Intrinsic value of iKang Healthcare Group ADR - KANG

Previous Close

$13.60

  Intrinsic Value

$5.76

stock screener

  Rating & Target

str. sell

-58%

  Value-price divergence*

-54%

Previous close

$13.60

 
Intrinsic value

$5.76

 
Up/down potential

-58%

 
Rating

str. sell

 
Value-price divergence*

-54%

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

We calculate the intrinsic value of KANG 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 2017), $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 0.9

 

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, %
  17.52
  13.20
  12.38
  11.64
  10.98
  10.38
  9.84
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
  7.08
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
  5.43
  5.39
Revenue, $m
  436
  494
  555
  619
  687
  759
  833
  911
  992
  1,077
  1,165
  1,257
  1,352
  1,451
  1,554
  1,660
  1,772
  1,887
  2,007
  2,132
  2,262
  2,398
  2,540
  2,687
  2,841
  3,002
  3,169
  3,345
  3,528
  3,719
  3,920
Variable operating expenses, $m
 
  457
  512
  571
  632
  697
  764
  835
  908
  985
  1,065
  1,137
  1,223
  1,312
  1,405
  1,502
  1,602
  1,707
  1,815
  1,928
  2,046
  2,169
  2,297
  2,430
  2,569
  2,715
  2,866
  3,025
  3,191
  3,364
  3,545
Fixed operating expenses, $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 operating expenses, $m
  422
  457
  512
  571
  632
  697
  764
  835
  908
  985
  1,065
  1,137
  1,223
  1,312
  1,405
  1,502
  1,602
  1,707
  1,815
  1,928
  2,046
  2,169
  2,297
  2,430
  2,569
  2,715
  2,866
  3,025
  3,191
  3,364
  3,545
Operating income, $m
  13
  36
  42
  48
  55
  62
  69
  76
  84
  92
  101
  120
  129
  139
  148
  159
  169
  180
  192
  204
  216
  229
  243
  257
  271
  287
  303
  320
  337
  355
  374
EBITDA, $m
  50
  73
  82
  92
  102
  113
  124
  135
  147
  160
  173
  187
  201
  215
  231
  247
  263
  280
  298
  317
  336
  356
  377
  399
  422
  446
  471
  497
  524
  552
  582
Interest expense (income), $m
  4
  5
  7
  8
  10
  12
  14
  16
  18
  21
  23
  25
  28
  31
  33
  36
  39
  42
  45
  49
  52
  56
  60
  64
  68
  72
  77
  81
  86
  91
  97
Earnings before tax, $m
  0
  31
  36
  40
  45
  50
  55
  60
  66
  72
  78
  95
  101
  108
  115
  122
  130
  138
  146
  155
  164
  173
  183
  193
  204
  215
  226
  238
  251
  264
  278
Tax expense, $m
  3
  8
  10
  11
  12
  13
  15
  16
  18
  19
  21
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
Net income, $m
  -11
  23
  26
  29
  33
  36
  40
  44
  48
  52
  57
  69
  74
  79
  84
  89
  95
  101
  107
  113
  120
  126
  134
  141
  149
  157
  165
  174
  183
  193
  203

