Intrinsic value of Highpower International - HPJ

Previous Close

$5.15

  Intrinsic Value

$52.02

stock screener

  Rating & Target

str. buy

+910%

Previous close

$5.15

 
Intrinsic value

$52.02

 
Up/down potential

+910%

 
Rating

str. buy

We calculate the intrinsic value of HPJ 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 2016), $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 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  19.18
  40.50
  36.95
  33.76
  30.88
  28.29
  25.96
  23.87
  21.98
  20.28
  18.75
  17.38
  16.14
  15.03
  14.02
  13.12
  12.31
  11.58
  10.92
  10.33
  9.80
  9.32
  8.88
  8.50
  8.15
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
Revenue, $m
  174
  244
  335
  448
  586
  752
  947
  1,173
  1,431
  1,721
  2,044
  2,399
  2,787
  3,205
  3,655
  4,134
  4,643
  5,181
  5,747
  6,340
  6,961
  7,610
  8,286
  8,990
  9,722
  10,483
  11,275
  12,097
  12,952
  13,840
  14,763
Variable operating expenses, $m
 
  218
  298
  399
  522
  670
  844
  1,045
  1,275
  1,534
  1,821
  2,138
  2,483
  2,856
  3,256
  3,684
  4,137
  4,616
  5,120
  5,649
  6,202
  6,780
  7,383
  8,010
  8,662
  9,341
  10,046
  10,778
  11,540
  12,331
  13,154
Fixed operating expenses, $m
 
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
Total operating expenses, $m
  168
  231
  312
  413
  536
  685
  859
  1,060
  1,291
  1,550
  1,838
  2,155
  2,500
  2,874
  3,274
  3,703
  4,156
  4,636
  5,140
  5,670
  6,223
  6,802
  7,405
  8,033
  8,686
  9,365
  10,071
  10,803
  11,566
  12,358
  13,181
Operating income, $m
  6
  13
  23
  35
  50
  67
  88
  112
  140
  171
  206
  244
  286
  331
  380
  432
  487
  545
  606
  670
  737
  808
  881
  957
  1,036
  1,119
  1,204
  1,293
  1,386
  1,482
  1,582
EBITDA, $m
  11
  14
  23
  35
  50
  68
  89
  114
  142
  173
  209
  247
  290
  335
  384
  437
  492
  551
  613
  678
  746
  817
  891
  968
  1,048
  1,131
  1,218
  1,308
  1,401
  1,499
  1,600
Interest expense (income), $m
  1
  2
  3
  5
  8
  11
  14
  18
  23
  29
  35
  43
  50
  59
  68
  78
  88
  100
  111
  124
  137
  150
  165
  179
  195
  211
  228
  245
  263
  282
  301
Earnings before tax, $m
  7
  12
  20
  30
  42
  57
  74
  94
  117
  142
  171
  202
  236
  273
  312
  354
  398
  445
  495
  547
  601
  657
  716
  778
  841
  908
  977
  1,048
  1,123
  1,200
  1,281
Tax expense, $m
  1
  3
  5
  8
  11
  15
  20
  25
  32
  38
  46
  55
  64
  74
  84
  96
  108
  120
  134
  148
  162
  177
  193
  210
  227
  245
  264
  283
  303
  324
  346
Net income, $m
  6
  9
  14
  22
  31
  41
  54
  69
  85
  104
  125
  147
  172
  199
  228
  258
  291
  325
  361
  399
  439
  480
  523
  568
  614
  663
  713
  765
  820
  876
  935

