Comments and late night thought after the discussion

[Eric Tang]

See if the following comments make our discussion and calculation more
consistent.

1. Read from Note 4.22 - ... people argue that sustainable growth rate
can be calculated as
g = (1 - dividend payout ration) x ROE
in our case, CdC 2009 = (1-0.858) x 18.59% = 2.64%

2. Note 4.24 - cost of equity, r, estimated by the DDM
r = D / P + g, where D is dividend and P is the price, D/P is the
so called dividend yield
CdC 2009 = 0.68/17.5 + 2.64 = 6.53%
Note that D in 09 is much higher than 08. So the number only give us a
feeling of the value.

3. Colman mentioned before that from Bloomberg, the cost of equity for
CdC and FW are 7.38% and 6.68% respectively. The value of 6.53% is
similar to 7.38%.

4. The value of r, if estimated by Colman's latest market premium =
2.258% + 0.513*11.3% = 8.055%. Here I use the Geometric Mean of HSI
Annual Return: 11.3%.

In DCF, we use (FCFF)t and (WACC)t for t ~ 5 years. So, questions are
5. Does the increase in OCF has a similar growth rate as g as above?
FYI. Read from the annual report '09, there are total 580 operation
units. By the five-year plan, the number will be increased to 1000.

6. What is the cost of debt of FW? In our WACC, does it has a similar
value?

Eric

[Colman Yeung]

Hi Eric,   For the CPAM calculation, the correct cost of equity should be:   2.258% + 0.513 * (11.3% - 2.258%) = 6.896546%   This value is very close to the cost of equity calculated by DDM.   Regards Colman --- On Thu, 11/19/09, Eric Tang <ecm...@gmail.com> wrote:

[Eric Tang]

Colman,

Thanks for the correction.

Because CdC 09 dividend payout ratio is 85%. So I have just downloaded
the 07 annual report to find out the increase of dividend payout ratio
of 06-07. The value is 20%, similar to the value of 07-08. So we have
seen an unexceptional large increase in payout (36%) in 08-09. [ I've
updated the CdC PPT file too. ]

In this case, r = D/P + g, where all parameters were supposed to be
stable during the period, close to the calculated CAPM value. Is it a
coincident? Or indicates CdC had been overpriced during the last 2
years?

But anyway, we should have a good estimation of the cost of equity
now.

Eric

On Nov 20, 11:56 am, Colman Yeung <colmanyeung2...@yahoo.com> wrote:
> Hi Eric,
>  
> For the CPAM calculation, the correct cost of equity should be:
>  
> 2.258% + 0.513 * (11.3% - 2.258%)
> = 6.896546%
>  
> This value is very close to the cost of equity calculated by DDM.
>  
> Regards
> Colman
>

> --- On Thu, 11/19/09, Eric Tang <ecmt...@gmail.com> wrote: