Estimating The Intrinsic Value Of Hai Leck Holdings Limited (SGX:BLH)

Simply Wall St
·5 min read

Does the February share price for Hai Leck Holdings Limited (SGX:BLH) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. Our analysis will employ 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.

Check out our latest analysis for Hai Leck Holdings

The Calculation

As Hai Leck Holdings operates in the energy services sector, we need to calculate the intrinsic value slightly differently. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used. 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 (1.9%). The expected dividend per share is then discounted to today's value at a cost of equity of 13%. Relative to the current share price of S$0.5, the company appears about fair value at a 20% 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)

= S$0.07 / (13% – 1.9%)

= S$0.6

dcf
dcf

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 Hai Leck Holdings 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 13%, which is based on a levered beta of 1.917. 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.

SWOT Analysis for Hai Leck Holdings

Strength

  • Currently debt free.

  • Dividend is in the top 25% of dividend payers in the market.

Weakness

  • Earnings declined over the past year.

Opportunity

  • Current share price is below our estimate of fair value.

  • Lack of analyst coverage makes it difficult to determine BLH's earnings prospects.

Threat

  • Dividends are not covered by earnings and cashflows.

Next Steps:

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. The DCF model is not a perfect stock valuation tool. 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. For Hai Leck Holdings, we've put together three additional elements you should further research:

  1. Risks: Case in point, we've spotted 4 warning signs for Hai Leck Holdings you should be aware of, and 2 of them shouldn't be ignored.

  2. 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!

  3. Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SGX every day. If you want to find the calculation for other stocks 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

  • Up next
  • Up next
  • Up next
  • Up next

Latest Stories

  • Stock market today: Tech stocks smoked, Nvidia tumbles 9% to cap worst week of the year

    A measure of calm was returning after Israel's retaliatory strike on Iran spooked the market and spurred a rush to safe havens such as gold.

  • Rebel Moon Part 2 review: A slow-mo sci-fi slog

    Rebel Moon: Part 2 - The Scargiver is an empty feast, a relentless onslaught of explosions, sci-fi tropes and meaningless exposition that amounts to nothing.

  • Friday’s White House briefing was unexpected in multiple ways

    From Israel and Iran to the man who set himself on fire outside the Trump trial, Press Secretary Karine Jean-Pierre had little to say

  • Trump's hush money trial, as seen through courtroom sketches

    Since it’s not being televised — and news photographers are only permitted in for 45 seconds at the start of each day — the only other images from inside the courtroom are portraits being done by sketch artists.

  • Martha Stewart uses this fan-favorite Mario Badescu collagen mask to firm and tighten skin — and it's down to $14

    Reviewers love the mask, too: 'My skin is soft, even dewy ... it's really unbelievable!'

  • Man who set himself on fire outside Trump trial identified as ‘researcher’ who posted conspiracy-laden manifesto moments earlier

    The NYPD identified the man as Maxwell Azzarello, 37, who is now in critical condition in Cornell burns unit. He has a long history of posting conspiracy theories and railing against the rich and powerful

  • Max Azzarello posted anti-establishment conspiracies online. He set himself on fire outside Trump’s trial moments later

    The man was later identified by the New York Police Department as 37-year-old Max Azzarello from St Augustine Florida

  • Aparicio and revamped Atletico Ottawa looking to top Canadian Premier League table

    On his third stop in the Canadian Premier League, Manny Aparicio is closer to home and, hopefully, another title. The 28-year-old midfielder, born in Buenos Aires and raised in Toronto, joined Atletico Ottawa in the off-season from Pacific FC — part of a strong Ottawa recruiting class. "We have a lot of positions where no one can really feel relax and take their starting spot for granted, which is good to see," said Aparicio. "It's gelling well together," he added. "I don't really see any egos o

  • Mexican presidential frontrunner would focus on renewable energy, water

    Mexican presidential candidate Claudia Sheinbaum on Friday said that if elected, her administration would focus on water management and renewable energy as part of a plan to boost the country's sustainability. Speaking at a banking event on the country's Pacific coast, Sheinbaum added that she would also focus on developing areas for nearshoring, investing in industrial parks and boosting the country's freight and passenger train networks. The candidate for the ruling MORENA party, Sheinbaum is strongly favored to win the June elections and her campaign has centered on broadly continuing the policies of current President Andres Manuel Lopez Obrador.

