Extreme Conservative Innate Value (Based On Theoretical Affordable Payable DPS) — PDD Case Study
Subject :
Extreme Conservative Innate Value (Based On Theoretical Affordable Payable DPS) — PDD Case Study
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I wish to valuate a conservative innate value based on Theoretical Affordable Payable Dividends across all stocks.
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Concepts:
Stock A pays Real Dividends $2, but may have Theoretical Affordable Payable Dividends $4.
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Stock B pays Real Dividends $6, but may have Theoretical Affordable Payable Dividends just $2.50.
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Stock C doesn’t pay Real Dividends, but may have Theoretical Affordable Payable Dividends $3.
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How to derive their respective Theoretical Affordable Payable Dividends?
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Modelling :
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Concept (I) :
PEG = 1
P/E
= G
= ROIC × (1 - Theoretical Affordable Payable Distribution Payout Ratio)
= ROIC × (1 - Theoretical Affordable Payable Distribution Per Share/ EPS) — (i)
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Concept (II) :
Warren Buffett & Charlie Munger believe that the G & ROIC will converge to each other in the long run, ie. G=ROIC if the conversion efficiency is 100%; otherwise, G = Economic Spread = ROIC - CICC.
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P/E
= G
= ROIC - CICC (at convergence point)
= ROIC × ( 1 - CICC/ROIC) — (ii)
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(i) = (ii) :
ROIC × (1 - Theoretical Affordable Payable Distribution Per Share/ EPS) = ROIC × ( 1 - CICC/ROIC)
1 - Theoretical Affordable Payable Distribution Per Share/ EPS = 1 - CICC/ROIC
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Theoretical Affordable Payable Distribution Per Share/EPS
= CICC/ROIC
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Theoretical Affordable Payable Distribution Per Share
= EPS × CICC/ROIC
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Theoretical Affordable Payable Interest Expense (Finance Cost) Per Share
= D/(E+D) × Theoretical Affordable Payable Distribution Per Share
= (D/E)÷(1+D/E) × EPS × CICC/ROIC
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(A)
Theoretical Affordable Payable DPS (Dividends Per Share) to Common Shareholders
= E/(E+D) × Theoretical Affordable Payable Distribution
= 1÷(1+D/E) × EPS × CICC/ROIC
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CICC Factor ttm (applied to Invested Capital Case)
= Clean Invested Capital Cost Factor ttm
= 30Y Government Bond Yield Factor × ( 1 + D/E × (1 + 30Y Government Bond Yield Ratio × 2) )÷ (1 + D/E)
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CICC
= 100 × (CICC Factor - 1)
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(A)
Extreme Conservative Value W
(ROIC & Theoretical Affordable Payable DPS Based)
= 2 × ROIC × Theoretical Affordable Payable DPS × (1 - Theoretical Affordable Payable DPS÷EPS)
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(B)
Extreme Conservative Value X
(ROIC & Theoretical Affordable Payable DPS Based)
= ROIC × Theoretical Affordable Payable DPS × (2 - Theoretical Affordable Payable Dividend Payout Ratio)
= ROIC × Theoretical Affordable Payable DPS × (2 - Theoretical Affordable Payable DPS÷EPS)
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(C)
Extreme Conservative Value Y
= 2 × √(100 × EPS × Theoretical Affordable Payable DPS)
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(Z)
Extreme Conservative Value Z
= √(100 × EPS × Theoretical Affordable Payable DPS)
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(D)
Extreme Conservative Innate Value
(ROIC & Theoretical Affordable Payable DPS Based)
= Extreme Bottom Fishing Price
= The lowest among Extreme Conservative Value W, X, Y or Z
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(E)
CROIC
= ROIC × Earnings Quality
ROIC can be replaced by CROIC in the formulas above.
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(F)
Case Study :
PDD
FY2025
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Non-Gaap EPS
= (99,364,469+7,936,971)÷6.9931÷(5,929,576÷4)
= USD 10.3507581966
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Non-Gaap ROIC
= 100×107,301,440÷(414,907,086+2,498,643+2,880,152)
= 25.5305840264
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Non-GAAP ROA
= 100×107,301,440÷(630,044,327)
= 17.0307763123
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D/E
= (2,498,643+2,880,152)÷414,907,086
= 0.0129638543
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CICC Factor
= 1.04982×(1+0.0129638543×(1+0.04982×2))÷(1+0.0129638543)
= 1.0511587169
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CICC Ratio
= 0.0511587169
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CICC
= 5.11587169
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Invested Capital Per Share
= (2,498,643+2,880,152+414,907,086)÷6.9931÷(5,929,576÷4)
= USD 40.5425829111
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Theoretical Affordable Payable Distribution Per Share
= EPS × CICC/ROIC
= 10.3507581966×5.11587169÷25.5305840264
= USD 2.0741065215
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Theoretical Affordable Payable Interest Expense (Finance Cost) Per Share
= (D/E)÷(1+D/E) × EPS × CICC/ROIC
= 0.0129638543÷(1+0.0129638543)×10.3507581966×5.11587169÷25.5305840264
= USD 0.0265442983
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Theoretical Affordable Payable DPS (Dividends Per Share)
= 1÷(1+D/E) × EPS × CICC/ROIC
= 1÷(1+0.0129638543)×10.3507581966×5.11587169÷25.5305840264
= USD 2.0475622232
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Theoretical Affordable Payable Dividends Payout Rate
= 100×(2.0475622232÷10.3507581966)
= 19.7817607591 %
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(I)
Extreme Conservative Value W
(Theoretical Affordable Payable DPS Based)
= 2 × ROIC × Theoretical Affordable Payable DPS × (1 - Theoretical Affordable Payable DPS÷EPS)
= 2×25.5305840264×2.0475622232×(1-2.0475622232÷10.3507581966)
= USD 83.8689061534
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(II)
Extreme Conservative Value X
(ROIC & Theoretical Affordable Payable DPS Based)
= ROIC × Theoretical Affordable Payable DPS × (2 - Theoretical Affordable DPS÷EPS)
= 25.5305840264×2.0475622232×(2-2.0475622232÷10.3507581966)
= USD 94.2099124654
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(III)
Extreme Conservative Value Y
= 2 × √(100 × Non-Gaap EPS × Theoretical Affordable Payable DPS)
= 2 × √(100 × 10.3507581966 × 2.0475622232)
= USD 92.073495567
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(IV)
Extreme Conservative Value Z
= √(100 × Non-Gaap EPS × Theoretical Affordable Payable DPS)
= √(100 × 10.3507581966 × 2.0475622232)
= USD 46.0367477835
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Conclude:
Extreme Conservative Innate Value
(Based On Theoretical Affordable Payable DPS)
= The Lowest among W, X, Y & Z
= Extreme Conservative Value Z
= USD 46.0367477835
= Extreme Bottom Fishing Price
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Reference: