A Look At The Intrinsic Value Of Thai Beverage Public Company Limited (SGX:Y92)
The projected fair value for Thai Beverage is S$0.52 based on 2 Stage Free Cash Flow to Equity
With S$0.47 share price, Thai Beverage appears to be trading close to its estimated fair value
The ฿0.63 analyst price target for Y92 is 21% more than our estimate of fair value
Does the June share price for Thai Beverage Public Company Limited (SGX:Y92) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
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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. 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.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF (THB, Millions)
฿44.2b
฿39.1b
฿40.9b
฿22.4b
฿19.8b
฿18.4b
฿17.6b
฿17.1b
฿17.0b
฿17.0b
Growth Rate Estimate Source
Analyst x4
Analyst x4
Analyst x4
Analyst x1
Est @ -11.47%
Est @ -7.32%
Est @ -4.42%
Est @ -2.38%
Est @ -0.96%
Est @ 0.04%
Present Value (THB, Millions) Discounted @ 7.9%
฿41.0k
฿33.6k
฿32.5k
฿16.5k
฿13.6k
฿11.7k
฿10.3k
฿9.3k
฿8.6k
฿8.0k
("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = ฿185b
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. 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 (2.4%) 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 7.9%.
Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = ฿17b× (1 + 2.4%) ÷ (7.9%– 2.4%) = ฿315b
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= ฿315b÷ ( 1 + 7.9%)10= ฿147b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is ฿332b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of S$0.5, the company appears about fair value at a 10% discount to where the stock price trades currently. 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.
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 Thai Beverage 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 7.9%, which is based on a levered beta of 0.856. 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 Thai Beverage
Strength
Debt is well covered by earnings.
Dividends are covered by earnings and cash flows.
Weakness
Earnings growth over the past year underperformed the Beverage industry.
Dividend is low compared to the top 25% of dividend payers in the Beverage market.
Opportunity
Annual revenue is forecast to grow faster than the Singaporean market.
Current share price is below our estimate of fair value.
Threat
Debt is not well covered by operating cash flow.
Annual earnings are forecast to grow slower than the Singaporean market.
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for 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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Thai Beverage, there are three fundamental elements you should consider:
Risks: We feel that you should assess the 2 warning signs for Thai Beverage (1 is potentially serious!) we've flagged before making an investment in the company.
Future Earnings: How does Y92'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 Singaporean stock every day, so if you want to find the intrinsic value of any other stock just search here.
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.
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