Ticker:NASDAQ:DEER Currency:US Dollar (USD)Conversion:Current Date:9-Oct-10Filing:Latest Fully Reported DEER CONSUMER PRODUCTS, INC.
WACC Analysis
(USD in millions, except per share data)
Peer Group Tax Rate (for Bottom-Up Beta)14.2%Ticker Name Beta Debt Equity Equity Beta(2) Risk-Free Rate of Return (Rf)(1)  2.382%SZSE:000527
GD Midea Holding Co., Ltd.  1.0498,889.0
48,301.718.4%0.906 Market Risk Premium (Rm - Rf)  6.8%SZSE:000651Gree Electric Appliances, Inc. of Zhu0.73311,925.341,282.128.9%
0.588
Size Premium0.0%SZSE:002242Joyoung Co., Ltd.0.4700.0
13,643.80.0%
0.470
NASDAQ:DEER D/(D+P+E)  2.0%SZSE:002032Zhejiang Supor Co., Ltd.0.3510.013,230.60.0%0.351 NASDAQ:DEER D/E  2.0%SEHK:1169Haier Electronics Group Co., Ltd.  2.18174.013,348.90.6%  2.171 NASDAQ:DEER Cost of Debt (Rd)  1.9%
NASDAQ:DEER Cost of Preferred (Rp)0.0%
NASDAQ:DEER Tax Rate18.4%
Average Unlevered Beta for Comps0.897 Risk free rate NASDAQ:DEER D/E  2.0% Choose US NASDAQ:DEER Tax Rate18.4% Then NASDAQ:DEER Levered Beta(3)0.912 Market Risk Premium (Rm - Rf)  6.8%
Multiplied by: NASDAQ:DEER Bottom-Up Beta0.912
Adjusted Market Risk Premium  6.2%
Add: Risk-Free Rate of Return (Rf)(1)  2.4%
98.0%
Cost of Equity Portion8.4%
NASDAQ:DEER Cost of Debt (Rd)  1.9%
2.0%
Cost of Debt Portion0.0%
0.0%
Cost of Preferred Portion0.0%
(1) Interest on U.S. Treasury - 10 years
(2) Unlevered Beta = Levered Beta / ( 1 + ((D/E) * (1 - T)))
(3) Levered Beta = Unlevered Beta * ( 1 + ((D/E) * (1 - T)))
U.S. Treasury - 10 years
PROJECTED CASH FLOWS
(USD in millions, except per share data)
Fiscal Year Ending December CAGR
2006200720082009|2010E2011E2012E2013E2014E2010-20142015E Total Revenue29.033.543.881.3|160.1209.3240.6276.7318.318.7%377.9 Annual Growth NA15.3%30.8%85.8%|96.8%30.7%15.0%15.0%15.0%
Cost of Revenue24.326.234.161.2|113.7148.7171.0196.6226.1109.4 Margin16.3%21.6%22.1%24.8
%|29.0%29.0%29.0%29.0%29.0%29.0% EBITDA  2.6  4.7  5.515.7|32.343.049.556.965.419.3%77.7 Annual Growth NA81.5%15.2%187.3%|105.7%33.4%15.0%15.0%15.0%
Margin9.0%14.1%12.5%19.3%|20.1%20.6%20.6%20.6%20.6%20.6% Less: Depreciatoin and Amortization0.60.8  1.2  1.4|  2.2  3.7  4.3  4.9  5.726.9%  6.7 % of Capital Expenditure28.3%37.1%29.1%33.7%|32.6%33.7%33.7%33.7%33.7%33.7% EBIT  2.0  3.9  4.214.2|30.139.345.252.059.818.7%71.0 Annual Growth NA99.9%8.1%235.7%|111.3%30.7%15.0%15.0%15.0%
Margin  6.8%11.7%9.7%17.5%|18.8%18.8%18.8%18.8%18.8%
