Calculating The Fair Value Of ZJLD Group Inc (HKG:6979)

Simply Wall St.12-19

Key Insights Using the Dividend Discount Model, ZJLD Group fair value estimate is HK$8.07 Current share price of HK$7.10 suggests ZJLD Group is potentially trading close to its fair value The CN¥...

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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.  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.  View our latest analysis for ZJLD Group  Crunching The Numbers   As ZJLD Group operates in the beverage sector, we need to calculate the intrinsic value slightly differently.  In this approach dividends per share (DPS) are used, as free cash flow is difficult to estimate and often not reported by analysts.  Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock.  The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever.  The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We then discount this figure to today's value at a cost of equity of 6.3%.  Relative to the current share price of HK$7.1, the company appears   about fair value    at a 12% 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. Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)= CN¥0.3 / (6.3% – 2.3%)= HK$8.1SEHK:6979 Discounted Cash Flow December 19th 2024  The Assumptions  We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own 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 ZJLD Group 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 6.3%, which is based on a levered beta of 0.800. 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 ZJLD GroupStrength Debt is not viewed as a risk. Balance sheet summary for 6979. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Beverage market.Shareholders have been diluted in the past year.Opportunity Annual earnings are forecast to grow faster than the Hong Kong market. Good value based on P/E ratio and estimated fair value.  Significant insider buying over the past 3 months.Threat Paying a dividend but company has no free cash flows. Revenue is forecast to grow slower than 20% per year.  See 6979's dividend history.  Looking Ahead:  Although the valuation of a company is important, it  ideally won't be the sole piece of analysis you scrutinize for a company.  The DCF model is not a perfect stock valuation tool.  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.  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 ZJLD Group, we've compiled three  further  aspects  you should look at:   Risks: Consider for instance, the ever-present spectre of investment risk.   We've identified 4 warning signs  with ZJLD Group (at least 1 which is potentially serious)  , and understanding these should be part of your investment process.   Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for 6979's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.  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. Simply Wall St updates its DCF calculation for every Hong Kong stock every day, so if you want to find the intrinsic value of any other stock just search here.Valuation is complex, but we're here to simplify it.Discover if ZJLD Group 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":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2492113983"}