Estimating The Intrinsic Value Of United U-LI Corporation Berhad (KLSE:ULICORP)
editorial-team@simplywallst.com (Simply Wall St)
6 min read
Key Insights
United U-LI Corporation Berhad's estimated fair value is RM1.52 based on 2 Stage Free Cash Flow to Equity
With RM1.54 share price, United U-LI Corporation Berhad appears to be trading close to its estimated fair value
When compared to theindustry average discount of -2,008%, United U-LI Corporation Berhad's competitors seem to be trading at a greater premium to fair value
Today we will run through one way of estimating the intrinsic value of United U-LI Corporation Berhad (KLSE:ULICORP) by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
Our free stock report includes 2 warning signs investors should be aware of before investing in United U-LI Corporation Berhad. Read for free now.
The Model
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF (MYR, Millions)
RM28.0m
RM26.7m
RM26.1m
RM25.9m
RM26.1m
RM26.5m
RM27.1m
RM27.8m
RM28.6m
RM29.5m
Growth Rate Estimate Source
Est @ -8.46%
Est @ -4.84%
Est @ -2.31%
Est @ -0.54%
Est @ 0.71%
Est @ 1.57%
Est @ 2.18%
Est @ 2.61%
Est @ 2.90%
Est @ 3.11%
Present Value (MYR, Millions) Discounted @ 10%
RM25.4
RM21.9
RM19.4
RM17.5
RM15.9
RM14.7
RM13.6
RM12.6
RM11.8
RM11.0
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = RM164m
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 10%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM451m÷ ( 1 + 10%)10= RM168m
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is RM332m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of RM1.5, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
KLSE:ULICORP Discounted Cash Flow May 17th 2025
Important Assumptions
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at United U-LI Corporation Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 10%, which is based on a levered beta of 1.144. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
Dividend is low compared to the top 25% of dividend payers in the Building market.
Opportunity
Annual earnings are forecast to grow faster than the Malaysian market.
Good value based on P/E ratio compared to estimated Fair P/E ratio.
Threat
Dividends are not covered by cash flow.
Next Steps:
Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For United U-LI Corporation Berhad, we've compiled three essential factors you should look at:
Future Earnings: How does ULICORP's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. Simply Wall St updates its DCF calculation for every Malaysian stock every day, so if you want to find the intrinsic value of any other stock just search here.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
