292
  306
  321
  336
  353
Working capital, $m
  220
  225
  231
  238
  245
  253
  261
  271
  281
  292
  303
  315
  328
  342
  357
  373
  389
  407
  425
  445
  466
  487
  510
  534
  560
  587
  615
  644
  676
  708
Total debt, $m
  35
  43
  52
  62
  73
  84
  97
  112
  127
  143
  160
  179
  199
  220
  242
  266
  291
  317
  345
  374
  406
  438
  473
  509
  548
  588
  631
  676
  723
  772
Total liabilities, $m
  333
  340
  349
  359
  370
  382
  395
  409
  424
  440
  457
  476
  496
  517
  539
  563
  588
  614
  642
  672
  703
  735
  770
  807
  845
  885
  928
  973
  1,020
  1,069
Total equity, $m
  707
  723
  741
  762
  785
  811
  838
  868
  900
  935
  972
  1,011
  1,053
  1,098
  1,145
  1,196
  1,249
  1,305
  1,364
  1,427
  1,493
  1,563
  1,636
  1,714
  1,795
  1,881
  1,972
  2,067
  2,167
  2,272
Total liabilities and equity, $m
  1,040
  1,063
  1,090
  1,121
  1,155
  1,193
  1,233
  1,277
  1,324
  1,375
  1,429
  1,487
  1,549
  1,615
  1,684
  1,759
  1,837
  1,919
  2,006
  2,099
  2,196
  2,298
  2,406
  2,521
  2,640
  2,766
  2,900
  3,040
  3,187
  3,341
Debt-to-equity ratio
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.120
  0.130
  0.140
  0.150
  0.160
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.330
  0.340
Adjusted equity ratio
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  40
  41
  43
  44
  47
  50
  53
  56
  61
  65
  74
  79
  85
  92
  99
  107
  115
  124
  134
  144
  155
  167
  179
  193
  207
  222
  238
  255
  273
  292
Depreciation, amort., depletion, $m
  13
  13
  13
  13
  14
  14
  14
  15
  15
  15
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
Funds from operations, $m
  53
  54
  56
  58
  60
  63
  67
  71
  75
  80
  85
  91
  97
  104
  112
  120
  129
  139
  149
  160
  172
  184
  197
  212
  227
  243
  260
  278
  297
  317
Change in working capital, $m
  4
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
Cash from operations, $m
  49
  49
  50
  51
  53
  56
  58
  62
  65
  70
  73
  78
  84
  90
  97
  105
  113
  121
  130
  140
  151
  162
  174
  187
  201
  216
  231
  248
  266
  284
Maintenance CAPEX, $m
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
New CAPEX, $m
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
Cash from investing activities, $m
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -23
  -23
  -25
  -26
  -28
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -40
Free cash flow, $m
  39
  39
  39
  40
  41
  43
  45
  48
  51
  54
  57
  61
  66
  72
  78
  84
  91
  99
  107
  115
  125
  135
  146
  157
  170
  183
  197
  211
  227
  244
Issuance/(repayment) of debt, $m
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  36
  38
  40
  43
  45
  47
  50
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  
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  36
  38
  40
  43
  45
  47
  50
Total cash flow (excl. dividends), $m
  46
  46
  48
  50
  52
  55
  58
  62
  66
  71
  74
  80
  86
  93
  100
  108
  116
  125
  135
  145
  156
  168
  180
  194
  208
  223
  239
  256
  274
  293
Retained Cash Flow (-), $m
  -13
  -16
  -19
  -21
  -23
  -25
  -28
  -30
  -32
  -35
  -37
  -39
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -70
  -74
  -77
  -82
  -86
  -90
  -95
  -100
  -105
Prev. year cash balance distribution, $m
  30
  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
  62
  30
  29
  29
  29
  29
  30
  32
  34
  36
  37
  40
  44
  48
  53
  57
  63
  69
  75
  82
  90
  98
  107
  116
  126
  137
  149
  161
  174
  188
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
  60
  28
  25
  24
  22
  21
  21
  20
  19
  19
  18
  17
  17
  16
  15
  15
  14
  13
  12
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  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
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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 (HOLI)

Valuation Ratios
P/E Ratio 17.6
Price to Sales 2.8
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 17.4
Price to Free Cash Flow 18.4
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 $431.943 million for the last fiscal year's total revenue generated by Hollysys Automation Technologies. The default revenue input number comes from 0001 income statement of Hollysys Automation Technologies. 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 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, 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.
    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 46.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $176 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.

Corporate tax rate of 27% is the nominal tax rate for Hollysys Automation Technologies. 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 24.9%.

Life of production assets of 14 years is the average useful life of capital assets used in Hollysys Automation Technologies 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 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 - $723.519 million for Hollysys Automation Technologies - 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 60.342 million for Hollysys Automation Technologies 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 at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ Hollysys Automation: Fiscal 1Q Earnings Snapshot   [Nov-13-18 07:09PM  Associated Press]
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▶ Hollysys Automation: Fiscal 4Q Earnings Snapshot   [Aug-14-18 06:26PM  Associated Press]
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▶ Company News For May 16, 2018   [May-16-18 10:28AM  Zacks]
▶ Hollysys Automation: Fiscal 3Q Earnings Snapshot   [May-14-18 05:38PM  Associated Press]
▶ 4 Bargain Global Stocks As Bull Market Ages   [Mar-16-18 08:00AM  Investopedia]
▶ Hollysys Automation posts 2Q profit   [05:01AM  Associated Press]
▶ Hollysys Automation posts 1Q profit   [Nov-13-17 05:31PM  Associated Press]
▶ Hollysys Automation posts 4Q profit   [Aug-14-17 11:22PM  Associated Press]
▶ New Strong Sell Stocks for May 16th   [May-16-17 10:29AM  Zacks]
▶ Hollysys Automation posts 3Q profit   [May-11-17 05:51PM  Associated Press]

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