NRA report page 19, figure 25 "Discounted Cash flow valuation" has an item known as "Terminal value". Can someone explain what is this? Is there an easy way to calculate the estimate revenue and profit for this year. Thanks.
(23-06-2017, 11:57 AM)Young Investor Wrote: [ -> ]NRA report page 19, figure 25 "Discounted Cash flow valuation" has an item known as "Terminal value". Can someone explain what is this? Is there an easy way to calculate the estimate revenue and profit for this year. Thanks.
Terminal value means the value of total future free cash flow that is growing at the same growth rate (terminal growth rate, in this case 2%) indefinitely.
The calculation of terminal value = FCF of the final year forecasted / (discount rate - terminal growth rate).
Applying to this case, 251.0/(10%-2%) = 3200.7 (some rounding difference)
And discounted to the present, which is discount by 10% by 5 times to get PV of terminal value 1987.37
How did the analyst decide that the growth rate is 2% forever ? Even inflation is already 2%, is he suggesting that the company will only grow as fast as inflation forever ?
interested to learn more after knowing its products are needed for tyre production.
This stock has been listed for almost 10 years.
Just wonder how does it come to current comfortable position, knowing its closest competitors (yanggui Huatai and Tianjin Kemai) are struggling in funding their expansion.
Reading somewhere, I understand during its IPO 10 years, its immediate competitors are not Huatai or Kemai.
Keen to understand the industry dynamic, what has China Sunsine has done right and what its competitors has not done right. Perhaps, history will provide some insight on the strength of its management.
Good timing and prudent financial management are the keys to Sunsine's current comfortable position.
Sunsine’s rubber chemical capacity grew from 76,500 tonnes in 2010 to 152,000 tonne in 2014.
The expansion was timely. Stricter enforcement against industrial pollution starting 2014 has resulted in tighter supply of rubber chemicals, and Sunsine was able to increase sales to earn good profits:
......................................2011.........2012.........2013.........2014.........2015.........2016
Sales vol (tonnes)......60,907......81,371......98,345....108,973....114,572....135,791
Revenue (RMB)...........1,175........1,417........1,696........2,077........1,859........2,037
Price (RMB / tonne)...19,292......17,414......17,245......19,060......16,226......15,001
Profit (RMB m)..................99.............32.............77...........220...........195...........222
With prudent financial management, Sunsine was debt-free and had RMB 276m in cash by the end of 2016, despite spending a total of RMB 676m between 2011 and 2016 on projects and setting aside RMB 775m for working capitals:
...............................................................................RMB m
..............................................2011.......2012......2013......2014......2015......2016
Cash at end of........................119..........105........108........123........341.......276
Bank loans at end of...............140.........200........230........259........149...........0
Capital spending in.................142...........44........147.........230..........30........83
Working capitals at end of......467.........585.........593........777........638.......775
It should be noted that in 4Q 2011, Sunsine resorted to drastic cuts of rubber accelerator prices to gain market share, resulting in a low profit of $32m (first table) in 2012. Fortunately the pain was short-lived as stronger sales volume in subsequent years lifted profit.
The infrastructures that were built earlier will enable Sunsine to add another 74,000 tonnes expeditiously to its present 152,000-tonne capacity.
(29-06-2017, 09:38 PM)portuser Wrote: [ -> ]Good timing and prudent financial management are the keys to Sunsine's current comfortable position.
Sunsine’s rubber chemical capacity grew from 76,500 tonnes in 2010 to 152,000 tonne in 2014.
The expansion was timely. Stricter enforcement against industrial pollution starting 2014 has resulted in tighter supply of rubber chemicals, and Sunsine was able to increase sales to earn good profits:
......................................2011.........2012.........2013.........2014.........2015.........2016
Sales vol (tonnes)......60,907......81,371......98,345....108,973....114,572....135,791
Revenue (RMB)...........1,175........1,417........1,696........2,077........1,859........2,037
Price (RMB / tonne)...19,292......17,414......17,245......19,060......16,226......15,001
Profit (RMB m)..................99.............32.............77...........220...........195...........222
With prudent financial management, Sunsine was debt-free and had RMB 276m in cash by the end of 2016, despite spending a total of RMB 676m between 2011 and 2016 on projects and setting aside RMB 775m for working capitals:
...............................................................................RMB m
..............................................2011.......2012......2013......2014......2015......2016
Cash at end of........................119..........105........108........123........341.......276
Bank loans at end of...............140.........200........230........259........149...........0
Capital spending in.................142...........44........147.........230..........30........83
Working capitals at end of......467.........585.........593........777........638.......775
It should be noted that in 4Q 2011, Sunsine resorted to drastic cuts of rubber accelerator prices to gain market share, resulting in a low profit of $32m (first table) in 2012. Fortunately the pain was short-lived as stronger sales volume in subsequent years lifted profit.
The infrastructures that were built earlier will enable Sunsine to add another 74,000 tonnes expeditiously to its present 152,000-tonne capacity.
Portuser,
thanks. Accordingly, China Sunsine gained market share over the past years partly due to stricter environmental enforcement and happened that Sunsine has invested a lots in preparing and meeting stricter environmental requirement.
This leads to next question, with assumption more investment are needed for environmental requirement, is current margin can be maintained.
According to NRA report:
"estimated capex to RMB200m per annum over our forecast horizon. This is to factor in more aggressive capex spending following tighter environmental restrictions."
Is the forecast realistic? If so, is it likely will lead to lower margin?
For an idea of whether gross margins are sustainable, take a look at Lanxess and BASF's gross margins over the years. Both are around the mid 20%-30% range.
(24-06-2017, 07:00 PM)portuser Wrote: [ -> ]BTinvest wrote:
"The calculation of terminal value = FCF of the final year forecasted / (discount rate - terminal growth rate).
Applying to this case, 251.0/(10%-2%) = 3200.7 (some rounding difference)"
The terminal value determined by the above formula is RMB 3,137.5m.
The correct formula for terminal value is:
Terminal value = FCF of the final year forecasted x (1 + terminal growth rate ) / (discount rate - terminal growth rate).
http://www.investopedia.com/university/dcf/dcf4.asp
The terminal value determined by this is RMB 3,200.25m.
Ah yes my bad, thanks for pointing out.