Intrinsic value of RISE Education Cayman Ltd - REDU

Previous Close

$9.01

  Intrinsic Value

$121.18

stock screener

  Rating & Target

str. buy

+999%

Previous close

$9.01

 
Intrinsic value

$121.18

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of REDU 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 0.5

 

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, %
  43.10
  39.29
  35.86
  32.77
  30.00
  27.50
  25.25
  23.22
  21.40
  19.76
  18.28
  16.96
  15.76
  14.68
  13.72
  12.84
  12.06
  11.35
  10.72
  10.15
  9.63
  9.17
  8.75
  8.38
  8.04
  7.74
  7.46
  7.22
  6.99
  6.79
Revenue, $m
  210
  293
  398
  529
  687
  876
  1,097
  1,352
  1,641
  1,966
  2,325
  2,719
  3,148
  3,610
  4,105
  4,633
  5,191
  5,781
  6,401
  7,050
  7,729
  8,438
  9,176
  9,945
  10,744
  11,575
  12,439
  13,337
  14,270
  15,239
Variable operating expenses, $m
  185
  253
  340
  448
  580
  736
  919
  1,131
  1,370
  1,639
  1,927
  2,253
  2,608
  2,992
  3,402
  3,839
  4,302
  4,790
  5,304
  5,842
  6,404
  6,992
  7,604
  8,240
  8,903
  9,592
  10,307
  11,051
  11,824
  12,627
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
  185
  253
  340
  448
  580
  736
  919
  1,131
  1,370
  1,639
  1,927
  2,253
  2,608
  2,992
  3,402
  3,839
  4,302
  4,790
  5,304
  5,842
  6,404
  6,992
  7,604
  8,240
  8,903
  9,592
  10,307
  11,051
  11,824
  12,627
Operating income, $m
  26
  40
  58
  80
  108
  140
  178
  222
  271
  327
  399
  466
  540
  619
  704
  794
  890
  991
  1,097
  1,208
  1,325
  1,446
  1,573
  1,704
  1,841
  1,984
  2,132
  2,286
  2,446
  2,612
EBITDA, $m
  42
  59
  80
  106
  137
  175
  219
  270
  328
  393
  465
  544
  629
  722
  821
  926
  1,038
  1,156
  1,280
  1,410
  1,545
  1,687
  1,835
  1,988
  2,148
  2,314
  2,487
  2,666
  2,853
  3,047
Interest expense (income), $m
  1
  5
  11
  18
  28
  40
  54
  71
  91
  114
  140
  169
  202
  237
  276
  318
  362
  410
  460
  514
  570
  628
  689
  753
  820
  889
  962
  1,037
  1,115
  1,196
  1,280
Earnings before tax, $m
  21
  29
  40
  52
  68
  86
  107
  131
  157
  187
  229
  264
  302
  343
  386
  432
  480
  530
  583
  639
  696
  757
  819
  884
  952
  1,022
  1,095
  1,171
  1,250
  1,332
Tax expense, $m
  6
  8
  11
  14
  18
  23
  29
  35
  42
  50
  62
  71
  82
  93
  104
  117
  130
  143
  157
  172
  188
  204
  221
  239
  257
  276
  296
  316
  338
  360
Net income, $m
  15
  21
  29
  38
  50
  63
  78
  95
  115
  136
  167
  193
  221
  250
  282
  315
  350
  387
  426
  466
  508
  552
  598
  646
  695
  746
  800
  855
  913
  972

