Stock Valuation

Estimating the Intrinsic Value, Return on Investment and Margin of Safety of Alibaba based on Discounted Earnings Model.

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Alibaba Discounted Earnings Model - Intrinsic Value, Return on Investment, Margin of Safety

Summary

This article looks at the valuation of Alibaba shares trading on the Stock Exchange of Hong Kong (Ticker: BABA-SW (9988.HK). The Discounted Earnings Model is used to estimate the share’s Intrinsic Value, Expected Return on Investment, and its Margin of Safety.

Introduction

The past year has been a tumultuous one for Alibaba. Starting with the suspension of Ant Financial’s 37 billion US$ IPO in November 2020, the company has just been hit with one bad news after another. In April this year, China’s Antitrust Regulator slapped Alibaba with a record breaking fine of 18.4 billion RMB for abusing its monopoly position in the e-commerce industry. In recent days, there have been reports that the Chinese Government is considering breaking up Ant Financial’s Alipay online payment app and splitting the loan business into a separate app.All the bad news has culminated in the sharp decline of Alibaba’s share price, which has fallen 48% from its 52 week high of 309.40HK$.

Such a massive correction in one of the best e-commerce companies in the world has certainly attracted the attention of many in the investment community. Legendary value investors Charlie Munger and Monish Pabrai have reportedly invested in Alibaba shares earlier this year. The time is right to have a closer look at the current valuation of Alibaba shares trading on the Stock Exchange of Hong Kong. Discounted Earnings Model is one of many methods for valuing stocks. The procedure is similar to the Discounted Cash Flow model, with the free cash flow being substituted with earnings or net income. One advantage of using this method is that earnings data are easily available from the company’s financial reports.
This article describes the use of the Discounted Earnings Model to determine the Intrinsic Value, Expected Return on Investment, and Margin of Safety of Alibaba shares trading on the Stock Exchange of Hong Kong (Ticker: BABA-SW (9988.HK).

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I purchased H-shares of the China Construction Bank (CCB) for my Dividend Income Portfolio. Here are the reasons why.

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Summary

In this article, I take a deep look at the stock valuation of the H-share of China Construction Bank (CCB 0939.HK) through the eyes of a Dividend Investor. Dividend Cash Flow analysis was used to evaluate the H-share of China Construction Bank. The Dividend Discount Model was employed to estimate its Intrinsic Value, Expected Return on Investment, and its Margin of Safety.
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Introduction

Following my previous article on the H-shares of the Bank of China (BOC), I also recently purchased the H-shares of the China Construction Bank (CCB). Here, I would like to discuss the rationale behind the investment decision to add China Construction Bank to my dividend income portfolio.

As my investment philosophy evolves over time, I find myself preferring stocks which provide attractive dividend income streams at inexpensive valuations. I used the following set of questions to help determine the investment worthiness of China Construction Bank:

  • Does the stock have a good long-term dividend track record?
  • Does the stock currently offer an attractive dividend yield (above the average yield of Hang Seng Index constituents)?
  • Is the current payout ratio of China Construction Bank sustainable?
  • What is the expected return on investment of China Construction Bank over a 10-year period? Majority of recommendations by financial analysts tend to have a 12 month time horizon. I find the 10-year period to be more suitable for a dividend income stock, especially one which is part of a retirement dividend income portfolio.
  • Does the stock price offer a sufficient margin of safety to its intrinsic value?
  • Are the H-shares of China Construction Bank (CCB) considered attractive when measured against the traditional value investing yardsticks? A good dividend stock with inexpensive valuation will minimize the risk of capital impairment and increase the probability of capital gains.
  • Does the stock have a history of consistent earnings growth?

With the above questions in mind, let us delve into the analysis of the stock to find the answers.

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I purchased H-shares of the Bank of China (BOC) for my Dividend Income Portfolio. Here are the reasons why.

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Bank of China Logo

Summary

In this article, I examine the stock valuation of the H-share of Bank of China (BOC 3988.HK) through the eyes of a Dividend Investor. Dividend Cash Flow analysis was used to evaluate Bank of China’s H-share (BOC 3988.HK). The Dividend Discount Model was employed to calculate the H-share Intrinsic Value, Expected Return on Investment, and its Margin of Safety.
Continue reading to learn more.

Introduction

Following my previous article on the H-shares of the Industrial and Commercial Bank of China (ICBC), I also recently purchased the H-shares of the Bank of China (BOC). Here, I would like to discuss the rationale behind the investment decision to add the H-shares of BOC for my dividend income portfolio.

Over the years, my approach to investing has evolved from the speculative growth and momentum style to a more conservative method, preferring stocks which provide attractive dividend income streams at inexpensive valuations. I used the following set of questions to help determine the investment worthiness of the H-share of the Bank of China (BOC):

  • Does the Bank of China (BOC) have a good long-term dividend track record?
  • Does the Bank of China (BOC) currently offer an attractive dividend yield (above the average yield of Hang Seng Index constituents)?
  • Is the current payout ratio of the Bank of China (BOC) sustainable?
  • What is the expected return on investment of the Bank of China (BOC) over a 10-year period? Majority of recommendations by financial analysts tend to have a 12 month time horizon. I find the 10-year period to be more suitable for a dividend income stock, especially one which is part of a retirement dividend income portfolio.
  • Does the H-share of the Bank of China (BOC) offer a sufficient margin of safety to the intrinsic value of the stock?
  • Are the H-shares of the Bank of China (BOC) considered attractive when measured against the traditional value investing yardsticks? A good dividend stock with inexpensive valuation will minimize the risk of capital impairment and increase the probability of capital gains.

With the above questions in mind, let us delve into the analysis of the Bank of China (BOC) to find the answers.

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I purchased H-shares of the Industrial and Commercial Bank of China (ICBC) for my Dividend Income Portfolio. Here are the reasons why.

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ICBC Logo

Summary

In this article, I examine the stock valuation of the H-share of the Industrial and Commercial Bank of China (ICBC 1398.HK) through the eyes of a Dividend Investor. Dividend Cash Flow analysis was used to evaluate ICBC’s H-share (1398.HK). The Dividend Discount Model was employed to calculate the H-share Intrinsic Value, Expected Return on Investment, and its Margin of Safety.
Continue reading to learn more.

Introduction

In a previous article, I looked at certain China H-shares as good investment candidates for dividend income. Since then, I have invested in some of the same companies discussed in that article, including the H-share of the Industrial and Commercial Bank of China (ICBC). Here, I would like to discuss the rationale behind the investment decision to purchase the H-shares of ICBC for my dividend income portfolio.

Over the years, my approach to investing has evolved from the speculative growth and momentum style to a more conservative method, preferring stocks that provide attractive dividend income streams at inexpensive valuations. I used the following set of questions to help me determine the investment worthiness of the H-share of ICBC:

  • Does ICBC have a good long-term dividend track record?
  • Does ICBC currently offer an attractive dividend yield (above the average yield of Hang Seng Index constituents)?
  • Is the current payout ratio of ICBC sustainable?
  • What is the expected return on investment of ICBC over a 10-year period? The majority of recommendations by financial analysts tend to have a 12-month time horizon. I find the 10-year period to be more suitable for a dividend income stock, especially one which is part of a retirement dividend income portfolio.
  • Does the H-share of ICBC offer a sufficient margin of safety to the intrinsic value of the stock?
  • Are the H-shares of ICBC considered inexpensive when measured according to traditional value investing yardsticks? A good dividend stock with an inexpensive valuation will minimize the risk of capital impairment and increase the probability of capital gains.

With the above questions in mind, let us delve into the analysis of ICBC H-share to find the answers.

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