Is Man Wah Holdings Limited (HKG:1999) Trading At A 40% Discount?

Simply Wall St.

Oct 14

AdvertisementKey Insights Using the 2 Stage Free Cash Flow to Equity, Man Wah Holdings fair value estimate is HK$7.42 Current share price of HK$4.42 suggests Man Wah Holdings is potentially 40% ...

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Our analysis will employ the Discounted Cash Flow (DCF) model.  There's really not all that much to it, even though it might appear quite complex.  Remember though, that there are many ways to estimate a company's value, and a DCF is just one method.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. Trump has pledged to \"unleash\" American oil and gas and these 15 US stocks have developments that are poised to benefit. Is Man Wah Holdings Fairly Valued?   We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase.  To begin with, we have to get estimates of the next ten years of cash flows.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.   Generally we assume that a dollar today is more valuable than a dollar in the future,  so we need to discount the sum of these future cash flows to arrive at a present value estimate:  10-year free cash flow (FCF) forecast  2026202720282029203020312032203320342035 Levered FCF (HK$, Millions) HK$1.55bHK$1.78bHK$2.07bHK$2.08bHK$2.10bHK$2.13bHK$2.17bHK$2.21bHK$2.26bHK$2.31bGrowth Rate Estimate SourceAnalyst x1Analyst x1Analyst x1Est @ 0.17%Est @ 0.93%Est @ 1.46%Est @ 1.83%Est @ 2.09%Est @ 2.27%Est @ 2.39% Present Value (HK$, Millions) Discounted @ 9.0% HK$1.4kHK$1.5kHK$1.6kHK$1.5kHK$1.4kHK$1.3kHK$1.2kHK$1.1kHK$1.0kHK$976(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = HK$13b The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.7%. We discount the terminal cash flows to today's value at a cost of equity of 9.0%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = HK$2.3b× (1 + 2.7%) ÷ (9.0%– 2.7%) = HK$38bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= HK$38b÷ ( 1 + 9.0%)10= HK$16b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is HK$29b.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Compared to the current share price of HK$4.4, the company appears   quite undervalued    at a 40% discount to where the stock price trades currently.   The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. SEHK:1999 Discounted Cash Flow October 13th 2025  Important Assumptions  Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.  If you don't agree with these result, have a go at the calculation yourself and play with the assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Man Wah Holdings as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 9.0%, which is based on a levered beta of 1.241. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.   View our latest analysis for Man Wah Holdings SWOT Analysis for Man Wah HoldingsStrength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows.  Dividend information for 1999. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Consumer Durables market.Opportunity Annual earnings are forecast to grow for the next 3 years. Good value based on P/E ratio and estimated fair value.  Significant insider buying over the past 3 months.Threat  Annual earnings are forecast to grow slower than the Hong Kong market.  What else are analysts forecasting for 1999?  Next Steps:  Whilst important, the DCF calculation  is only one of many factors that you need to assess for a company.  It's not possible to obtain a foolproof valuation with a DCF model.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Why is the intrinsic value higher than the current share price?   For Man Wah Holdings, there are three  pertinent  aspects  you should assess:   Risks: To that end, you should be aware of the   2 warning signs  we've spotted with Man Wah Holdings .   Future Earnings: How does 1999's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.  Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!   PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SEHK every day. If you want to find the calculation for other stocks just search here.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}