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
  407
  567
  770
  1,022
  1,329
  1,694
  2,122
  2,615
  3,175
  3,802
  4,497
  5,260
  6,089
  6,983
  7,941
  8,961
  10,042
  11,182
  12,380
  13,636
  14,950
  16,321
  17,749
  19,236
  20,782
  22,390
  24,060
  25,796
  27,601
  29,476
Adjusted assets (=assets-cash), $m
  407
  567
  770
  1,022
  1,329
  1,694
  2,122
  2,615
  3,175
  3,802
  4,497
  5,260
  6,089
  6,983
  7,941
  8,961
  10,042
  11,182
  12,380
  13,636
  14,950
  16,321
  17,749
  19,236
  20,782
  22,390
  24,060
  25,796
  27,601
  29,476
Revenue / Adjusted assets
  0.516
  0.517
  0.517
  0.518
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
Average production assets, $m
  91
  126
  172
  228
  296
  378
  473
  583
  707
  847
  1,002
  1,172
  1,357
  1,556
  1,769
  1,997
  2,238
  2,492
  2,759
  3,039
  3,331
  3,637
  3,955
  4,286
  4,631
  4,989
  5,361
  5,748
  6,150
  6,568
Working capital, $m
  -206
  -287
  -390
  -518
  -673
  -859
  -1,075
  -1,325
  -1,609
  -1,926
  -2,279
  -2,665
  -3,085
  -3,538
  -4,023
  -4,540
  -5,088
  -5,665
  -6,273
  -6,909
  -7,575
  -8,269
  -8,993
  -9,746
  -10,530
  -11,344
  -12,190
  -13,070
  -13,984
  -14,934
Total debt, $m
  203
  341
  517
  735
  1,000
  1,315
  1,685
  2,111
  2,594
  3,137
  3,737
  4,396
  5,112
  5,885
  6,712
  7,594
  8,527
  9,512
  10,548
  11,633
  12,768
  13,952
  15,187
  16,471
  17,807
  19,196
  20,640
  22,140
  23,698
  25,319
Total liabilities, $m
  352
  490
  665
  883
  1,148
  1,464
  1,834
  2,259
  2,743
  3,285
  3,886
  4,545
  5,261
  6,033
  6,861
  7,742
  8,676
  9,661
  10,697
  11,782
  12,917
  14,101
  15,335
  16,620
  17,956
  19,345
  20,788
  22,288
  23,847
  25,467
Total equity, $m
  55
  77
  105
  139
  181
  230
  289
  356
  432
  517
  612
  715
  828
  950
  1,080
  1,219
  1,366
  1,521
  1,684
  1,855
  2,033
  2,220
  2,414
  2,616
  2,826
  3,045
  3,272
  3,508
  3,754
  4,009
Total liabilities and equity, $m
  407
  567
  770
  1,022
  1,329
  1,694
  2,123
  2,615
  3,175
  3,802
  4,498
  5,260
  6,089
  6,983
  7,941
  8,961
  10,042
  11,182
  12,381
  13,637
  14,950
  16,321
  17,749
  19,236
  20,782
  22,390
  24,060
  25,796
  27,601
  29,476
Debt-to-equity ratio
  3.670
  4.430
  4.930
  5.280
  5.530
  5.710
  5.840
  5.940
  6.010
  6.070
  6.110
  6.150
  6.170
  6.200
  6.220
  6.230
  6.240
  6.260
  6.260
  6.270
  6.280
  6.290
  6.290
  6.300
  6.300
  6.300
  6.310
  6.310
  6.310
  6.320
Adjusted equity ratio
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  21
  29
  38
  50
  63
  78
  95
  115
  136
  167
  193
  221
  250
  282
  315
  350
  387
  426
  466
  508
  552
  598
  646
  695
  746
  800
  855
  913
  972
Depreciation, amort., depletion, $m
  16
  19
  22
  25
  30
  35
  42
  49
  57
  66
  66
  78
  90
  103
  117
  132
  148
  165
  183
  201
  221
  241
  262
  284
  307
  330
  355
  381
  407
  435
Funds from operations, $m
  31
  40
  50
  64
  79
  98
  119
  144
  172
  203
  234
  271
  310
  353
  399
  447
  498
  552
  609
  667
  729
  793
  860
  929
  1,002
  1,077
  1,155
  1,236
  1,320
  1,407
Change in working capital, $m
  -62
  -81
  -103
  -128
  -155
  -185
  -217
  -250
  -284
  -318
  -352
  -386
  -420
  -453
  -485
  -517
  -548
  -578
  -607
  -636
  -665
  -694
  -724
  -753
  -783
  -814
  -846
  -880
  -914
  -950
Cash from operations, $m
  93
  121
  153
  191
  235
  283
  336
  394
  455
  520
  586
  657
  730
  806
  884
  964
  1,046
  1,130
  1,216
  1,304
  1,395
  1,488
  1,584
  1,683
  1,785
  1,891
  2,001
  2,115
  2,234
  2,358
Maintenance CAPEX, $m
  -4
  -6
  -8
  -11
  -15
  -20
  -25
  -31
  -39
  -47
  -56
  -66
  -78
  -90
  -103
  -117
  -132
  -148
  -165
  -183
  -201
  -221
  -241
  -262
  -284
  -307
  -330
  -355
  -381
  -407
New CAPEX, $m
  -27
  -36
  -45
  -56
  -68
  -81
  -95
  -110
  -125
  -140
  -155
  -170
  -185
  -199
  -213
  -227
  -241
  -254
  -267
  -280
  -293
  -305
  -318
  -331
  -345
  -358
  -372
  -387
  -402
  -418
Cash from investing activities, $m
  -31
  -42
  -53
  -67
  -83
  -101
  -120
  -141
  -164
  -187
  -211
  -236
  -263
  -289
  -316
  -344
  -373
  -402
  -432
  -463
  -494
  -526
  -559
  -593
  -629
  -665
  -702
  -742
  -783
  -825
Free cash flow, $m
  62
  79
  100
  124
  151
  182
  216
  253
  292
  334
  375
  421
  468
  517
  568
  620
  673
  728
  784
  841
  901
  962
  1,025
  1,090
  1,157
  1,226
  1,298
  1,373
  1,451
  1,532
Issuance/(repayment) of debt, $m
  106
  138
  176
  218
  265
  316
  370
  426
  484
  542
  601
  659
  716
  773
  828
  881
  934
  985
  1,036
  1,085
  1,135
  1,184
  1,234
  1,285
  1,336
  1,389
  1,443
  1,500
  1,559
  1,620
Issuance/(repurchase) of shares, $m
  2
  1
  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  
  108
  139
  176
  218
  265
  316
  370
  426
  484
  542
  601
  659
  716
  773
  828
  881
  934
  985
  1,036
  1,085
  1,135
  1,184
  1,234
  1,285
  1,336
  1,389
  1,443
  1,500
  1,559
  1,620
Total cash flow (excl. dividends), $m
  169
  218
  275
  342
  416
  498
  586
  678
  776
  876
  976
  1,079
  1,184
  1,290
  1,395
  1,501
  1,607
  1,713
  1,819
  1,927
  2,035
  2,146
  2,259
  2,374
  2,493
  2,615
  2,742
  2,873
  3,010
  3,153
Retained Cash Flow (-), $m
  -17
  -22
  -28
  -34
  -42
  -50
  -58
  -67
  -76
  -85
  -95
  -104
  -113
  -122
  -130
  -139
  -147
  -155
  -163
  -171
  -179
  -186
  -194
  -202
  -210
  -219
  -227
  -236
  -245
  -255
Prev. year cash balance distribution, $m
  8
  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
  161
  196
  248
  308
  375
  448
  527
  611
  699
  790
  881
  976
  1,072
  1,168
  1,265
  1,362
  1,460
  1,558
  1,656
  1,756
  1,857
  1,960
  2,064
  2,172
  2,282
  2,397
  2,515
  2,637
  2,765
  2,898
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
  154
  179
  216
  253
  290
  325
  356
  382
  402
  414
  418
  416
  407
  392
  371
  346
  318
  287
  255
  223
  192
  163
  135
  111
  89
  70
  54
  41
  30
  22
Current shareholders' claim on cash, %
  99.6
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5
  99.5

