Oil and Gas Companies and Their Fair Value: Evidence from Indonesia Stock Exchange

Fibrianto, Nur Hakim; Hendrawan, Riko

doi:10.5220/0008428001060116

“…The second type of valuation is relative valuation, which assesses the worth of an asset by comparing it to similar assets or, in a sense, comparing a firm to other enterprises in the same industry on a variable such as earnings, cash flows, book value, or sales. The third method is contingent claim valuation, which use pricing models to determine the value of assets that share option characteristics [11] [12].…”

Section: Valuationmentioning

confidence: 99%

Unraveling PT Cita Mineral Investindo: Growth Potential through Organic & Inorganic Strategies under Bauxite Export Ban

Alim,

Damayanti,

Noveria

2023

ijcsrr

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Downstreaming has bring significant impact for Indonesia’s economy, with higher price on goods that were processed to gain a higher value, from IDR 17 trillion (USD 1,1 billion) at the end of 2014 to IDR 326 trillion (USD 20,9 billion) in 2021, Indonesia was able to boost the value of its nickel exports by up to 19 times. However, concerns arise as there may be a lack of clarity and confidence among investors on investment potential in Indonesia’s bauxite mining business, potentially leading to the failure on increasing added value due to the inadequate numbers of bauxite smelters to support the downstreaming process. Bauxite export ban as part of Indonesia’s effort to downstream more minerals could lead PT Cita Mineral Investindo’s growth to plateau due to their main business is in bauxite mining with products of Metallurgical Grade Bauxite. It may affect its revenue stream negatively, and limit their potential to grow even further. Bauxite industry currently aligned with Indonesia’s plan to be a big player in EV production in the future, which could contribute to the production of aluminium material and key component to EV batteries. The study will examine the valuation of PT Cita Mineral Investindo with the scenarios of organic growth and inorganic growth in an effort to market and increase their domestic sales in order to quantify the opportunities that PT Cita Mineral Investindo may have in complying with the new regulations. The study will involve Financial Ratio Analysis to assess its business condition and DCF valuation will assess the enterprise value for both growth strategy. Sensitivity analysis is performed to identify the most factor influencing the enterprise value of the company. The enterprise value of PT Cita Mineral Investindo in the organic growth scenario is valued at IDR 9.505.697.469.283 and in the inorganic growth scenario is valued at IDR 12.018.885.689.175. Tornado chart sensitivity analysis shows that the most influencing factors are WACC and terminal growth rate. PT Cita Mineral Investindo is valued higher when it uses an inorganic growth scenario. To achieve this, PT Cita Mineral Investindo must utilize inorganic growth through a set of joint-venture and strategic partnerships.

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“…The intrinsic value obtained needs to be further validated using Relative Valuation (RV) using Price-Earnings Ratio (PER) and Price to Book Value (PBV) approaches. The valuation results are declared valid if the intrinsic values of PER and PBV are within the industry range (Fibrianto & Hendrawan, 2018). Industry range is the range between the smallest and largest PER and PBV in the industry referring to the Q4 2020 statistical data from the IDX.…”

Section: Relative Valuationmentioning

confidence: 99%

Can We Validate the Value? Valuing Automotive and Component Sub-Sector Companies Listed on the Indonesia STOCK Exchange during the Covid-19 Pandemic Crisis

Soelistyo

¹

,

Hendrawan

²

2022

IJMABER

Self Cite

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This study provides a comprehensive fundamental-based value analysis of firms using Discounted Cash Flow (DCF) and Relative Valuation (RV) approaches. This study reveals how these approaches behave in valuing firms during a crisis such as the one caused by the current covid-19 pandemic and how to validate the results as well as correct them if the results was invalid. The object of the study is companies in the automotive and component sub-sector listed in Indonesia Stock Exchange (IDX) in 2020. The company's historical financial data between 2016 and 2020 are used to predict its financial behavior over the next five years under three scenarios: optimistic, moderate, and pessimistic. From the study employing the DCF method, the following results were obtained: ASII and INDS stocks were overvalued in all scenarios, GJTL were undervalued in all scenarios, and SMSM were overvalued in pessimist and moderate scenarios while undervalued in optimist scenario. Correction upon intrinsic values of SMSM and ASII is required since the result from RV analysis imply that the DCF results of both companies are not entirely valid, which indicates that the pandemic crisis has significantly affected the value of both companies. Investment recommendations for both ASII and INDS were to sell the stocks while for both SMSM and GJTL were to buy the stocks.

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“…Technical analysis is based on changes in stock prices from time to time, while fundamental analysis focuses on fundamental factors that affect the economy and industry (Tandelilin, 2010). Fundamental analysis is considered to be more suitable for stock valuation because this method integrates factors that include the characteristics and financial condition of the company including cash flow, risk profile, and growth potential (Fibrianto & Hendrawan, 2018). Discounted cash flow (DCF) is a reliable method of fundamental analysis in calculating the long term value of the company (Ivanovska et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Can We Validate the Value? Valuing Automotive and Component Sub-Sector Companies Listed on the Indonesia STOCK Exchange during the Covid-19 Pandemic Crisis

Soelistyo

¹

,

Hendrawan

²

2022

IJMABER

Self Cite

0

View full text Add to dashboard Cite

This study provides a comprehensive fundamental-based value analysis of firms using Discounted Cash Flow (DCF) and Relative Valuation (RV) approaches. This study reveals how these approaches behave in valuing firms during a crisis such as the one caused by the current covid-19 pandemic and how to validate the results as well as correct them if the results was invalid. The object of the study is companies in the automotive and component sub-sector listed in Indonesia Stock Exchange (IDX) in 2020. The company's historical financial data between 2016 and 2020 are used to predict its financial behavior over the next five years under three scenarios: optimistic, moderate, and pessimistic. From the study employing the DCF method, the following results were obtained: ASII and INDS stocks were overvalued in all scenarios, GJTL were undervalued in all scenarios, and SMSM were overvalued in pessimist and moderate scenarios while undervalued in optimist scenario. Correction upon intrinsic values of SMSM and ASII is required since the result from RV analysis imply that the DCF results of both companies are not entirely valid, which indicates that the pandemic crisis has significantly affected the value of both companies. Investment recommendations for both ASII and INDS were to sell the stocks while for both SMSM and GJTL were to buy the stocks.

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Oil and Gas Companies and Their Fair Value: Evidence from Indonesia Stock Exchange

Cited by 3 publications

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Unraveling PT Cita Mineral Investindo: Growth Potential through Organic & Inorganic Strategies under Bauxite Export Ban

Unraveling PT Cita Mineral Investindo: Growth Potential through Organic & Inorganic Strategies under Bauxite Export Ban

Can We Validate the Value? Valuing Automotive and Component Sub-Sector Companies Listed on the Indonesia STOCK Exchange during the Covid-19 Pandemic Crisis

Can We Validate the Value? Valuing Automotive and Component Sub-Sector Companies Listed on the Indonesia STOCK Exchange during the Covid-19 Pandemic Crisis

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