A Look At The Fair Value Of China Datang Corporation Renewable Power Co., Limited (HKG:1798)

Simply Wall St.

Jan 24

AdvertisementKey Insights The projected fair value for China Datang Corporation Renewable Power is HK$1.87 based on Dividend Discount Model With HK$2.08 share price, China Datang Corporation ...

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We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  Believe it or not, it's not too difficult to follow, as you'll see from our example!  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.  If you still have some burning questions about this type of valuation, take a look at 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   We have to calculate the value of China Datang Corporation Renewable Power slightly differently to other stocks because it is a renewable energy company.  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 (2.8%). The expected dividend per share is then discounted to today's value at a cost of equity of 8.9%.  Relative to the current share price of HK$2.1, the company appears   around fair value    at the time of writing.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)= CN¥0.1 / (8.9% – 2.8%)= HK$1.9SEHK:1798 Discounted Cash Flow January 23rd 2026  The 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 Datang Corporation Renewable Power 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 8.9%, which is based on a levered beta of 1.163. 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 Datang Corporation Renewable Power SWOT Analysis for China Datang Corporation Renewable PowerStrength  No major strengths identified for 1798.Weakness Earnings declined over the past year. Interest payments on debt are not well covered.Dividend is low compared to the top 25% of dividend payers in the Renewable Energy market.Opportunity Annual earnings are forecast to grow faster than the Hong Kong market. Good value based on P/E ratio compared to estimated Fair P/E ratio. Have 1798 insiders been buying lately? ThreatDebt is not well covered by operating cash flow. Paying a dividend but company has no free cash flows. Revenue is forecast to grow slower than 20% per year. Is 1798 well equipped to handle threats?  Moving On:  Whilst important, the DCF calculation  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.  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 China Datang Corporation Renewable Power, we've put together three  additional  items  you should look at:   Risks: Every company has them, and we've spotted   2 warning signs for China Datang Corporation Renewable Power   (of which 1 shouldn't be ignored!) you should know about.   Future Earnings: How does 1798'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: 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":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}