Intrinsic value of Hollysys Automation Technologies - HOLI

Previous Close

$26.04

  Intrinsic Value

$31.92

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  Rating & Target

buy

+23%

Previous close

$26.04

 
Intrinsic value

$31.92

 
Up/down potential

+23%

 
Rating

buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Hollysys Automation Technologies (HOLI) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -20.59
  11.50
  10.85
  10.27
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.20
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
Revenue, $m
  432
  482
  534
  589
  646
  706
  768
  833
  901
  971
  1,044
  1,120
  1,199
  1,281
  1,366
  1,455
  1,547
  1,643
  1,743
  1,847
  1,955
  2,069
  2,187
  2,310
  2,439
  2,574
  2,714
  2,861
  3,015
  3,176
  3,345
Variable operating expenses, $m
 
  227
  251
  276
  303
  330
  359
  389
  420
  453
  486
  516
  553
  591
  630
  671
  713
  758
  804
  852
  902
  954
  1,008
  1,065
  1,125
  1,187
  1,252
  1,319
  1,390
  1,465
  1,542
Fixed operating expenses, $m
 
  176
  181
  185
  190
  195
  199
  204
  210
  215
  220
  226
  231
  237
  243
  249
  255
  262
  268
  275
  282
  289
  296
  304
  311
  319
  327
  335
  343
  352
  361
Total operating expenses, $m
  372
  403
  432
  461
  493
  525
  558
  593
  630
  668
  706
  742
  784
  828
  873
  920
  968
  1,020
  1,072
  1,127
  1,184
  1,243
  1,304
  1,369
  1,436
  1,506
  1,579
  1,654
  1,733
  1,817
  1,903
Operating income, $m
  60
  79
  102
  127
  154
  181
  210
  240
  271
  304
  338
  378
  415
  453
  493
  535
  578
  624
  671
  720
  772
  826
  882
  941
  1,003
  1,068
  1,136
  1,207
  1,281
  1,360
  1,442
EBITDA, $m
  70
  88
  113
  138
  165
  193
  223
  254
  286
  319
  354
  390
  428
  467
  508
  550
  595
  641
  690
  740
  793
  848
  906
  966
  1,030
  1,096
  1,165
  1,238
  1,314
  1,394
  1,478
Interest expense (income), $m
  1
  1
  2
  4
  5
  6
  8
  10
  11
  13
  15
  17
  19
  21
  23
  26
  28
  30
  33
  35
  38
  41
  44
  47
  51
  54
  57
  61
  65
  69
  73
Earnings before tax, $m
  83
  78
  100
  124
  149
  175
  202
  230
  260
  291
  323
  361
  396
  432
  470
  509
  550
  593
  638
  685
  734
  785
  838
  894
  953
  1,014
  1,078
  1,146
  1,216
  1,290
  1,368
Tax expense, $m
  14
  21
  27
  33
  40
  47
  54
  62
  70
  78
  87
  97
  107
  117
  127
  137
  149
  160
  172
  185
  198
  212
  226
  241
  257
  274
  291
  309
  328
  348
  369
Net income, $m
  69
  57
  73
  90
  109
  127
  147
  168
  190
  212
  236
  263
  289
  315
  343
  372
  402
  433
  466
  500
  536
  573
  612
  653
  695
  740
  787
  836
  888
  942
  999

