STOCK
VALUATION ANALYSIS OF PT SINAR MAS AGRO RESOURCES AND TECHNOLOGY TBK USING FREE
CASH FLOW TO THE FIRM AND RELATIVE VALUATION
Fitradi Ramiza, Raden Aswin Rahadi
School
of Business and Management, Institut Teknologi Bandung, Indonesia
Email: [email protected]
|
KEYWORDS PT SMART Tbk; Financial Performance; Stock Valuation; Intrinsic Value |
ABSTRACT Indonesia is the
world's top producer and exporter of palm oil, generating 46 million tonnes
of crude palm oil. PT SMART Tbk (SMAR) is one of Indonesia's big palm oil
companies, with a plantation area of 136,402 hectares. The Indonesian
government implemented the B35 biodiesel policy in February 2023, indicating
there is potential for growth in the increased use of palm oil as a biodiesel
blend. The positive sentiment from the B35 program, which will continue into
the B40 program, is expected to boost domestic market demand for biodiesel,
consequently impacting SMAR's sales revenue. The study aims to evaluate
SMAR's business performance, intrinsic value, and propose solutions to close
the value discrepancy gap. The study adopts a quantitative approach for stock
valuation calculations and a qualitative approach for underlying assumptions.
The analysis covers financial statement analysis, financial ratio analysis,
PESTLE analysis, Porter’s five forces analysis, absolute valuation and
relative valuation methods. Based on the FCFF analysis, SMAR's intrinsic
value is Rp 8,609 while the market price is Rp 5,200, indicating that SMAR is
undervalued. The relative valuation analysis using PER, PBV, and EV/EBITDA
also indicates that SMAR is undervalued compared to similar companies in the
palm oil industry. Overall, this indicates a potential investment opportunity
for investors in SMAR shares. |
INTRODUCTION
Indonesia is the largest palm oil producer, manufacturing
46 million metric tons of crude palm oil. The palm oil industry has developed
and become a crucial sector for the Indonesian economy, largely driven by
international demand for palm oil products. Indonesia contributes to over 58%
of production and 59% of total global exports. This industry contributes 4.5%
to the country's GDP and has significantly improved the lives of people by
reducing poverty
Indonesia's CPO export value increased from US$35.5
billion in 2021 to US$39.28 billion in 2022, driven by higher palm oil product
prices. The industry is expected to face challenges affecting its performance
in 2023, resulting in stagnant production. Nevertheless, the implementation of
the mandatory B35 program on 01 February 2023 is predicted to boost domestic
consumption
Figure 1. Palm Oil World Price in 2018-2022 (Source:
Trading Economics, 2023)
On 01 February 2023, the Indonesian government
implemented a mandatory program for using palm oil-based biodiesel 35% (B35),
which is a blend of 35% palm oil-based biodiesel (from FAME) and 65% petroleum
diesel. Deputy in charge of foods and agribusiness coordination at the economic
coordinating ministry, Musdhalifah Mashmud said that B35 is expected to be
implemented in all modes of transportation that use biodiesel fuel. The
expected allocation of the palm oil-based biodiesel will reach 13.15 million
kiloliters in 2023, compared to 10.45 million kiloliters in 2022
This B35 biodiesel program will then be upgraded to B40.
Indonesia is the forefront country in implementing the blending of biodiesel
from vegetable oil. Indonesia initiated the program in 2006 with B2.5, 2016
with B20, 2020 with B30, and 2023 with B35. President Joko Widodo instructed
that the utilization of palm oil continues to B40, B50, and B100
The Ministry of Energy and Mineral Resources is currently
finalizing preparations and studies to implement the B40 biodiesel program. The
ministry will soon conduct field tests of B40 on heavy machinery, marine
vessels, agricultural machinery, and locomotives soon. The ministry is ensuring
the readiness of producers and the supply of raw materials, namely crude palm
oil, which has been shared with the domestic food industry
Stock prices are influenced not only by company
performance but also by market sentiment. The biodiesel B35 and B40 programs
are expected to create a positive outlook within the palm oil industry.
Considering Indonesia's role as the largest producer and exporter of palm oil,
PT SMART Tbk has a significant opportunity to capitalize on the rising demand
for palm oil in the domestic market. As one of the market leader in the
Indonesian palm oil industry, PT SMART Tbk is well-positioned to fulfil the
requirements of B35 and B40, leading to improved company performance. These
promising prospects and positive market sentiment are expected to drive an
increase in stock prices within the palm oil industry, including for PT SMART
Tbk.
