An Intrinsic Calculation For Jiangxi Copper Company Limited (HKG:358) Suggests It's 46% Undervalued

Simply Wall St.

Oct 29

AdvertisementKey Insights The projected fair value for Jiangxi Copper is HK$61.31 based on 2 Stage Free Cash Flow to Equity Jiangxi Copper is estimated to be 46% undervalued based on current share ...

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One way to achieve this is by employing the Discounted Cash Flow (DCF) model.  There's really not all that much to it, even though it might appear quite complex.  We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws.  Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Step By Step Through 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.  To start off with, we need to estimate the next ten years of cash flows.   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) forecast  2026202720282029203020312032203320342035 Levered FCF (CN¥, Millions) CN¥6.94bCN¥9.73bCN¥11.7bCN¥13.4bCN¥14.9bCN¥16.2bCN¥17.3bCN¥18.2bCN¥19.1bCN¥19.9bGrowth Rate Estimate SourceAnalyst x1Analyst x1Est @ 19.95%Est @ 14.77%Est @ 11.15%Est @ 8.61%Est @ 6.83%Est @ 5.59%Est @ 4.72%Est @ 4.11% Present Value (CN¥, Millions) Discounted @ 9.9% CN¥6.3kCN¥8.1kCN¥8.8kCN¥9.2kCN¥9.3kCN¥9.2kCN¥8.9kCN¥8.6kCN¥8.1kCN¥7.7k(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥84b 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.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.7%. We discount the terminal cash flows to today's value at a cost of equity of 9.9%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = CN¥20b× (1 + 2.7%) ÷ (9.9%– 2.7%) = CN¥282bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥282b÷ ( 1 + 9.9%)10= CN¥109b 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¥193b.  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$32.8, the company appears   quite good value    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:358 Discounted Cash Flow October 29th 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 Jiangxi Copper 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 9.9%, which is based on a levered beta of 1.380. 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 Jiangxi Copper SWOT Analysis for Jiangxi CopperStrength Debt is well covered by earnings. Dividends are covered by earnings and cash flows.  Dividend information for 358. Weakness Earnings growth over the past year underperformed the Metals and Mining industry. Dividend is low compared to the top 25% of dividend payers in the Metals and Mining market.Opportunity Annual earnings are forecast to grow for the next 3 years. Good value based on P/E ratio and estimated fair value. ThreatDebt is not well covered by operating cash flow.  Annual earnings are forecast to grow slower than the Hong Kong market. Is 358 well equipped to handle threats?  Moving On:  Although the valuation of a company is important, it  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.  Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/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.   What is the reason for the share price sitting below the intrinsic value?   For Jiangxi Copper, there are three  fundamental  aspects  you should consider:  Financial Health: Does 358 have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does 358'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 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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SEHK every day. If you want to find the calculation for other stocks 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. 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"}}}