Estimating The Intrinsic Value Of Beisen Holding Limited (HKG:9669)

Simply Wall St.

Nov 07

AdvertisementKey Insights The projected fair value for Beisen Holding is HK$7.32 based on 2 Stage Free Cash Flow to Equity With HK$7.30 share price, Beisen Holding appears to be trading close to its...

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One way to achieve this is by employing the Discounted Cash Flow (DCF) model.  Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.  Remember though, that there are many ways to estimate a company's value, and a DCF is just one method.  Anyone interested in learning a bit more about intrinsic value should have a read of 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. Crunching The Numbers   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 start off with, we need to estimate the next ten years of cash flows.   Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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.   A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  so we discount the value of these future cash flows to their estimated value in today's dollars:  10-year free cash flow (FCF) estimate  2026202720282029203020312032203320342035 Levered FCF (CN¥, Millions) CN¥85.9mCN¥129.6mCN¥176.9mCN¥223.5mCN¥266.7mCN¥305.0mCN¥338.2mCN¥366.9mCN¥391.7mCN¥413.6mGrowth Rate Estimate SourceEst @ 71.50%Est @ 50.89%Est @ 36.47%Est @ 26.38%Est @ 19.31%Est @ 14.36%Est @ 10.90%Est @ 8.48%Est @ 6.78%Est @ 5.59% Present Value (CN¥, Millions) Discounted @ 8.7% CN¥79.0CN¥110CN¥138CN¥160CN¥175CN¥184CN¥188CN¥188CN¥184CN¥179(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥1.6b After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.8%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.7%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = CN¥414m× (1 + 2.8%) ÷ (8.7%– 2.8%) = CN¥7.2bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥7.2b÷ ( 1 + 8.7%)10= CN¥3.1b 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 CN¥4.7b.  The last step is to then divide the equity value by the number of shares outstanding.  Relative to the current share price of HK$7.3, the company appears   about fair value    at a 0.2% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. SEHK:9669 Discounted Cash Flow November 7th 2025  The Assumptions  The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 Beisen Holding 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 8.7%, which is based on a levered beta of 1.128. 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 Beisen Holding  Looking Ahead:  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.  Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\"  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.  For Beisen Holding, there are three  relevant  items  you should assess:  Financial Health: Does 9669 have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does 9669'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 Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!   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.Valuation is complex, but we're here to simplify it.Discover if Beisen Holding might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.Access Free AnalysisHave 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"}}}