China Risun Group Limited's (HKG:1907) Intrinsic Value Is Potentially 35% Above Its Share Price

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Sep 24

AdvertisementKey Insights Using the Dividend Discount Model, China Risun Group fair value estimate is HK$3.20 China Risun Group's HK$2.36 share price signals that it might be 26% undervalued Peers...

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Today, we will estimate the stock's intrinsic value  by taking the expected future cash flows and discounting them to today's value.  This will be done using the Discounted Cash Flow (DCF) model.  There's really not all that much to it, even though it might appear quite complex.  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. 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 Method   As China Risun Group operates in the chemicals 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.  This often underestimates the value of a stock, but it can still be good as a comparison to competitors.  The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a company's Gross Domestic Product (GDP). In this case we used the 5-year average of the 10-year government bond yield (2.7%). The expected dividend per share is then discounted to today's value at a cost of equity of 8.1%.  Compared to the current share price of HK$2.4, the company appears   a touch undervalued    at a 26% 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. Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)= CN¥0.2 / (8.1% – 2.7%)= HK$3.2SEHK:1907 Discounted Cash Flow September 24th 2025  Important 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 China Risun 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 8.1%, which is based on a levered beta of 1.022. 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.   See our latest analysis for China Risun Group SWOT Analysis for China Risun GroupStrength  No major strengths identified for 1907.WeaknessInterest payments on debt are not well covered.Dividend is low compared to the top 25% of dividend payers in the Chemicals market.Opportunity Expected to breakeven next year. Has sufficient cash runway for more than 3 years based on current free cash flows. Good value based on P/S ratio and estimated fair value. Have 1907 insiders been buying lately? ThreatDebt is not well covered by operating cash flow. Is 1907 well equipped to handle threats?  Looking Ahead:  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.  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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.   Why is the intrinsic value higher than the current share price?   For China Risun Group, there are three  important  elements  you should assess:   Risks: Case in point, we've spotted   1 warning sign for China Risun Group  you should be aware of.   Future Earnings: How does 1907's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. 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.New: AI Stock Screener & AlertsOur new AI Stock Screener scans the market every day to uncover opportunities.• Dividend Powerhouses (3%+ Yield)• Undervalued Small Caps with Insider Buying• High growth Tech and AI CompaniesOr build your own from over 50 metrics.Explore Now 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. 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":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}