Evaluation Of Investment Value Of A Hong Kong Listed Company-Weiqiao Textile Company Limited

As Hong Kong has become the'off-shore financial center'of China, more and more China companies have their common shares listed and traded in Hong Kong and the number of overseas investors investing in these companies increases abruptly. This makes it an urgent task to evaluate the investment values of these listed companies with investment value theories both for the purpose of fixing IPO price and investing overseas by Mainland China investors .This paper concentrates on the research of how to evaluate the intrinsic investment value of China companies listed in Hong Kong markets. It indicates that as domestic market plays a relatively small share of influence on the evaluation of these companies, the standards for this kind of evaluation will conform to those used in international capital market. There are 3 aspects of difference in evaluating China companies listed in Hong Kong compared with those listed in domestic market: different investors, different required return, have to consider exchange rate risk and country risk.This paper demonstrates the application of Free Cash Flow method on the evaluation of China companies listed in Hong Kong with high growth and high reinvestment by evaluating the investment value of Weiqiao Textile Company Limited (Weiqiao). The major work of this paper is: 1).This paper describes in detail the international and domestic economic environments, textile and cotton textile industries situation for Weiqiao. It also gives an objective evaluation of the company's publicized financial data with financial ratios analysis and gives qualitative evaluation of its value.2). In the company valuation part, this paper applies an appropriate evaluation model for Weiqiao---negative free cash flow version of three stage Free Cash Flow To The Firm Model (FCFF) with full consideration of the company's growth characteristics and development stages. 3). It attempts to be innovative in the estimation of parameters involved in the valuation model. For example, it adopts the method of combining historic data with estimated data in the estimation of basic risk premium for mature stock market; the risk premium of targeted stock market is drawn from the adjustment of basic risk premium of mature stock market by comparing the standard deviation of H share index (HANG SENG MAINLAND COMP INDEX) instead of HANG SENG INDEX or other indexes with that of the U.S market(S&P500).4). This paper makes a detailed analysis and description of the reasoning for using the specific evaluation model based on the characteristics and requisite factors involved at the time of the evaluation. It reaches the theoretical price of the company through model building and model calculation. Combined with the consideration of the influence on future stock price by the economic environment of Weiqiao, the theoretical price is compared with the corresponding market price to draw a conclusion of whether the company was worth investing in at that time. This paper also indicates the possible risks facing investors.Due to the inherent limitations of intrinsic investment value theories when applying to investment activities, in reality, it can only be considered as one of the references in investment decision making, the magnitude of which is difficult for investors to master appropriately. The analysis of intrinsic value of Weiqiao can be considered as a reference for applying discount cash flow method on evaluation of investment values of China companies listed in Hong Kong. To some extend, it serves as theoretic guidelines for similar companies seeking finance in international security market to make a self-evaluation of their own values. It also provides reference to investors for overseas investment decision making.