Uni-Trend Technology (China) Co., Ltd. Valuation Report

Prepared by: Alex Lew, CFA

3 min readSep 1, 2024

Date: 1st September 2024

Executive Summary

This report provides a comprehensive valuation of Uni-Trend Technology (China) Co., Ltd., using the Discounted Cash Flow (DCF) method, incorporating the latest financial data and detailed scenario analysis. The intrinsic value is estimated at CNY 10.28 per share, indicating a significant potential downside of approximately 67% from the current market price of CNY 31.54. This suggests the stock may be overvalued at present.

1. Company Overview

Uni-Trend Technology specializes in advanced measurement tools and IoT-enabled devices. With a solid market presence in China and recent expansions into the U.S. and German markets, the company is strategically positioned to leverage increasing global demand in the electronic instruments sector.

2. Financial Performance (2019–2023)

Revenue and Net Income:

2019:
Revenue: CNY 464.24 million
Net Income: CNY 32.09 million
2020:
Revenue: CNY 540.04 million
Net Income: CNY 53.27 million
2022:
Revenue: CNY 885.56 million
Net Income: CNY 146.99 million
2023 (for the nine months ended September 30):
Revenue: CNY 783.52 million
Net Income: CNY 131.82 million

EBITDA Margins:

2019: 10%
2020: 12%
2021: 14%
2022: 15%
2023: 18.95%

3. Cash Flow Analysis

Free Cash Flow Calculation (2024):

2024 Projected Revenue: CNY 1,211.84 million (16% growth from 2023 estimate)
2024 Projected EBITDA: CNY 205.61 million (EBITDA margin of 17%)
2024 CapEx: CNY 121.18 million (10% of revenue)
Change in Working Capital: -CNY 6.06 million (5% improvement)
Taxes: CNY 51.40 million (25% tax rate)
2024 Free Cash Flow: CNY 39.09 million

Discount Rate (WACC)

Cost of Equity: 11%
Cost of Debt: 5%
Debt/Equity Ratio: 40% Debt, 60% Equity
WACC: 8.8%

Terminal Value Calculation

Terminal Growth Rate: 2.5%
Terminal Value (2026): CNY 1,332.55 million
Present Value of Terminal Value: CNY 1,013.88 million (discounted at 8.8%)

Enterprise Value Calculation

Present Value of Free Cash Flows (2024–2026): CNY 156.26 million
Present Value of Terminal Value: CNY 1,013.88 million
Enterprise Value (EV): CNY 1,170.14 million

Equity Value Calculation

Net Debt: CNY 25.30 million
Equity Value: CNY 1,144.84 million
Shares Outstanding: 111,324,609 shares
Intrinsic Value per Share: CNY 10.28

Valuation Methodology

The valuation of Uni-Trend Technology was conducted using the Discounted Cash Flow (DCF) method. This approach involved projecting the company’s future revenue growth and EBITDA margins over a three-year period, based on an assumed annual growth rate and incremental improvements in operational efficiency. Key financial inputs, such as capital expenditures (CapEx), working capital changes, and tax obligations, were factored into the calculation of free cash flows (FCF) for each forecasted year. The Weighted Average Cost of Capital (WACC) was determined by combining the cost of equity and cost of debt, reflecting the company’s capital structure and risk profile. The terminal value, representing the company’s value beyond the forecast period, was calculated using a conservative growth rate and discounted back to present value. Finally, the enterprise value was derived by summing the present value of future cash flows and terminal value, and the equity value was calculated by adjusting for net debt, leading to the intrinsic value per share. This method provided a comprehensive and quantitative assessment of the company’s financial worth.

Conclusion

The DCF analysis indicates an intrinsic value of CNY 10.28 per share, suggesting that Uni-Trend Technology is significantly overvalued at its current market price of CNY 31.54. A HOLD or SELL recommendation is advised, particularly if cash flow management issues persist or expected strategic initiatives do not materialize.