<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> The projected fair value for China Gas Holdings is HK$15.37 based on 2 Stage Free Cash Flow to Equity </li> <li> China Gas Holdings is estimated to be 49% undervalued based on current share price of HK$7.80 </li> <li> Our fair value estimate is 89% higher than China Gas Holdings' analyst price target of HK$8.12 </li> </ul><p>How far off is China Gas Holdings Limited (HKG:384) 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.  We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  Don't get put off by the jargon, the math behind it is actually quite straightforward.</p><p> Remember though, that there are many ways to estimate a company's value, and a DCF is just one method.  For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. </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 $10bn in marketcap - there is still time to get in early.</p><h2> What's The Estimated Valuation? </h2> <p> We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  In the first stage we need to estimate the cash flows to the business over the next ten years.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.  </p><p> A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  so we need to discount the sum of these future cash flows to arrive at a present value estimate: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (HK$, Millions) </strong></td><td>HK$3.22b</td><td>HK$4.94b</td><td>HK$4.89b</td><td>HK$4.90b</td><td>HK$4.95b</td><td>HK$5.03b</td><td>HK$5.12b</td><td>HK$5.24b</td><td>HK$5.36b</td><td>HK$5.50b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x3</td><td>Analyst x4</td><td>Analyst x3</td><td>Est @ 0.23%</td><td>Est @ 1.00%</td><td>Est @ 1.55%</td><td>Est @ 1.93%</td><td>Est @ 2.20%</td><td>Est @ 2.38%</td><td>Est @ 2.51%</td></tr><tr><td><strong> Present Value (HK$, Millions) Discounted @ 7.9% </strong></td><td>HK$3.0k</td><td>HK$4.2k</td><td>HK$3.9k</td><td>HK$3.6k</td><td>HK$3.4k</td><td>HK$3.2k</td><td>HK$3.0k</td><td>HK$2.8k</td><td>HK$2.7k</td><td>HK$2.6k</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> = HK$32b</p><p> 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 (2.8%) 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%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = HK$5.5b× (1 + 2.8%) ÷ (7.9%– 2.8%) = HK$110b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= HK$110b÷ ( 1 + 7.9%)<sup>10</sup>= HK$51b</p><p> The total value, or equity value, is then the sum of the present value of the future cash flows,  which in this case is HK$84b.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Relative to the current share price of HK$7.8, the company appears   quite undervalued    at a 49% 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. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/2488870-dcf-1-dark-2/1769489803615?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/2488870-dcf-1-dark-2/1769489803615"/><figcaption>SEHK:384 Discounted Cash Flow January 27th 2026</figcaption></figure> <h2> Important Assumptions </h2><p> Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 China Gas 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 7.9%, which is based on a levered beta of 1.004. 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> See our latest analysis for China Gas Holdings </span></p><h3>SWOT Analysis for China Gas Holdings</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is well covered by earnings.</li></ul> <ul>Balance sheet summary for 384.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Earnings declined over the past year.</li></ul> <ul><li>Dividend is low compared to the top 25% of dividend payers in the Gas Utilities market.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual earnings are forecast to grow for the next 3 years.</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>Debt is not well covered by operating cash flow.</li></ul> <ul><li>Dividends are not covered by earnings and cashflows.</li></ul> <ul><li> Annual earnings are forecast to grow slower than the Hong Kong market.</li></ul> <ul>Is 384 well equipped to handle threats?</ul> </div></div><h2> Moving On: </h2><p> 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.  Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   What is the reason for the share price sitting below the intrinsic value?   For China Gas Holdings, we've put together three  further  items  you should assess: </p><ol> <li> <strong>Risks</strong>: Consider for instance, the ever-present spectre of investment risk.  <strong> We've identified 2 warning signs </strong> with China Gas Holdings , and understanding them should be part of your investment process. </li> <li><strong>Future Earnings</strong>: How does 384'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 Solid Businesses</strong>: 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! </li> </ol><p>PS. Simply Wall St updates its DCF calculation for every Hong Kong stock every day, so if you want to find the intrinsic value of any other stock just search here.</p></div></div>

00384

<p>China Gas Holdings Limited (HKG:384) is estimated to be 49% undervalued, with a projected fair value of HK$15.37 compared to its current share price of HK$7.80. The analysis uses a two-stage Discounted Cash Flow (DCF) model, forecasting future cash flows and discounting them to present value. The total equity value is calculated at HK$84 billion, indicating significant undervaluation relative to the analyst price target of HK$8.12. However, the DCF model's assumptions can greatly affect the valuation, and it is recommended to review the calculations independently.</p>

Is There An Opportunity With China Gas Holdings Limited's (HKG:384) 49% Undervaluation?