  • UPDATE 1-Accident stops sugar loading at Brazil's Recife port, says company

    An accident with a shiploader at the sugar terminal in the Recife port in Northeastern Brazil suspended loading operations at the site, according to a note from shipping company Williams Brazil late on Thursday. The company said the shiploader collapsed and a part of the machine fell inside the cargo hold of a vessel that was docked at the port to load raw sugar. The press service at the Recife port confirmed the accident, adding that nobody was hurt.

  • Cauldron atop the Acropolis lit with Paris 2024 Olympic torch as relay arrives in Greek capital

    Retired Greek 400-meter hurdles champion Periklis Iakovakis lit a cauldron with the Paris 2024 Olympic flame in front of the Parthenon atop the Acropolis in rainy Athens on Friday. The flame reached the Greek capital as part of the torch relay following a ceremony in ancient Olympia on Tuesday. (AP video by Michael Varaklas)

  • Salman Rushdie's 'Knife' reflects author's will to live

    Salman Rushdie’s "Knife" details the author's recovery after being stabbed and left blind in his right eye. The AP's Hillel Italie says the book shows that the 2022 attack “did not crush him. It didn't take his spirit away.” (April 19) (AP production by Gary Gerard Hamilton)

  • Mueller Water Products Stock Earns Relative Strength Rating Upgrade; Hits Key Benchmark

    A Relative Strength Rating upgrade for Mueller Water Products shows improving technical performance.

  • RCMP say Back Bay wharf fires were arson, seeking suspect

    RCMP have now labelled three separate fires that happened at the wharf in Back Bay, near St, George in southwestern New Brunswick, as arson. Members of the Eastern Charlotte Fire Department responded to a call at 3:30 a.m. Thursday about a vehicle on fire at the wharf, but when they arrived discovered that a commercial fishing boat and building were also on fire.The fire in the building, at 24 Back Bay Loop Rd., was extinguished before it was damaged, said Justin Johnston, fire chief for Eastern

  • Centre Wellington inches toward transit solution

    CENTRE WELLINGTON – Councillors hope a new grant application will bring the township one step closer to a "made-in-Centre Wellington transit solution." Centre Wellington council has directed staff to apply for a grant to fund a Transit Service Study reviewing existing mobility options, projecting future transit service demand, assessing service alternatives and developing a recommended strategy and implementation plan for transit service. Approved during a council meeting Monday afternoon, staff

  • Ford CEO Jim Farley teases a mystery Mustang

    Ford is celebrating 60 years of Mustang with a series of events, and Farley's post suggests that a new variant is in the works.

  • Seeking 'the right side of history,' Speaker Mike Johnson risks his job to deliver aid to Ukraine

    WASHINGTON (AP) — Staring down a decision so consequential it could alter the course of history -- but also end his own career -- House Speaker Mike Johnson prayed for guidance. A conservative Christian, the speaker wrestled over whether to lead the House in approving $95 billion in desperately needed war-time aid for Ukraine, Israel and other U.S. allies, which many in his own Republican majority opposed — some so strongly they would try to boot him from office. Or, he could do nothing, halting

  • AI Chip Leader Arm Stock Plunges 17% In Today's Stock Market, Is It A Buy Right Now?

    AI chip stock Arm Holdings surged more than 152% past a recent buy point. Following that advance, is Arm stock a buy in today's stock market?

  • Bank of America stock rises on Wolfe Research upgrade

    Shares of Bank of America (BAC) have received an upgrade from analysts at Wolfe Research. The firm has lifted the stock's rating to Outperform from Peer Perform, citing increased clarity surrounding the bank's net interest income prospects and an attractive valuation compared to competitors. Yahoo Finance's Julie Hyman and Madison Mills break down the details. For more expert insight and the latest market action, click here to watch this full episode of Market Domination. This post was written by Angel Smith

  • UnitedHealth CEO to testify before US House panel on cyberattack at tech unit

    "We look forward to learning more on what happened in the lead up to, and in the weeks following, the attack," said Cathy Rodgers, energy and commerce committee chair, and Morgan Griffith, chair of the subcommittee on oversight and investigations. "This hearing will help inform the committee as we continue working toward solutions that protect the health and well-being of all Americans."