Financial Ratio Analysis
Financial Ratio analysis
encompasses the use of mathematical computations and interpretation of
financial ratios to examine and track a company's performance. Financial ratios
can be broadly classified into five categories. The liquidity, solvency, and
activity ratios focus mainly on evaluating risk, while profitability is used to
calculate the returns. Market ratios encompass both the elements of risk and
return
Liquidity Ratio
The capacity of a company to
meet its short-term liabilities as they become due is used to evaluate its
liquidity. Liquidity indicates the financial strength of the company and the
capacity to easily fulfil financial obligations
Debt Ratio
The level of debt held by a
company signifies the extent to which external funding is utilized to generate
profits. Lower debt ratios are preferred by creditors who lend money to a
company as these reflect a lower level of financial risk. A higher debt ratio
might lead creditors to perceive the company as riskier, which could influence
the willingness to provide credit or propose more favourable terms
Activity Ratio
Activity ratios, also known as
efficiency ratios, assess the speed at which different accounts are transformed
into inflows or outflows of cash or sales. These ratios measure how the company
manages and utilises its resources effectively
Profitability Ratio
Profitability ratios assess
the ability of the company to generate profits through its operations. A higher
value for profitability ratios suggests that a company has achieved a greater
level of profitability, which can make it more attractive to potential
investors seeking high returns
Market Ratio
Market ratios provide a
comparison between the current share price of a firm and specific accounting
values. These ratios typically indicate the common stockholders' evaluation of
the company's overall past and estimated future performance compared to its competitors
PESTLE Analysis
The PESTEL analysis is a comprehensive method that
assists organizations in assessing the larger forces and making informed
decisions about the strategic direction. The analysis involves the assessment
of six significant factors, which consists of political, economic, social,
technological, legal, and environmental. By utilizing this framework, companies
can map and analyze how the external factors impact the industry. This tool
shows a broad overview of the macroenvironmental effects which companies must
consider before making decisions
Porter’s Five Forces
Porter's five forces are used to analyze the company's
external environment and identify potential threats to its competitiveness and
survival. It allows the company to understand complex external threats and
identify the most important factors affecting its industry competition. It is a
powerful model that helps industries overcome challenges and guides top
management in selecting business strategies
Absolute Valuation
Absolute valuation is a
framework used to determine a company's intrinsic value. This framework
provides a precise valuation estimate for the company, showing the comparison
against the market price. The fundamental concept of this framework is that an
investor's perception of the company's value is shaped by the anticipated
returns expected from holding that asset (Stowe
et al, 2007).
Discounted Cash Flow
Discounted cash flow (DCF)
analysis is a method employed to evaluate the company’s intrinsic value.
Essentially, DCF attempts to asses the present value from the projected cash
flows that the company is expected to generate for investors. The term "discounted"
is used because of the concept that money in the future is worth less than
money in the present. The DCF method estimates the projected free cash flow and
then discounts it to the present value with WACC to calculate the enterprise
value
Free Cash Flow to the Firm
Free cash flow to the firm
(FCFF) is the cash flow available to the capital providers of a company after
deducting operating expenses and the required investments in fixed capital and
working capital. The calculation of FCFF may vary depending on the available
accounting information. The capital providers may include common stockholders,
bondholders, and occasionally, preferred stockholders (Stowe et al, 2007).
FCFF =
EBIT (1-Tax) + Depreciation – CAPEX – ΔWorking Capital
Terminal Value
Analysts often incorporate a
terminal value when projecting cash flows, which calculates the company's
current value based on the projected cash flows beyond a specified period
according to the analysis. This terminal value is a critical component of many
valuation methods, as it reflects the company's potential for continued growth
and profitability beyond the forecast period
Terminal
Value = FCFFt × (1 + g) / (WACC - g)
Weighted Average Cost of
Capital
The cost of capital represents
a combination of expenses associated with all the funding resources of the
company. Moreover, this overall capital cost is referred to as weighted average
cost of capital (WACC), which denotes the average after-tax cost of the capital
source used for project financing (Hendrawan
& Permadi, 2019).
WACC =
CoE × Equity Weight + After Tax CoD × Debt Weight
Cost of Debt
The cost of debt is the
compensation paid to the debtholders and creditors. Calculating the cost
accurately poses a challenge, particularly in determining the appropriate
default spread specific to the company. In general terms, the calculation
follows the formula below (Damodaran, 2014).
