Iflytek Co., Ltd. – Value Analysis (SHENZHEN:2230) : October 5, 2017

Capitalcube gives Iflytek Co., Ltd. a score of 72.

Our analysis is based on comparing Iflytek Co., Ltd. with the following peers – Inspur Software Co., Ltd. Class A, Hundsun Technologies Inc. Class A, Hanwang Technology Co., Ltd. Class A and Shenzhen MTC Co., Ltd. Class A (600756-CN, 600570-CN, 002362-CN and 002429-CN).

Investment Outlook

Iflytek Co., Ltd. has a fundamental score of 72 and has a relative valuation of NEUTRAL.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It’s current Price/Book of 8.92 is about median in its peer group.
  • The market expects 002230-CN to grow at about the same rate as the peers and to maintain the median returns it currently generates.
  • 002230-CN‘s relatively high profit margins are burdened by relative asset inefficiency.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • 002230-CN‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company’s relatively high pre-tax margin suggests tight control on operating costs versus peers.
  • While 002230-CN‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company is likely overinvesting in a business with only median returns.
  • 002230-CN has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

002230-CN has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 1.82% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 0.73%), and a well-cushioned interest coverage level of 7.65x, 002230-CN can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 4 chosen peers for the company, only 3 of the stocks have an outstanding debt balance. Companies with no debt include 600570-CN.

002230-CN has maintained its Quick & Able profile from the recent year-end.

  • 002230-CN‘s interest coverage is similar to last year’s low of 7.65x, which compares to the 2013 high of 207.57x.
  • Compared to 2016, interest coverage has remained relatively stable for both the company (7.65x) and the peer median (147.93x).
  • 002230-CN‘s debt-EV has declined 1.03 percentage points from last year’s high but remains above its five-year average debt-EV of 1.22.
  • Though its debt-EV decreased to 1.82% from 2.86% (in 2016), its peer median remained relatively stable during this period at 0.73%.
  • Relative to peers, debt-EV fell 1.28 percentage points.

Access the detailed analysis for Iflytek Co., Ltd.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Inspur Software Co., Ltd. Class A 0.73 2.55 154.22 425.95
Hundsun Technologies Inc. Class A 0 1.3 384.71 999
Hanwang Technology Co., Ltd. Class A 0.05 5.15 147.93 7947.36
Shenzhen MTC Co., Ltd. Class A 27.37 2.03 3.8 23.51
iflytek Co., Ltd. Class A 1.82 2.65 7.65 83.7
Peer Median 0.73 2.55 147.93 425.95
Best In Class 0.05 5.15 384.71 7947.36

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Company Profile

iflytek Co., Ltd. engages in the provision of Chinese speech and language technology; serving consumers, businesses and government organizations. Its also engages in the development, production and sale of computer software and hardware as well as technical services; development and sales of electronic products and computer communication equipment; systems engineering and information services. The company was founded in June 1999 and is headquartered in Hefei, China.

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