Key Insights
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Using the 2 Stage Free Cash Flow to Equity, MYP fair value estimate is S$0.099
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Current share price of S$0.083 suggests MYP is potentially trading close to its fair value
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The average premium for MYP's competitors is currently 118%
Does the September share price for MYP Ltd. ( SGX:F86 ) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. It may sound complicated, but actually it is quite simple!
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 .
Step By Step Through The Calculation
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. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:
10-year free cash flow (FCF) estimate
| 2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
2034 |
2035 |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Levered FCF (SGD, Millions) |
S$12.8m |
S$13.3m |
S$13.8m |
S$14.2m |
S$14.6m |
S$15.0m |
S$15.4m |
S$15.8m |
S$16.2m |
S$16.6m |
| Growth Rate Estimate Source |
Est @ 4.61% |
Est @ 3.95% |
Est @ 3.49% |
Est @ 3.17% |
Est @ 2.94% |
Est @ 2.78% |
Est @ 2.67% |
Est @ 2.59% |
Est @ 2.54% |
Est @ 2.50% |
| Present Value (SGD, Millions) Discounted @ 11% |
S$11.6 |
S$10.8 |
S$10.1 |
S$9.4 |
S$8.7 |
S$8.1 |
S$7.5 |
S$7.0 |
S$6.4 |
S$6.0 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF)= S$86m
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 (2.4%) 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 11%.
Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = S$17m× (1 + 2.4%) ÷ (11%– 2.4%) = S$202m
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= S$202m÷ ( 1 + 11%)10= S$72m
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 S$158m. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of S$0.08, the company appears about fair value at a 16% 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.
The Assumptions
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual 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 MYP 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 11%, which is based on a levered beta of 2.000. 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.
Check out our latest analysis for MYP
SWOT Analysis for MYP
Strength
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No major strengths identified for F86.
Weakness
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Interest payments on debt are not well covered.
Opportunity
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Has sufficient cash runway for more than 3 years based on current free cash flows.
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Current share price is below our estimate of fair value.
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Lack of analyst coverage makes it difficult to determine F86's earnings prospects.
Threat
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Debt is not well covered by operating cash flow.
Moving On:
Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. 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. For MYP, we've put together three pertinent items you should further research:
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Risks: Every company has them, and we've spotted 1 warning sign for MYP you should know about.
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Other High Quality Alternatives: 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!
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Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook!
PS. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock just search here .
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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.
