Armada Mercantile Ltd (ARM.CN) Intrinsic Value Analysis

Executive Summary

As of June 17, 2025, Armada Mercantile Ltd's estimated intrinsic value ranges from $0.00 to $0.08 per share, depending on the valuation methodology applied.

Valuation Method	Fair Value (USD)	Implied Upside/Downside
Discounted Cash Flow (5Y)	$0.00	-99.8%
Earnings Power Value	$0.08	-78.8%

Is Armada Mercantile Ltd (ARM.CN) undervalued or overvalued?

With the current market price at $0.40, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Armada Mercantile Ltd's intrinsic value, including:

1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
2. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component	Low	High
Long-term bond rate	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	0.31	0.33
Cost of equity	4.8%	6.2%
Cost of debt	5.0%	5.0%
Tax rate	25.9%	26.5%
Debt/Equity ratio	0	0
After-tax WACC	4.8%	6.2%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

• Forecast Period: 5-year DCF
• Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
• Discount Rate: 5.5% (range: 0.0% - 9.3%)

Key Projections:

• Revenue growth from $0 (FY02-2024) to $0 (FY02-2034)
• Net profit margin expansion from -8% to -2%
• Capital expenditures maintained at approximately 0% of revenue

DCF Model	Fair Value	Enterprise Value	% from Terminal Value
5-Year Growth	$0	$(0)M	86.9%
10-Year Growth	$(1,234)	$(1)M	75.5%
5-Year EBITDA	$0	$(0)M	67.9%
10-Year EBITDA	$0	$(0)M	49.9%

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component	Value
Normalized Earnings	$0M
Discount Rate (WACC)	6.2% - 4.8%
Enterprise Value	$1M - $1M
Net Debt	$(0)M
Equity Value	$2M - $2M
Outstanding Shares	20M
Fair Value	$0 - $0
Selected Fair Value	$0.08

Key Financial Metrics

Metric	Value
Market Capitalization	$8M
Enterprise Value	$8M
Trailing P/E	0.00
Forward P/E	0.00
Trailing EV/EBITDA	7.40
Current Dividend Yield	58.51%
Dividend Growth Rate (5Y)	0.00%
Debt-to-Equity Ratio	0.00

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method	Weight	Weighted Value
Discounted Cash Flow (5Y)	71%	$0.00
Earnings Power Value	29%	$0.01
Weighted Average	100%	$0.02

Investment Conclusion

Based on our comprehensive valuation analysis, Armada Mercantile Ltd's weighted average intrinsic value is $0.02, which is approximately 93.8% below the current market price of $0.40.

Key investment considerations:

• Strong projected earnings growth (-8% to -2% margin)
• Consistent cash flow generation
• Conservative capital structure (Debt/Equity of 0.00)

Given these factors, we believe Armada Mercantile Ltd is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.