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  163
  216
  296
  396
  519
  665
  838
  1,038
  1,266
  1,523
  1,809
  2,123
  2,466
  2,836
  3,234
  3,659
  4,109
  4,585
  5,085
  5,611
  6,160
  6,734
  7,332
  7,955
  8,603
  9,277
  9,978
  10,705
  11,462
  12,248
  13,065
Adjusted assets (=assets-cash), $m
  154
  216
  296
  396
  519
  665
  838
  1,038
  1,266
  1,523
  1,809
  2,123
  2,466
  2,836
  3,234
  3,659
  4,109
  4,585
  5,085
  5,611
  6,160
  6,734
  7,332
  7,955
  8,603
  9,277
  9,978
  10,705
  11,462
  12,248
  13,065
Revenue / Adjusted assets
  1.130
  1.130
  1.132
  1.131
  1.129
  1.131
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
  1.130
Average production assets, $m
  1
  1
  2
  3
  4
  5
  6
  7
  9
  10
  12
  14
  17
  19
  22
  25
  28
  31
  34
  38
  42
  46
  50
  54
  58
  63
  68
  73
  78
  83
  89
Working capital, $m
  -13
  44
  60
  80
  104
  134
  169
  209
  255
  306
  364
  427
  496
  571
  651
  736
  826
  922
  1,023
  1,129
  1,239
  1,355
  1,475
  1,600
  1,730
  1,866
  2,007
  2,153
  2,305
  2,463
  2,628
Total debt, $m
  53
  88
  145
  216
  302
  406
  528
  670
  832
  1,013
  1,216
  1,438
  1,681
  1,943
  2,225
  2,525
  2,844
  3,181
  3,535
  3,907
  4,296
  4,703
  5,126
  5,567
  6,026
  6,503
  6,999
  7,514
  8,050
  8,606
  9,185
Total liabilities, $m
  118
  153
  210
  281
  367
  471
  593
  735
  897
  1,078
  1,281
  1,503
  1,746
  2,008
  2,290
  2,590
  2,909
  3,246
  3,600
  3,972
  4,361
  4,768
  5,191
  5,632
  6,091
  6,568
  7,064
  7,579
  8,115
  8,671
  9,250
Total equity, $m
  45
  63
  87
  116
  151
  194
  245
  303
  370
  445
  528
  620
  720
  828
  944
  1,068
  1,200
  1,339
  1,485
  1,638
  1,799
  1,966
  2,141
  2,323
  2,512
  2,709
  2,913
  3,126
  3,347
  3,576
  3,815
Total liabilities and equity, $m
  163
  216
  297
  397
  518
  665
  838
  1,038
  1,267
  1,523
  1,809
  2,123
  2,466
  2,836
  3,234
  3,658
  4,109
  4,585
  5,085
  5,610
  6,160
  6,734
  7,332
  7,955
  8,603
  9,277
  9,977
  10,705
  11,462
  12,247
  13,065
Debt-to-equity ratio
  1.178
  1.400
  1.670
  1.860
  2.000
  2.090
  2.160
  2.210
  2.250
  2.280
  2.300
  2.320
  2.330
  2.350
  2.360
  2.360
  2.370
  2.380
  2.380
  2.380
  2.390
  2.390
  2.390
  2.400
  2.400
  2.400
  2.400
  2.400
  2.410
  2.410
  2.410
Adjusted equity ratio
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  9
  14
  22
  31
  41
  54
  69
  85
  104
  125
  147
  172
  199
  228
  258
  291
  325
  361
  399
  439
  480
  523
  568
  614
  663
  713
  765
  820
  876
  935
Depreciation, amort., depletion, $m
  5
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
Funds from operations, $m
  -3
  9
  15
  22
  31
  42
  55
  70
  87
  106
  127
  150
  176
  203
  232
  263
  296
  331
  368
  407
  447
  489
  533
  578
  626
  675
  726
  780
  835
  893
  953
Change in working capital, $m
  -8
  13
  16
  20
  25
  30
  35
  40
  46
  52
  57
  63
  69
  75
  80
  85
  91
  96
  101
  106
  111
  115
  120
  125
  130
  136
  141
  146
  152
  158
  164
Cash from operations, $m
  5
  -4
  -1
  2
  7
  13
  20
  30
  41
  54
  70
  87
  107
  128
  152
  178
  206
  236
  267
  301
  336
  373
  412
  453
  495
  540
  586
  633
  683
  735
  788
Maintenance CAPEX, $m
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
New CAPEX, $m
  -8
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -11
  0
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -4
  -4
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -11
  -12
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -21
  -23
Free cash flow, $m
  -6
  -4
  -2
  1
  5
  11
  18
  27
  38
  51
  66
  82
  101
  122
  146
  171
  198
  227
  258
  290
  325
  361
  399
  439
  480
  523
  568
  615
  663
  714
  766
Issuance/(repayment) of debt, $m
  10
  44
  57
  71
  87
  104
  122
  142
  162
  182
  202
  223
  243
  262
  282
  300
  319
  337
  354
  372
  389
  406
  424
  441
  459
  477
  496
  515
  535
  557
  579
Issuance/(repurchase) of shares, $m
  0
  10
  9
  7
  5
  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
Cash from financing (excl. dividends), $m  
  10
  54
  66
  78
  92
  105
  122
  142
  162
  182
  202
  223
  243
  262
  282
  300
  319
  337
  354
  372
  389
  406
  424
  441
  459
  477
  496
  515
  535
  557
  579
Total cash flow (excl. dividends), $m
  3
  49
  63
  79
  97
  116
  141
  169
  200
  233
  268
  305
  344
  385
  427
  471
  517
  564
  612
  662
  714
  768
  823
  880
  939
  1,000
  1,064
  1,130
  1,199
  1,270
  1,345
Retained Cash Flow (-), $m
  -3
  -18
  -23
  -29
  -36
  -43
  -50
  -58
  -67
  -75
  -83
  -92
  -100
  -108
  -116
  -124
  -132
  -139
  -146
  -153
  -160
  -168
  -175
  -182
  -189
  -197
  -204
  -212
  -221
  -230
  -239
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
 
