Residue Earnings Power Value (Modelled By ATC) - PDD Case Study
Subject : Residue Earnings Power Value (Modelled By ATC) - PDD Case Study
.
Residue Earnings Power Value (Modelled By ATC)
= Residue Earnings ÷ CICC_Ratio
= (EPS - DₜₐₚPS) ÷ CICC_Ratio
= EPS × (1 - DₜₐₚPS ÷ EPS) ÷ CICC_Ratio
= EPS × (1 - DₜₐₚPS ÷ EPS) ÷ CICC_Ratio
= EPS × P/E (of Residue Earnings Power Value Model)
.
P/E (of Residue Earnings Power Value Model)
= (1 - DₜₐₚPS ÷ EPS) ÷ CICC_Ratio
.
CASE STUDY :
PDD
FY 2025
EPS (GAAP)
= USD 9.5851238525
.
NetROIC (GAAP)
= 23.6421144492
.
D/E = 0.0129638543
.
30Y Bond Yield Ratio
= 0.04982
.
30Y Bond Yield Factor
= 1 + 30Y Bond Yield Ratio
= 1 + 0.04982
= 1.04982
.
CICC Factor
= Clean Invested Capital Cost Factor
= Inflation Factor × (1 + D/E × (1 + 2 × 10Y or 30Y Bond Yield Ratio)) ÷ (1 + D/E)
Adaptation : 30Y Bond Yield Factor Replaces Inflation Factor
= 30Y Bond Yield Factor × (1 + D/E × (1 + 2 × 30Y Bond Yield Ratio)) ÷ (1 + D/E)
= 1.04982×(1+0.0129638543×(1+2×0.04982))÷(1+0.0129638543)
= 1.0511587169
.
CICC_Ratio
= 0.0511587169
.
CICC
= 5.11587169
.
.
DₜₐₚPS (GAAP)
= 1/(1+D/E) × EPS × CICC ÷ NetROIC
= 1÷(1+0.0129638543)×9.5851238525×5.11587169÷23.6421144492
= USD 2.0475622232
.
P/E (of Residue Earnings Power Value Model)
= (1 - DₜₐₚPS ÷ EPS) ÷ CICC_Ratio
= (1-2.0475622232÷9.5851238525)÷0.0511587169
= 15.371402817
.
Residue Earnings Power Value, GAAP (Modelled By ATC)
= EPS × P/E (of Residue Earnings Power Value Model)
= 9.5851238525 × 15.371402817
= USD 147.3367997876
.
Notes :
Clean Invested Capital Cost (CICC) Factor
= Inflation Factor × (1 + D/E × (1 + 2 × 10Y or 30Y Bond Yield Ratio)) ÷ (1 + D/E)
.
CICC_Ratio
= CICC Factor - 1
.
CICC
= 100 × CICC_Ratio
.
Bond Yield Rate could be used to replace Inflation Rate if their difference are small.
But For Latin America, the gap between Inflation Rate and Bond Rate could be significantly large. So the Bond Rate could not be used to replace Inflation Rate.
.
Cross References :
(A)
The intrinsic P/E formula expounded by John Burr Williams in his BOOK : THE THEORY OF INVESTMENT VALUE :
.
Pre-requisite Conditions set by John Burr Williams:
— Future Growth is ignored, reset to 0%
— Period is Perpetual, Infinity into the future
.
Perpetual Discounted Dividend Model (by John Burr Williams)
= EPS × (Dividend Payout Ratio ÷ Discount Ratio)
= EPS × (Dividend Payout Ratio ÷ WACC_Ratio)
.
Intrinsic P/E (DDM Model by John Burr Williams)
= Dividend Payout Ratio ÷ Discount Ratio
= In reality, it is too low.
= If the quoted market P/E has reached this figure, it is an extreme fantastic bargain, Great MOS.
.
(B)
EPV Model (by Bruce Greenwald)
= EPS × (1 ÷ Discount Ratio)
= EPS × (1 ÷ WACC_Ratio)
.
Intrinsic P/E (EPV Model by Bruce Greenwald)
= 1 ÷ WACC_Ratio