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  69
  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
  728
  746
  838
  935
  1,038
  1,146
  1,259
  1,376
  1,499
  1,627
  1,760
  1,898
  2,042
  2,192
  2,347
  2,508
  2,676
  2,850
  3,032
  3,221
  3,418
  3,623
  3,836
  4,059
  4,291
  4,534
  4,787
  5,052
  5,329
  5,618
  5,921
Adjusted assets (=assets-cash), $m
  659
  746
  838
  935
  1,038
  1,146
  1,259
  1,376
  1,499
  1,627
  1,760
  1,898
  2,042
  2,192
  2,347
  2,508
  2,676
  2,850
  3,032
  3,221
  3,418
  3,623
  3,836
  4,059
  4,291
  4,534
  4,787
  5,052
  5,329
  5,618
  5,921
Revenue / Adjusted assets
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
Average production assets, $m
  178
  201
  226
  253
  280
  309
  340
  372
  405
  439
  475
  513
  552
  592
  634
  677
  723
  770
  819
  870
  923
  978
  1,036
  1,096
  1,159
  1,225
  1,293
  1,365
  1,439
  1,517
  1,599
Working capital, $m
  -67
  -28
  -32
  -35
  -39
  -43
  -47
  -52
  -57
  -61
  -66
  -72
  -77
  -83
  -89
  -95
  -101
  -108
  -114
  -122
  -129
  -137
  -145
  -153
  -162
  -171
  -181
  -191
  -201
  -212
  -223
Total debt, $m
  213
  190
  239
  290
  344
  401
  460
  522
  587
  654
  725
  797
  873
  952
  1,034
  1,119
  1,207
  1,299
  1,395
  1,494
  1,598
  1,706
  1,819
  1,936
  2,059
  2,186
  2,320
  2,459
  2,605
  2,758
  2,917
Total liabilities, $m
  416
  393
  442
  493
  547
  604
  663
  725
  790
  857
  928
  1,000
  1,076
  1,155
  1,237
  1,322
  1,410
  1,502
  1,598
  1,697
  1,801
  1,909
  2,022
  2,139
  2,262
  2,389
  2,523
  2,662
  2,808
  2,961
  3,120
Total equity, $m
  312
  353
  396
  442
  491
  542
  595
  651
  709
  770
  833
  898
  966
  1,037
  1,110
  1,186
  1,266
  1,348
  1,434
  1,523
  1,617
  1,713
  1,815
  1,920
  2,030
  2,145
  2,264
  2,390
  2,521
  2,657
  2,801
Total liabilities and equity, $m
  728
  746
  838
  935
  1,038
  1,146
  1,258
  1,376
  1,499
  1,627
  1,761
  1,898
  2,042
  2,192
  2,347
  2,508
  2,676
  2,850
  3,032
  3,220
  3,418
  3,622
  3,837
  4,059
  4,292
  4,534
  4,787
  5,052
  5,329
  5,618
  5,921
Debt-to-equity ratio
  0.683
  0.540
  0.600
  0.660
  0.700
  0.740
  0.770
  0.800
  0.830
  0.850
  0.870
  0.890
  0.900
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.990
  1.000
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.040
  1.040
Adjusted equity ratio
  0.369
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -11
  23
  26
  29
  33
  36
  40
  44
  48
  52
  57
  69
  74
  79
  84
  89
  95
  101
  107
  113
  120
  126
  134
  141
  149
  157
  165
  174
  183
  193
  203
Depreciation, amort., depletion, $m
  37
  37
  40
  44
  47
  51
  55
  59
  63
  68
  72
  67
  72
  77
  82
  88
  94
  100
  106
  113
  120
  127
  135
  142
  151
  159
  168
  177
  187
  197
  208
Funds from operations, $m
  71
  60
  66
  73
  80
  87
  95
  103
  111
  120
  129
  136
  146
  156
  166
  177
  189
  201
  213
  226
  239
  253
  268
  283
  299
  316
  333
  351
  370
  390
  411
Change in working capital, $m
  21
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
Cash from operations, $m
  50
  63
  70
  76
  84
  91
  99
  107
  116
  125
  134
  141
  151
  161
  172
  183
  195
  207
  220
  233
  247
  261
  276
  292
  308
  325
  343
  361
  381
  401
  422
Maintenance CAPEX, $m
  0
  -23
  -26
  -29
  -33
  -36
  -40
  -44
  -48
  -53
  -57
  -62
  -67
  -72
  -77
  -82
  -88
  -94
  -100
  -106
  -113
  -120
  -127
  -135
  -142
  -151
  -159
  -168
  -177
  -187
  -197
New CAPEX, $m
  -63
  -23
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -68
  -72
  -75
  -78
  -82
Cash from investing activities, $m
  -32
  -46
  -51
  -55
  -61
  -65
  -70
  -76
  -81
  -88
  -93
  -99
  -106
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -166
  -175
  -185
  -195
  -205
  -217
  -227
  -240
  -252
  -265
  -279
Free cash flow, $m
  18
  17
  19
  21
  23
  26
  29
  31
  35
  38
  41
  42
  46
  49
  53
  58
  62
  66
  71
  76
  81
  86
  91
  97
  103
  109
  115
  122
  129
  136
  143
Issuance/(repayment) of debt, $m
  -53
  46
  49
  51
  54
  57
  59
  62
  65
  67
  70
  73
  76
  79
  82
  85
  88
  92
  96
  100
  104
  108
  113
  117
  122
  128
  134
  140
  146
  152
  159
Issuance/(repurchase) of shares, $m
  1
  18
  18
  17
  16
  15
  13
  12
  10
  8
  6
  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  
  -52
  64
  67
  68
  70
  72
  72
  74
  75
  75
  76
  73
  76
  79
  82
  85
  88
  92
  96
  100
  104
  108
  113
  117
  122
  128
  134
  140
  146
  152
  159
Total cash flow (excl. dividends), $m
  -43
  80
  85
  89
  93
  97
  101
  105
  109
  113
  117
  115
  121
  128
  135
  143
  150
  158
  167
  175
  184
  194
  204
  214
  225
  237
  249
  261
  274
  288
  303
Retained Cash Flow (-), $m
  31
  -41
  -44
  -46
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -73
  -76
  -79
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -125
  -131
  -137
  -143
Prev. year cash balance distribution, $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 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
 