RISE Education Cayman Ltd is a holding company. The Company, through its subsidiaries, offers after-school English teaching and tutoring services to students aged three to 18. It operates in China’s junior English Language Training (ELT) market. Its offers three flagship courses, including Rise Start, Rise On and Rise Up, that are designed for students aged three to six, seven to twelve and 13 to 18, respectively. As of June 30, 2017, the Company had a network of 246 learning centers across 80 cities in China, among which 56 were self-owned centers and 190 centers were franchised learning centers. Its suite of products comprises both online and offline coursework. Its also offers a series of complementary products to students from both self-owned learning centers and franchised learning centers, including online products Can-Talk and Rise Library Online, and offline products Rise Camp, Rise Workshop and Rise Overseas Study Tour.

FINANCIAL RATIOS  of  RISE Education Cayman Ltd (REDU)

Valuation Ratios
P/E Ratio 123.9
Price to Sales 9.6
Price to Book 16.8
Price to Tangible Book
Price to Cash Flow 28.3
Price to Free Cash Flow 34.2
Growth Rates
Sales Growth Rate 33.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 16
Current Ratio 0
LT Debt to Equity 81.4%
Total Debt to Equity 91.5%
Interest Coverage 13
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. -0%
Return On Equity 9.5%
Return On Equity - 3 Yr. Avg. 0.7%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 48.5%
Gross Margin - 3 Yr. Avg. 36.5%
EBITDA Margin 22.3%
EBITDA Margin - 3 Yr. Avg. 13.2%
Operating Margin 9.7%
Oper. Margin - 3 Yr. Avg. -6.6%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. -4.5%
Net Profit Margin 7.8%
Net Profit Margin - 3 Yr. Avg. -4.2%
Effective Tax Rate 41.7%
Eff/ Tax Rate - 3 Yr. Avg. 13.9%
Payout Ratio 0%

REDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the REDU stock intrinsic value calculation we used $147 million for the last fiscal year's total revenue generated by RISE Education Cayman Ltd. The default revenue input number comes from 0001 income statement of RISE Education Cayman 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 REDU stock valuation model: a) initial revenue growth rate of 43.1% 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 REDU is calculated based on our internal credit rating of RISE Education Cayman 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 RISE Education Cayman 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 REDU stock the variable cost ratio is equal to 89.8%.

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 REDU 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 RISE Education Cayman Ltd.

Corporate tax rate of 27% is the nominal tax rate for RISE Education Cayman 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 REDU 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 REDU are equal to 43.1%.

Life of production assets of 15.1 years is the average useful life of capital assets used in RISE Education Cayman 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 REDU is equal to -98%. 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 - $46.8759068924 million for RISE Education Cayman 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 60.409 million for RISE Education Cayman 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 RISE Education Cayman Ltd at the current share price and the inputted number of shares is $0.5 billion.

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