Less: Income Taxes(0.4)(0.7)(0.8)(2.6)|(5.5)(7.2)(8.3)(9.6)(11.0)(13.1) Unlevered Net Income  1.6  3.2  3.511.6|24.532.136.942.448.818.7%57.9 Plus: Depreciation and Amortization0.60.8  1.2  1.4|  2.2  3.7  4.3  4.9  5.7  6.7 Less: Capital Expenditure(2.3)(2.2)(4.2)(4.3)|(6.7)(11.1)(12.7)(14.6)(16.8)25.9%(20.0) Margin(7.9%)(6.5%)(9.6%)(5.3%)|(4.2%)(5.3%)(5.3%)(5.3%)(5.3%)(5.3%) Less: Additions to Intangibles0.2(0.2)(0.0)0.0|0.00.00.00.00.00.0 Less: Increase in Working Capital(1.8)(3.7)(1.9)(13.8)|(27.2)  2.4(7.0)(8.0)(9.3)(23.6%)(11.0) Margin(6.3%)(11.2%)(4.4%)(16.9%)|(17.0%) 
1.1%(2.9%)(2.9%)(2.9%)(2.9%) Unlevered Free Cash Flow-1.6-2.1-1.4-5.0|-7.227.121.424.628.333.7 Annual Growth NA27.2%(30.8%)247.3%|43.5%(477.0%)(21.0%)15.0%15.0%
Discount Factor - Mid-Period Convention0.110.73  1.73  2.73  3.73
PV of Yearly Cash Flows-1.625.618.619.820.9
% of TEV% of MVE
PV of 2010 Free Cash Flow Stub(1)(1.6)(0.4%)(0.3%)Weighted Average Cost of Capital8.44%
PV of 2011-2014 Free Cash Flows(1)84.920.8%17.8%
PV of Terminal Value(1)325.179.6%68.4%Terminal EBITDA Multiple7.0x
Enterprise Value408.4100.0%85.9%
Less:Implied Perp. Growth Rate of Unlevered Free Cash Flow(2)  2.1% Total Debt(7.1)(1.5%)
Preferred Stock0.00.0%Tax Rate18.4% Minority Interest0.00.0%
Plus:
Cash and Equivalents74.315.6%
Equity Value475.6100.0%
Shares Outstanding33.6
Implied Per Share Value14.16
Current Price10.5
Premium/(Discount) to Current Price34.5%
(1) Assumes 83 days remain in 2010; mid-period convention for annual cash flows; and the terminal value cash flow occurs at December 31, 2015.
Terminal value equals present value of 2015 EBITDA of $77.7 * 7.0x Terminal Forward EBITDA Multiple.
(2) Implied Perpetual Growth Rate of FCF = [(Terminal EBITDA)*(Terminal EBITDA Multiple)*(WACC) - (Terminal Year FCF)] / [(Terminal EBITDA)*(Terminal EBITDA Multiple) + (Terminal Year FCF)]
SENSITIVITY ANALYSIS
(USD in millions, except per share data)
(1) Equals Total Debt plus Preferred plus Minority Interest Less Cash and Equivalents.
(USD in millions, except per share data) Capital IQ Inputs:
Company Name:Deer Consumer Products, Inc.
Total Debt7.1
Total Preferred0.0
Market Cap353.7margin rate
EBT14.5
Taxes  2.1
Latest FYE12-31-09
Latest FQE06-30-10
Today10-09-10
Days Remaining in FY83
Treasury Interest:
1 =U.S. Treasury - 3 months0.128%
2 =U.S. Treasury - 6 months0.131%
3 =U.S. Treasury - 2 year0.343%
4 =U.S. Treasury -
5 years  1.101%
5 =U.S. Treasury - 10 years  2.382%
6 =U.S. Treasury - 30 years  3.745%
7 =
8 =
9 =
Pre-Tax Cost of Debt Step
D/(D+P+E) Step
Cost of Equity Step
E/(D+P+E) Step
Discount Factor:
1 =Mid-Period Convention
2 =End-of-Period Convention
Beta Selection
1 = Bottom-Up Beta
2 = Regression Beta  3.32
Δ Working Cap. Reference
2 = Calculated via WC Schedule

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