How far off is Ho Bee Land Limited (SGX:H13) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after December 2017 then I highly recommend you check out the latest calculation for Ho Bee Land here.
Is H13 fairly valued?
I use what is known as the 2-stage model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To begin, I pulled together the analyst consensus forecast of H13’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 9.55%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of SGD440.0M. Want to know how I arrived at this number? Check out our detailed analysis here.
Above is a visual representation of how H13’s earnings are expected to move in the future, which should give you an idea of H13’s outlook. Next, I determine the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of SGD714.1M.
The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is SGD1,154.1M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of SGD1.73, which, compared to the current share price of SGD2.49, we see that Ho Bee Land is quite expensive and not available at a discount at this time.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For H13, I’ve compiled three essential aspects you should look at:
PS. Simply Wall St does a DCF calculation for every SG stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.