FS Development Investment Holdings' estimated fair value is CN¥4.17 based on 2 Stage Free Cash Flow to Equity
FS Development Investment Holdings' CN¥3.51 share price indicates it is trading at similar levels as its fair value estimate
The average premium for FS Development Investment Holdings' competitorsis currently 461%
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of FS Development Investment Holdings (SZSE:300071) as an investment opportunity by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
What's The Estimated Valuation?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. 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.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF (CN¥, Millions)
CN¥128.2m
CN¥150.4m
CN¥170.0m
CN¥186.9m
CN¥201.6m
CN¥214.5m
CN¥226.0m
CN¥236.5m
CN¥246.3m
CN¥255.5m
Growth Rate Estimate Source
Est @ 23.49%
Est @ 17.32%
Est @ 13.01%
Est @ 9.99%
Est @ 7.87%
Est @ 6.39%
Est @ 5.36%
Est @ 4.63%
Est @ 4.12%
Est @ 3.77%
Present Value (CN¥, Millions) Discounted @ 7.7%
CN¥119
CN¥130
CN¥136
CN¥139
CN¥139
CN¥138
CN¥135
CN¥131
CN¥126
CN¥122
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = CN¥1.3b
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 (2.9%) 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 7.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥5.5b÷ ( 1 + 7.7%)10= CN¥2.6b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CN¥4.0b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of CN¥3.5, the company appears about fair value at a 16% 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.
The Assumptions
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 FS Development Investment 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 7.7%, which is based on a levered beta of 0.844. 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.
SWOT Analysis for FS Development Investment Holdings
Strength
Debt is not viewed as a risk.
Balance sheet summary for 300071.
Weakness
Shareholders have been diluted in the past year.
See 300071's current ownership breakdown.
Opportunity
Has sufficient cash runway for more than 3 years based on current free cash flows.
Current share price is below our estimate of fair value.
Lack of analyst coverage makes it difficult to determine 300071's earnings prospects.
Threat
No apparent threats visible for 300071.
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?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For FS Development Investment Holdings, we've put together three relevant items you should consider:
Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with FS Development Investment Holdings (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.
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!
Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook!
PS. Simply Wall St updates its DCF calculation for every Chinese stock every day, so if you want to find the intrinsic value of any other stock just search here.
Have 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.
关键见解
根据两阶段股权自由现金流,FS Development Investment Holdings的估计公允价值为4.17元人民币
FS Development Investment Holdings的3.51元人民币股价表明其交易价格与其公允价值估计相似
目前,金融开发投资控股公司的竞争对手的平均溢价为461%
今天,我们将简单介绍一种估值方法,该方法用于估算FS Development Investment Holdings(深圳证券交易所代码:300071)作为投资机会的吸引力,方法是预测公司的未来现金流并将其折扣回今天的价值。在这种情况下,我们将使用折扣现金流(DCF)模型。像这样的模型可能看起来超出外行人的理解,但它们很容易理解。
上面的计算在很大程度上取决于两个假设。第一个是贴现率,另一个是现金流。你不必同意这些输入,我建议你自己重做计算然后试一试。DCF也没有考虑一个行业可能的周期性,也没有考虑公司未来的资本需求,因此它没有全面反映公司的潜在表现。鉴于我们将FS Development Investment Holdings视为潜在股东,因此使用股本成本作为贴现率,而不是构成债务的资本成本(或加权平均资本成本,WACC)。在此计算中,我们使用了7.7%,这是基于0.844的杠杆测试版。Beta是衡量股票与整个市场相比波动性的指标。我们的测试版来自全球可比公司的行业平均贝塔值,设定在0.8到2.0之间,这是一个稳定的业务的合理范围。
金融开发投资控股公司的SWOT分析
力量
债务不被视为风险。
300071 的资产负债表摘要。
弱点
在过去的一年中,股东被稀释了。
请参阅 300071 的当前所有权明细。
机会
根据当前的自由现金流,有足够的现金流超过3年。
目前的股价低于我们对公允价值的估计。
由于缺乏分析师的报道,因此很难确定300071的收益前景。
威胁
300071 没有明显的威胁。
展望未来:
虽然重要,但DCF的计算只是公司需要评估的众多因素之一。使用DCF模型不可能获得万无一失的估值。相反,它应该被视为 “需要哪些假设才能低估/高估这只股票的价值?” 的指南如果一家公司以不同的速度增长,或者其股本成本或无风险利率急剧变化,则产出可能会大不相同。对于FS Development Investment Holdings,我们汇总了您应该考虑的三个相关项目:
风险:举例来说,投资风险的幽灵无处不在。我们已经在FS Development Investment Holdings中发现了两个警告信号(至少有一个让我们有点不舒服),了解它们应该是你投资过程的一部分。