Investment Valuation Of China Unicom Corporation

Valuation is the process of estimating the value of an asset by using a model based on the variables that analyst believes influence the fundamental value of the asset, or comparing it to the observable market value of similar assets. Equity valuation models are used by analysts in a number of ways. Rather than an end unto itself, valuation is a tool which is used in the pursuit of other objectives, such as stock selection, reading the market, projecting the value of corporate actions, planning portfolio investment. China Unicom is the objective company in this thesis, analyzed with top-down approach and discount cash flow model to estimate its intrinsic value. Consequently I propose investment decision based on analysis report. For technically exploring application of DCF model, some chapters, concerning industry analysis, accounting principles and financial statement analysis, provide brief overviews, which stipulate analysis emphases and issues of relevant chapter. Chapter 2 summarizes strengths and weaknesses of models, appropriate utilizations and current domestic applications. Chapters 4 to 9 cover the core issues and each chapter is the composition of valuation processes. Chapter 4 develops forecasts of world telecom industry and China telecom industry by analyzing business phase, corporation strategy and technology development, and also analyses competitive pattern in China telecom industry and threatens faced by China Unicom. Chapter 5 illustrates market status, competitive capability and generic strategy of China Unicom. Chapter 6 and chapter 7 analyze the company accounting principles and financial statements in detail, then discuss the main issues of company valuation, explain the impact of different accounting methods and give some examples on adjustments of off-balance-sheet financing activities which are often neglected by analysts. The topic of chapter 8 is forecast of financial statements. Because of industry diversification, the methods of forecasting financial statement are seldom in common among different industries. So it is necessary to estimate revenues of CDMA and GSM respectively, thus is feasible method to estimate the value of multi-product or multi-business companies more accurately. In context of chapter 9, China Unicom is valued with selective model, the free cash flow to the firm (FCFF) model. There also introduce the approaches and processes of FCFF as well as its rudiments. Thus calculate the value of China Unicom and the value of its equity per share. At the end of this chapter other valuation methods are provided for simple comparison. The investment valuation of China Unicom illustrates comparatively systemic process of DCF approach. With more recognition of corporation intrinsic value by investors, as absolute valuation method, DCF method will deserve more utilization.