<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> The projected fair value for Tokyo Ohka Kogyo is JP¥6,994 based on 2 Stage Free Cash Flow to Equity </li> <li> Tokyo Ohka Kogyo's JP¥4,969 share price signals that it might be 29% undervalued </li> <li>  The JP¥4,863 analyst price target for 4186 is 30% less than our estimate of fair value </li> </ul><p>How far off is Tokyo Ohka Kogyo Co., Ltd. (TSE:4186) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced  by estimating the company's future cash flows and discounting them to their present value.  One way to achieve this is by employing 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.</p><p> 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.  If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. </p><p>AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.</p><h2> What's The Estimated Valuation? </h2> <p> 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 start off with, we need to estimate 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.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  so we need to discount the sum of these future cash flows to arrive at a present value estimate: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (¥, Millions) </strong></td><td>JP¥16.6b</td><td>JP¥17.9b</td><td>JP¥25.4b</td><td>JP¥31.4b</td><td>JP¥35.8b</td><td>JP¥39.3b</td><td>JP¥42.1b</td><td>JP¥44.2b</td><td>JP¥45.9b</td><td>JP¥47.1b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x4</td><td>Analyst x5</td><td>Analyst x2</td><td>Analyst x1</td><td>Est @ 13.90%</td><td>Est @ 9.88%</td><td>Est @ 7.07%</td><td>Est @ 5.11%</td><td>Est @ 3.73%</td><td>Est @ 2.77%</td></tr><tr><td><strong> Present Value (¥, Millions) Discounted @ 5.3% </strong></td><td>JP¥15.8k</td><td>JP¥16.1k</td><td>JP¥21.7k</td><td>JP¥25.5k</td><td>JP¥27.6k</td><td>JP¥28.8k</td><td>JP¥29.3k</td><td>JP¥29.2k</td><td>JP¥28.8k</td><td>JP¥28.1k</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = JP¥251b</p><p> The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 0.5%. We discount the terminal cash flows to today's value at a cost of equity of 5.3%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = JP¥47b× (1 + 0.5%) ÷ (5.3%– 0.5%) = JP¥987b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= JP¥987b÷ ( 1 + 5.3%)<sup>10</sup>= JP¥588b</p><p> 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 JP¥838b.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Relative to the current share price of JP¥5.0k, the company appears   a touch undervalued    at a 29% 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. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/880813-dcf-1-dark-2/1758752706704?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/880813-dcf-1-dark-2/1758752706704"/><figcaption>TSE:4186 Discounted Cash Flow September 24th 2025</figcaption></figure> <h2> Important Assumptions </h2><p> The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows.  You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them.  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 Tokyo Ohka Kogyo 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 5.3%, which is based on a levered beta of 0.915. 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. </p> <p><span> Check out our latest analysis for Tokyo Ohka Kogyo </span></p><h3>SWOT Analysis for Tokyo Ohka Kogyo</h3><div><div><p><strong>Strength</strong></p><ul><li>Earnings growth over the past year exceeded the industry.</li></ul> <ul><li>Debt is not viewed as a risk.</li></ul> <ul>Balance sheet summary for 4186.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Dividend is low compared to the top 25% of dividend payers in the Chemicals market.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual revenue is forecast to grow faster than the Japanese market.</li></ul> <ul><li>Trading below our estimate of fair value by more than 20%.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Dividends are not covered by cash flow.</li></ul> <ul><li> Annual earnings are forecast to grow slower than the Japanese market.</li></ul> <ul> See 4186's dividend history.</ul> </div></div><h2> Looking Ahead: </h2><p> Although the valuation of a company is important, it  is only one of many factors that you need to assess for 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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.   What is the reason for the share price sitting below the intrinsic value?   For Tokyo Ohka Kogyo, we've put together three  important  elements  you should further examine: </p><ol> <li><strong>Financial Health</strong>: Does 4186 have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.</li> <li><strong>Future Earnings</strong>: How does 4186'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.</li><li> <strong>Other High Quality Alternatives</strong>: 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! </li> </ol><p>PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the TSE every day. If you want to find the calculation for other stocks just search here.</p></div></div>

<p>Tokyo Ohka Kogyo Co., Ltd. (TSE:4186) is currently trading at JP¥4,969, which is 29% below its estimated fair value of JP¥6,994 based on a two-stage Discounted Cash Flow (DCF) analysis. Analysts have set a price target of JP¥4,863, indicating a 30% undervaluation compared to the fair value estimate. The DCF model suggests a total equity value of JP¥838 billion, leading to an intrinsic value per share that supports the notion of the stock being undervalued. However, the valuation is sensitive to assumptions regarding discount rates and future cash flows.</p>

Is Tokyo Ohka Kogyo Co., Ltd. (TSE:4186) Trading At A 29% Discount?