Is Toho Titanium Company, Limited (TSE:5727) Worth JP¥1.9k Based On Its Intrinsic Value?

Simply Wall St·01/30/2026 00:06:12

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Key Insights

The projected fair value for Toho Titanium Company is JP¥1,443 based on 2 Stage Free Cash Flow to Equity
Toho Titanium Company's JP¥1,890 share price signals that it might be 31% overvalued
Analyst price target for 5727 is JP¥1,700, which is 18% above our fair value estimate

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Toho Titanium Company, Limited (TSE:5727) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Believe it or not, it's not too difficult to follow, as you'll see from our example!

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

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Step By Step Through The Calculation

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or 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 need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) estimate

	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
Levered FCF (¥, Millions)	JP¥8.35b	JP¥550.0m	JP¥1.85b	JP¥2.70b	JP¥4.20b	JP¥5.38b	JP¥6.46b	JP¥7.37b	JP¥8.11b	JP¥8.70b
Growth Rate Estimate Source	Analyst x2	Analyst x2	Analyst x2	Analyst x1	Analyst x1	Est @ 28.20%	Est @ 19.92%	Est @ 14.12%	Est @ 10.07%	Est @ 7.23%
Present Value (¥, Millions) Discounted @ 7.1%	JP¥7.8k	JP¥479	JP¥1.5k	JP¥2.1k	JP¥3.0k	JP¥3.6k	JP¥4.0k	JP¥4.2k	JP¥4.4k	JP¥4.4k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = JP¥35b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 0.6%. We discount the terminal cash flows to today's value at a cost of equity of 7.1%.

Terminal Value (TV)= FCF₂₀₃₅ × (1 + g) ÷ (r – g) = JP¥8.7b× (1 + 0.6%) ÷ (7.1%– 0.6%) = JP¥134b

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= JP¥134b÷ ( 1 + 7.1%)¹⁰= JP¥67b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is JP¥103b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of JP¥1.9k, the company appears reasonably expensive at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

dcf — TSE:5727 Discounted Cash Flow January 30th 2026

The Assumptions

We would point out that 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 Toho Titanium Company 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 7.1%, which is based on a levered beta of 1.242. 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.

Check out our latest analysis for Toho Titanium Company

SWOT Analysis for Toho Titanium Company

Strength

Debt is well covered by earnings and cashflows.

Balance sheet summary for 5727.

Weakness

Earnings declined over the past year.

Dividend is low compared to the top 25% of dividend payers in the Metals and Mining market.

Expensive based on P/E ratio and estimated fair value.

Opportunity

Annual earnings are forecast to grow faster than the Japanese market.

Threat

Paying a dividend but company has no free cash flows.

Annual revenue is forecast to grow slower than the Japanese market.

See 5727's dividend history.

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Why is the intrinsic value lower than the current share price? For Toho Titanium Company, we've put together three further aspects you should look at:

Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Toho Titanium Company , and understanding them should be part of your investment process.
Future Earnings: How does 5727'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 High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the TSE every day. If you want to find the calculation for other stocks just search here.

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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.