  40
  41
  43
  45
  46
  48
  50
  51
  53
  55
  49
  53
  57
  62
  66
  71
  76
  81
  86
  91
  97
  103
  109
  115
  122
  129
  136
  144
  151
  160
Discount rate, %
 
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
 
  37
  36
  35
  34
  32
  30
  28
  26
  24
  21
  17
  16
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.1
  96.5
  95.2
  94.0
  93.1
  92.3
  91.7
  91.3
  90.9
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7

iKang Healthcare Group, Inc. provides preventive healthcare solutions, including a range of medical examinations services and value-added services, including disease screening, dental services and other services in China. The Company's segments include medical examinations and other medical services, and dental services. The Company, through its integrated service platform, offers healthcare management solutions, including medical examinations, which cover basic examination items, such as internal, gynecology, ophthalmology, dental and X-ray, and value-added services at selected medical centers, including disease screening focusing on cancer screening, cardiovascular disease screening, certain chronic disease screening and functional medicine testing; dental care, including oral health, pediatric dentistry and cosmetic dentistry; outpatient services, such as acupuncture, obstetrics, gynecology and minor surgery, and on-site healthcare management or clinics at certain locations.

FINANCIAL RATIOS  of  iKang Healthcare Group ADR (KANG)

Valuation Ratios
P/E Ratio -42.9
Price to Sales 1.1
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 9.4
Price to Free Cash Flow -36.3
Growth Rates
Sales Growth Rate 17.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 70.3%
Cap. Spend. - 3 Yr. Gr. Rate 11.8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 32.7%
Total Debt to Equity 68.3%
Interest Coverage 1
Management Effectiveness
Return On Assets -0.9%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital -1.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity -3.4%
Return On Equity - 3 Yr. Avg. 4.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 39.9%
Gross Margin - 3 Yr. Avg. 43.3%
EBITDA Margin 9.4%
EBITDA Margin - 3 Yr. Avg. 15.3%
Operating Margin 3.2%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 6.7%
Net Profit Margin -2.5%
Net Profit Margin - 3 Yr. Avg. 3.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 19.2%
Payout Ratio 0%

KANG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KANG stock intrinsic value calculation we used $436 million for the last fiscal year's total revenue generated by iKang Healthcare Group ADR. The default revenue input number comes from 2017 income statement of iKang Healthcare 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 KANG stock valuation model: a) initial revenue growth rate of 13.2% 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 6.3%, whose default value for KANG is calculated based on our internal credit rating of iKang Healthcare 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 iKang Healthcare 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 KANG stock the variable cost ratio is equal to 92.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KANG 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 iKang Healthcare Group ADR.

Corporate tax rate of 27% is the nominal tax rate for iKang Healthcare 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 KANG 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 KANG are equal to 40.8%.

Life of production assets of 7.7 years is the average useful life of capital assets used in iKang Healthcare 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 KANG is equal to -5.7%. 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 - $312 million for iKang Healthcare 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 68.452 million for iKang Healthcare 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 iKang Healthcare Group ADR at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ iKang Filed 2015 Annual Report on Form 20-F   [Aug-01-16 07:45AM  GlobeNewswire]
▶ Is iKang Healthcare Group Inc (ADR) (KANG) A Good Stock To Buy?   [Dec-10  01:42PM  at Insider Monkey]
▶ Meinian Responds to iKang's "Poison Pill" Rights Plan   [Dec-03  01:26PM  PR Newswire]
▶ iKang Healthcare Group, Inc. Adopts Rights Agreement   [Dec-02  09:15AM  GlobeNewswire]
▶ Do Hedge Funds Love Benefitfocus Inc (BNFT)?   [Nov-27  06:29AM  at Insider Monkey]
▶ iKang Announces Changes to the Board of Directors   [Oct-15  08:47AM  GlobeNewswire]
▶ After Carnage, Pros Pinpoint Bargains in China   [Sep-05  02:22AM  at Barrons.com]
▶ 3 Healthy Alternatives To A Biotech Bubble   [Aug-19  06:15AM  at Forbes]
▶ China Stocks Rebound After New Rules, IPOs Hit Shanghai   [Jun-15  05:35PM  at Investor's Business Daily]
Financial statements of KANG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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