  31
  40
  50
  61
  74
  90
  110
  133
  158
  184
  213
  244
  277
  311
  347
  385
  425
  466
  509
  554
  600
  648
  698
  750
  804
  860
  918
  978
  1,041
  1,106
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  29
  35
  40
  45
  49
  54
  59
  63
  66
  67
  66
  64
  61
  56
  51
  45
  39
  33
  27
  22
  18
  14
  10
  7
  5
  4
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  89.2
  82.6
  78.7
  76.8
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4
  76.4

Highpower International, Inc., through its subsidiaries, is engaged in the manufacturing and marketing of nickel metal hydride rechargeable batteries (Ni-MH) and lithium batteries for both consumer and industrial applications. The Company operates through three segments: Lithium Batteries, Ni-MH Batteries and New Material. It has commenced over two production lines of Lithium-ion (Li-ion) and Lithium polymer rechargeable batteries for consumer applications, such as consumer electronic products, mobile devices and wireless communication products. It produces a line of batteries falling into two categories: Consumer Batteries, which are relative to ordinary nickel cadmium (Ni-Cad) rechargeable batteries, as well as their non-rechargeable counterparts, and Industrial Batteries, which are designed for electric bikes, power tools and electric toys. It produces A, AA and AAA sized batteries in blister packing, as well as chargers and battery packs.

FINANCIAL RATIOS  of  Highpower International (HPJ)

Valuation Ratios
P/E Ratio 13
Price to Sales 0.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 15.6
Price to Free Cash Flow -25.9
Growth Rates
Sales Growth Rate 19.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27.3%
Cap. Spend. - 3 Yr. Gr. Rate -16.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 117.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.7%
Return On Equity 13.8%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 21.8%
Gross Margin - 3 Yr. Avg. 20.5%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 6.8%
Operating Margin 3.4%
Oper. Margin - 3 Yr. Avg. 2.5%
Pre-Tax Margin 4%
Pre-Tax Margin - 3 Yr. Avg. 2.9%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 13.1%
Payout Ratio 0%

HPJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HPJ stock intrinsic value calculation we used $174 million for the last fiscal year's total revenue generated by Highpower International. The default revenue input number comes from 2016 income statement of Highpower International. 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 HPJ stock valuation model: a) initial revenue growth rate of 40.5% 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 6.9%, whose default value for HPJ is calculated based on our internal credit rating of Highpower International, 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 Highpower International.
    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 HPJ stock the variable cost ratio is equal to 89.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for HPJ 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 Highpower International.

Corporate tax rate of 27% is the nominal tax rate for Highpower International. 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 HPJ 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 HPJ are equal to 0.6%.

Life of production assets of 0.2 years is the average useful life of capital assets used in Highpower International 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 HPJ is equal to 17.8%. 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 - $45 million for Highpower International - 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 15.359 million for Highpower International 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 Highpower International at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating

COMPANY NEWS

▶ Highpower International Adopts Stockholder Rights Plan   [Sep-13-17 08:30AM  PR Newswire]
▶ Highpower International Announces Management Changes   [Jun-15-17 05:04PM  PR Newswire]
▶ Highpower International Retains ICR, Inc.   [08:00AM  PR Newswire]
▶ 6 Stocks Trading Below Peter Lynch Value   [Apr-06-17 03:44PM  GuruFocus.com]
▶ Heres Why These 5 Stocks Are on the Move Today   [11:55AM  at Insider Monkey]
▶ These 4 Stocks Are Strong Gainers On Friday   [Nov-27  11:57AM  at Insider Monkey]
▶ Highpower Selected by Seiko for Power Solutions   [Apr-09  08:30AM  PR Newswire]
Financial statements of HPJ
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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