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  294
  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
  1,058
  853
  945
  1,042
  1,144
  1,249
  1,360
  1,475
  1,594
  1,719
  1,848
  1,982
  2,122
  2,267
  2,418
  2,575
  2,738
  2,908
  3,084
  3,269
  3,461
  3,661
  3,870
  4,089
  4,317
  4,555
  4,804
  5,064
  5,337
  5,622
  5,920
Adjusted assets (=assets-cash), $m
  764
  853
  945
  1,042
  1,144
  1,249
  1,360
  1,475
  1,594
  1,719
  1,848
  1,982
  2,122
  2,267
  2,418
  2,575
  2,738
  2,908
  3,084
  3,269
  3,461
  3,661
  3,870
  4,089
  4,317
  4,555
  4,804
  5,064
  5,337
  5,622
  5,920
Revenue / Adjusted assets
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
  0.565
Average production assets, $m
  47
  53
  58
  64
  70
  77
  84
  91
  98
  106
  114
  122
  131
  140
  149
  159
  169
  179
  190
  201
  213
  225
  238
  252
  266
  281
  296
  312
  329
  346
  365
Working capital, $m
  562
  241
  267
  294
  323
  353
  384
  417
  450
  486
  522
  560
  599
  640
  683
  727
  773
  821
  871
  923
  978
  1,034
  1,093
  1,155
  1,219
  1,287
  1,357
  1,431
  1,508
  1,588
  1,672
Total debt, $m
  31
  61
  101
  142
  185
  231
  278
  327
  378
  431
  486
  543
  603
  665
  729
  796
  866
  939
  1,014
  1,093
  1,175
  1,260
  1,350
  1,443
  1,540
  1,642
  1,748
  1,859
  1,976
  2,097
  2,225
Total liabilities, $m
  335
  364
  404
  445
  488
  534
  581
  630
  681
  734
  789
  846
  906
  968
  1,032
  1,099
  1,169
  1,242
  1,317
  1,396
  1,478
  1,563
  1,653
  1,746
  1,843
  1,945
  2,051
  2,162
  2,279
  2,400
  2,528
Total equity, $m
  724
  489
  542
  597
  655
  716
  779
  845
  914
  985
  1,059
  1,136
  1,216
  1,299
  1,385
  1,475
  1,569
  1,666
  1,767
  1,873
  1,983
  2,098
  2,218
  2,343
  2,473
  2,610
  2,753
  2,902
  3,058
  3,221
  3,392
Total liabilities and equity, $m
  1,059
  853
  946
  1,042
  1,143
  1,250
  1,360
  1,475
  1,595
  1,719
  1,848
  1,982
  2,122
  2,267
  2,417
  2,574
  2,738
  2,908
  3,084
  3,269
  3,461
  3,661
  3,871
  4,089
  4,316
  4,555
  4,804
  5,064
  5,337
  5,621
  5,920
Debt-to-equity ratio
  0.043
  0.120
  0.190
  0.240
  0.280
  0.320
  0.360
  0.390
  0.410
  0.440
  0.460
  0.480
  0.500
  0.510
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.620
  0.630
  0.640
  0.640
  0.650
  0.650
  0.660
Adjusted equity ratio
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  69
  57
  73
  90
  109
  127
  147
  168
  190
  212
  236
  263
  289
  315
  343
  372
  402
  433
  466
  500
  536
  573
  612
  653
  695
  740
  787
  836
  888
  942
  999
Depreciation, amort., depletion, $m
  10
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  34
  36
Funds from operations, $m
  55
  67
  84
  101
  120
  140
  160
  182
  204
  227
  252
  276
  302
  329
  358
  387
  418
  451
  485
  520
  557
  595
  635
  678
  722
  768
  816
  867
  920
  976
  1,035
Change in working capital, $m
  -15
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  38
  39
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  74
  77
  81
  84
Cash from operations, $m
  70
  42
  57
  74
  92
  110
  129
  149
  170
  192
  215
  238
  262
  288
  315
  343
  372
  403
  435
  468
  502
  539
  576
  616
  657
  701
  746
  794
  844
  896
  951
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
New CAPEX, $m
  -4
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
Cash from investing activities, $m
  -90
  -11
  -11
  -12
  -12
  -14
  -15
  -15
  -16
  -18
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -51
  -52
Free cash flow, $m
  -20
  32
  47
  62
  79
  96
  115
  134
  154
  175
  197
  218
  242
  266
  292
  319
  347
  376
  406
  438
  471
  505
  541
  579
  618
  660
  703
  748
  796
  846
  898
Issuance/(repayment) of debt, $m
  -2
  38
  39
  41
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  64
  67
  70
  73
  76
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  122
  127
Issuance/(repurchase) of shares, $m
  6
  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  
  5
  38
  39
  41
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  64
  67
  70
  73
  76
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  122
  127
Total cash flow (excl. dividends), $m
  -19
  70
  86
  104
  122
  142
  162
  183
  205
  228
  252
  275
  301
  328
  356
  386
  416
  448
  481
  516
  553
  591
  630
  672
  716
  761
  809
  860
  912
  967
  1,025
Retained Cash Flow (-), $m
  -50
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -71
  -74
  -77
  -80
  -83
  -86
  -90
  -94
  -97
  -101
  -106
  -110
  -115
  -120
  -125
  -131
  -136
  -143
  -149
  -156
  -163
  -171
Prev. year cash balance distribution, $m
 
  286
  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
 
  305
  33
  48
  64
  81
  99
  117
  136
  157
  178
  198
  221
  245
  270
  296
  323
  351
  380
  411
  443
  476
  511
  547
  585
  625
  667
  710
  756
  804
  854
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
 
  293
  30
  42
  53
  63
  72
  79
  85
  90
  93
  94
  94
  93
  91
  87
  82
  76
  70
  63
  56
  49
  42
  36
  30
  24
  19
  15
  12
  9
  6
Current shareholders' claim on cash, %
  100
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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 22.8
Price to Sales 3.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 22.4
Price to Free Cash Flow 23.8
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 $432 million for the last fiscal year's total revenue generated by Hollysys Automation Technologies. The default revenue input number comes from 2017 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 11.5% 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 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 47.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $172 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 3.5% 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 10.9%.

Life of production assets of 10.1 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 - $724 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 61.518 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 $1.6 billion.

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COMPANY NEWS

▶ Hollysys Automation posts 2Q profit   [Feb-09-18 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]
▶ Hollysys Automation posts 2Q profit   [Feb-14-17 05:51PM  Associated Press]
Financial statements of HOLI
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