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Calculating The Fair Value Of Smart-Core Holdings Limited (HKG:2166)

Simply Wall St · 6d ago

Key Insights

  • The projected fair value for Smart-Core Holdings is HK$2.02 based on Dividend Discount Model
  • With HK$2.19 share price, Smart-Core Holdings appears to be trading close to its estimated fair value
  • Industry average of 1,023% suggests Smart-Core Holdings' peers are currently trading at a higher premium to fair value

Does the January share price for Smart-Core Holdings Limited (HKG:2166) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. There's really not all that much to it, even though it might appear quite complex.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

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What's The Estimated Valuation?

We have to calculate the value of Smart-Core Holdings slightly differently to other stocks because it is a electronic company. In this approach dividends per share (DPS) are used, as free cash flow is difficult to estimate and often not reported by analysts. Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. We use the Gordon Growth Model, which assumes dividend will grow into perpetuity at a rate that can be sustained. The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.8%. We then discount this figure to today's value at a cost of equity of 9.3%. Relative to the current share price of HK$2.2, the company appears around fair value at the time of writing. 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.

Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)

= HK$0.1 / (9.3% – 2.8%)

= HK$2.0

dcf
SEHK:2166 Discounted Cash Flow January 5th 2026

Important Assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own 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 Smart-Core 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 9.3%, which is based on a levered beta of 1.263. 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 Smart-Core Holdings

SWOT Analysis for Smart-Core Holdings

Strength
  • Earnings growth over the past year exceeded the industry.
  • Debt is well covered by earnings.
Weakness
  • Dividend is low compared to the top 25% of dividend payers in the Electronic market.
  • Current share price is above our estimate of fair value.
Opportunity
  • 2166's financial characteristics indicate limited near-term opportunities for shareholders.
  • Lack of analyst coverage makes it difficult to determine 2166's earnings prospects.
Threat
  • Debt is not well covered by operating cash flow.
  • Paying a dividend but company has no free cash flows.

Looking Ahead:

Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Smart-Core Holdings, we've put together three pertinent factors you should explore:

  1. Risks: You should be aware of the 4 warning signs for Smart-Core Holdings (3 can't be ignored!) we've uncovered before considering an investment in the company.
  2. 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!
  3. 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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SEHK every day. If you want to find the calculation for other stocks just search here.