Shanghai Chicmax Cosmetic Co., Ltd.'s (HKG:2145) Intrinsic Value Is Potentially 64% Above Its Share Price

Simply Wall St.

Feb 03

AdvertisementKey Insights Shanghai Chicmax Cosmetic's estimated fair value is HK$108 based on 2 Stage Free Cash Flow to Equity Current share price of HK$65.95 suggests Shanghai Chicmax Cosmetic is ...

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(HKG:2145) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced  by taking the expected future cash flows and discounting them to their present value.  We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  It may sound complicated, but actually it is quite simple!  Remember though, that there are many ways to estimate a company's value, and a DCF is just one method.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. Trump has pledged to \"unleash\" American oil and gas and these 15 US stocks have developments that are poised to benefit. Crunching The Numbers   We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  To begin with, we have to get estimates of 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,  so we discount the value of these future cash flows to their estimated value in today's dollars:  10-year free cash flow (FCF) forecast  2026202720282029203020312032203320342035 Levered FCF (CN¥, Millions) CN¥1.08bCN¥1.35bCN¥1.56bCN¥1.74bCN¥1.89bCN¥2.03bCN¥2.15bCN¥2.25bCN¥2.35bCN¥2.44bGrowth Rate Estimate SourceAnalyst x2Analyst x2Est @ 15.24%Est @ 11.52%Est @ 8.91%Est @ 7.08%Est @ 5.80%Est @ 4.91%Est @ 4.28%Est @ 3.84% Present Value (CN¥, Millions) Discounted @ 7.5% CN¥1.0kCN¥1.2kCN¥1.3kCN¥1.3kCN¥1.3kCN¥1.3kCN¥1.3kCN¥1.3kCN¥1.2kCN¥1.2k(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥12b The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  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 (2.8%) 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 7.5%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = CN¥2.4b× (1 + 2.8%) ÷ (7.5%– 2.8%) = CN¥54bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥54b÷ ( 1 + 7.5%)10= CN¥26b 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¥38b.  In the final step we divide the equity value by the number of shares outstanding.  Relative to the current share price of HK$66.0, the company appears   quite undervalued    at a 39% discount to where the stock price trades currently.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. SEHK:2145 Discounted Cash Flow February 3rd 2026  The Assumptions  The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows.  If you don't agree with these result, have a go at the calculation yourself and play with the 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 Shanghai Chicmax Cosmetic 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 7.5%, which is based on a levered beta of 0.892. 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 Shanghai Chicmax Cosmetic SWOT Analysis for Shanghai Chicmax CosmeticStrength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Dividends are covered by earnings and cash flows.  Dividend information for 2145. Weakness Earnings growth over the past year is below its 5-year average. Dividend is low compared to the top 25% of dividend payers in the Personal Products market.  What are analysts forecasting for 2145? Opportunity Annual earnings are forecast to grow faster than the Hong Kong market. Good value based on P/E ratio and estimated fair value.  Significant insider buying over the past 3 months.Threat No apparent threats visible for 2145. Moving On:  Whilst important, the DCF calculation  shouldn't be the only metric you look at when researching a company.  DCF models are not the be-all and end-all of investment valuation.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Can we work out why the company is trading at a discount to intrinsic value?   For Shanghai Chicmax Cosmetic, we've put together three  further  items  you should look at:   Risks: Consider for instance, the ever-present spectre of investment risk.   We've identified 1 warning sign  with Shanghai Chicmax Cosmetic , and understanding this should be part of your investment process.   Future Earnings: How does 2145'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. 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"}}}