A Look At The Fair Value Of Ying Li International Real Estate Limited (SGX:5DM)

Simply Wall St.01-06

AdvertisementKey Insights Ying Li International Real Estate's estimated fair value is S$0.025 based on 2 Stage Free Cash Flow to Equity Current share price of S$0.028 suggests Ying Li International ...

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One way to achieve this is by employing the Discounted Cash Flow (DCF) model.  Don't get put off by the jargon, the math behind it is actually quite straightforward.  We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios.  Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. The Calculation   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.  In the first stage we need to estimate the cash flows to the business over the next ten years.   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  2026202720282029203020312032203320342035 Levered FCF (CN¥, Millions) CN¥39.4mCN¥35.6mCN¥33.4mCN¥32.2mCN¥31.7mCN¥31.5mCN¥31.7mCN¥32.0mCN¥32.5mCN¥33.1mGrowth Rate Estimate SourceEst @ -14.92%Est @ -9.70%Est @ -6.05%Est @ -3.50%Est @ -1.71%Est @ -0.45%Est @ 0.42%Est @ 1.04%Est @ 1.47%Est @ 1.77% Present Value (CN¥, Millions) Discounted @ 11% CN¥35.5CN¥28.9CN¥24.5CN¥21.3CN¥18.9CN¥17.0CN¥15.4CN¥14.0CN¥12.8CN¥11.8(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥200m 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 (2.5%) 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 11%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = CN¥33m× (1 + 2.5%) ÷ (11%– 2.5%) = CN¥402mPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥402m÷ ( 1 + 11%)10= CN¥143m 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¥343m.  The last step is to then divide the equity value by the number of shares outstanding.  Compared to the current share price of S$0.03, the company appears   around fair value    at the time of writing.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. SGX:5DM Discounted Cash Flow January 5th 2026  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 Ying Li International Real Estate 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 11%, which is based on a levered beta of 2.000. 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.   Check out our latest analysis for Ying Li International Real Estate SWOT Analysis for Ying Li International Real EstateStrength  No major strengths identified for 5DM.Weakness Current share price is above our estimate of fair value. Opportunity Has sufficient cash runway for more than 3 years based on current free cash flows.Lack of analyst coverage makes it difficult to determine 5DM's earnings prospects. Have 5DM insiders been buying lately? ThreatDebt is not well covered by operating cash flow. Is 5DM well equipped to handle threats?  Moving On:  Whilst important, the DCF calculation  is only one of many factors that you need to assess for a company.  DCF models are not the be-all and end-all of investment valuation.  Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation.  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 Ying Li International Real Estate, we've put together three  relevant  items  you should look at:   Risks: Take risks, for example - Ying Li International Real Estate has   1 warning sign   we think you should be aware of.   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 Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!   PS. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock 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. 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