Valuation of the China Resource Beer Company Limited under the Risk Terms

Meng Xu

Master's thesis

Abstract:

The aim of this thesis is to estimate the probability distribution of market value of China Resource Beer Company Limited at the end of 2017 by two-stage Discount Cash Flow method. The thesis is divided into five chapters, the first chapter is introduction, we will introduce the aim and main structures of this thesis. The second chapter is theoretical part. In this chapter, we will introduce all the models and functions that will be used for practical part, at first, we will give a general description of company’s valuation, then financial ratio analysis and common size analysis will be introduced. For the estimation of sales revenues, we will introduce the sale prediction model and Monte Carlo Simulation, next we will give an introduction of DCF method, we assume company can do business from now to infinity, we need to predict all parameters which will be used by two-stage DCF method, therefore, we need to do financial plan, we will determine the forecast driver for financial plan, then give the standard of how to calculate weighted average cost of capital, finally, we will introduce the basic of sensitivity analysis of company. The third chapter is about analyzing the performance of China Resource Beer Company Limited. We will give an introduction about our company, then introduce the main competitors, use strategy analysis from external and internal side of company, next we will do financial analysis, which include common size analysis and financial ratio analysis, for the common size analysis, we will analysis key items in financial statement, for the financial ratio analysis, we will analysis company’s profitability, liquidity, activity, solvency from historical data. The fourth chapter is the most important part of thesis, we will apply the model and method we already introduced in Chapter 2, at first, we will regress out our sale revenues function by using regression model, then use Monte Carlo Simulation create 10,000 random scenarios to support predict the independent variables, next step is applying financial plan, calculate cost of capital, return on invested capital, and growth rate, after computing all the parameters, we can get 10000 scenarios of expected market value, then we need to analysis the sensitivity of growth rate and return on invested capital, because our expected market value is lower than the book value at the end of 2017, therefore we also need to calculate its liquidation value, and compare expected value and liquidation value. The fifth chapter is the conclusion of thesis, we will summarize the analysis result in Chapter 4, give some suggestion and comments.

Abstract:

The aim of this thesis is to estimate the probability distribution of market value of China Resource Beer Company Limited at the end of 2017 by two-stage Discount Cash Flow method. The thesis is divided into five chapters, the first chapter is introduction, we will introduce the aim and main structures of this thesis. The second chapter is theoretical part. In this chapter, we will introduce all the models and functions that will be used for practical part, at first, we will give a general description of company’s valuation, then financial ratio analysis and common size analysis will be introduced. For the estimation of sales revenues, we will introduce the sale prediction model and Monte Carlo Simulation, next we will give an introduction of DCF method, we assume company can do business from now to infinity, we need to predict all parameters which will be used by two-stage DCF method, therefore, we need to do financial plan, we will determine the forecast driver for financial plan, then give the standard of how to calculate weighted average cost of capital, finally, we will introduce the basic of sensitivity analysis of company. The third chapter is about analyzing the performance of China Resource Beer Company Limited. We will give an introduction about our company, then introduce the main competitors, use strategy analysis from external and internal side of company, next we will do financial analysis, which include common size analysis and financial ratio analysis, for the common size analysis, we will analysis key items in financial statement, for the financial ratio analysis, we will analysis company’s profitability, liquidity, activity, solvency from historical data. The fourth chapter is the most important part of thesis, we will apply the model and method we already introduced in Chapter 2, at first, we will regress out our sale revenues function by using regression model, then use Monte Carlo Simulation create 10,000 random scenarios to support predict the independent variables, next step is applying financial plan, calculate cost of capital, return on invested capital, and growth rate, after computing all the parameters, we can get 10000 scenarios of expected market value, then we need to analysis the sensitivity of growth rate and return on invested capital, because our expected market value is lower than the book value at the end of 2017, therefore we also need to calculate its liquidation value, and compare expected value and liquidation value. The fifth chapter is the conclusion of thesis, we will summarize the analysis result in Chapter 4, give some suggestion and comments.

Keywords

China Resource Beer Company limited, Discount free cash flow method, financial analysis, sales prediction, Monte Carlo Simulation, estimation of WACC and ROIC, financial plan, sensitivity analysis, estimation market value, liquidation value.

Keywords

China Resource Beer Company limited, Discount free cash flow method, financial analysis, sales prediction, Monte Carlo Simulation, estimation of WACC and ROIC, financial plan, sensitivity analysis, estimation market value, liquidation value.

Language used: English

Date on which the thesis was submitted / produced: 26. 4. 2019

Thesis defence

• Date of defence: 29. 5. 2019
• Supervisor: Petr Gurný
• Reader: Miroslav Čulík

VŠB - Technical University of Ostrava

Ekonomická fakulta

Master programme / field:
Hospodářská politika a správa / Finance