China Resources Beer (Holdings) Company Limited's (HKG:291) Intrinsic Value Is Potentially 85% Above Its Share Price

Simply Wall St.
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Key Insights

  • China Resources Beer (Holdings)'s estimated fair value is HK$48.38 based on 2 Stage Free Cash Flow to Equity
  • China Resources Beer (Holdings)'s HK$26.15 share price signals that it might be 46% undervalued
  • The CN¥35.58 analyst price target for 291 is 26% less than our estimate of fair value

In this article we are going to estimate the intrinsic value of China Resources Beer (Holdings) Company Limited (HKG:291) by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. It may sound complicated, but actually it is quite simple!

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

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Crunching The Numbers

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or 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.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, 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¥5.94bCN¥6.09bCN¥6.24bCN¥6.39bCN¥6.55bCN¥6.71bCN¥6.88bCN¥7.06bCN¥7.24bCN¥7.43b
Growth Rate Estimate SourceAnalyst x9Analyst x10Est @ 2.37%Est @ 2.44%Est @ 2.48%Est @ 2.51%Est @ 2.54%Est @ 2.55%Est @ 2.56%Est @ 2.57%
Present Value (CN¥, Millions) Discounted @ 6.7% CN¥5.6kCN¥5.4kCN¥5.1kCN¥4.9kCN¥4.7kCN¥4.6kCN¥4.4kCN¥4.2kCN¥4.0kCN¥3.9k

("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥47b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 (2.6%) 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 6.7%.

Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = CN¥7.4b× (1 + 2.6%) ÷ (6.7%– 2.6%) = CN¥186b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥186b÷ ( 1 + 6.7%)10= CN¥97b

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is CN¥144b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of HK$26.2, the company appears quite undervalued at a 46% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

SEHK:291 Discounted Cash Flow August 1st 2025

The Assumptions

Now 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 China Resources Beer (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 6.7%, 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.

View our latest analysis for China Resources Beer (Holdings)

SWOT Analysis for China Resources Beer (Holdings)

Strength
  • Debt is not viewed as a risk.
  • Dividends are covered by earnings and cash flows.
    Dividend information for 291.
Weakness
  • Earnings declined over the past year.
  • Dividend is low compared to the top 25% of dividend payers in the Beverage market.
Opportunity
  • Annual earnings are forecast to grow for the next 3 years.
  • Good value based on P/E ratio and estimated fair value.
Threat
  • Annual earnings are forecast to grow slower than the Hong Kong market.
    What else are analysts forecasting for 291?

Next Steps:

Although the valuation of a company is important, it shouldn't be the only metric you look at when researching 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?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Why is the intrinsic value higher than the current share price? For China Resources Beer (Holdings), we've compiled three relevant items you should assess:

  1. Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with China Resources Beer (Holdings) , and understanding these should be part of your investment process.
  2. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for 291's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
  3. 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!

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.

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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.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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