Cost
of Debt = Risk-free Rate + Country Default Spread + Company Default Spread
After
Tax Cost of Debt = Cost of Debt × (1 – Tax Rate)
Cost of Equity
The
cost of equity represents the return rate that shareholders expect as
compensation for the investment made in a company. This rate is strongly
connected to the risk level associated with the investment and considers the
historical volatility of returns. Capital Asset Pricing Model (CAPM) is
utilized to identify the cost of equity, which incorporates various factors and
market conditions to calculate an appropriate rate of return
Cost
of Equity = Risk-free Rate + Beta Stock × Risk Premium
Relative Valuation
Relative valuation is a method of deriving the company’s
value by comparing it to the pricing of similar companies. In other words, the
market is assumed to have correctly valued stocks, but individual stock
valuations can be inaccurate. The approaches usually used are PER, PBV, and
EV/EBITDA
RESEARCH
METHOD
Research design is used to map
the flow process of the research from start until finish. It explained how the
data is collected, processed, and analyze to calculate the business performance
and intrinsic value from SMAR. The analysis method consists of FCFF and
relative valuation to calculate the intrinsic value from SMAR.
Figure 2. Research Design
This research begins by
identifying the issues and business problems faced by PT SMART Tbk, utilizing
information obtained from secondary data regarding the company's current
condition and challenges within the research observation period. The next step
involves determining the research questions and research objectives which to
analyze business performance, determine SMAR’s intrinsic value, and proposed
solution. Data collection is conducted using a secondary method by utilizing
available data in public, such as SMAR's annual reports. Data processing and
analysis stages involve various methods such as financial ratio analysis,
PESTLE analysis, porter five analysis, FCFF, and relative valuation.
Conclusions can be drawn based on the conducted analysis, and the
recommendations are provided as considerations for investors when making
investment decisions in SMAR. Upon completing all stages, this research can be
considered finished.
RESULTS AND
DISCUSSION
External Analysis – PESTLE
Political
The political factor evaluates
government policies that can affect a company. In early 2023, the Indonesian
government introduced the implementation of a 35% biodiesel fuel blend, known
as B35, which consists of 35% palm oil and 65% diesel fuel. This policy will
significantly impact SMAR, whose primary business revolves around crude palm
oil (CPO) production, influencing its overall performance.
Economic
The economic factor evaluates
the economic conditions in Indonesia that can influence a company's situation.
This factor includes the growth of CPO prices, gross domestic product (GDP)
growth, inflation growth, interest rates, and exchange rate. The growth of Indonesia's GDP
in 2022 at 5.31% indicates positive economic growth. This can impact the growth
of the palm oil market and increase purchasing power among the public for
products such as SMAR's cooking oil. The average
inflation
growth of 4.21% in 2022 can affect operational costs and the cost of goods
sold. This can lead to increased expenses incurred by the company in its
operational activities.
Social
The social factor analyzes the
demographic environment in which a company operates. Indonesia is the largest
global producer in the palm oil industry, generating 46 million tonnes of crude
palm oil in 2022. India serves as the primary consumer of Indonesian CPO
domestically and internationally. SMAR manages plantations in Kalimantan and
Sumatra, generating job opportunities that can enhance social conditions in the
regions where SMAR operates.
Technology
The technological aspect
involves technological innovation affecting operations in the palm oil
industry. The revolution industry 4.0 has greatly enhanced this sector's
efficiency, productivity, and competitiveness. Its impact has led to the
emergence of modern agriculture, also referred to as Agriculture 4.0.
Legal
The
legal aspect focuses on regulations that companies must adhere to. In April
2022, the Indonesian government enforced a ban on palm oil exports to stabilize
cooking oil prices and ensure an adequate supply of CPO in the domestic market.
The Minister of Trade of the Republic of Indonesia officially regulated this
export ban through Regulation Number 22 of 2022. A temporary prohibition is
imposed on the export of crude palm oil, refined, bleached and deodorized palm
oil, and used cooking oil.
Environmental
The
environmental aspect in the palm oil industry involves factors such as
deforestation, habitat loss, and sustainability. According to the Minister of
Environment and Forestry, Siti Nurbaya Bakar, deforestation in Indonesia has
been decreasing from 2015 to 2022. SMAR follows a strict environmental policy
throughout its supply chain, including no deforestation, no peat, and no
exploitation (NDPE).
External Analysis – Porter’s
Five Forces
Threat of New Entrants
The threat of new entrants in
the palm oil industry is medium due to the significant capital and assets
required to enter the business. Additionally, establishing palm oil plantations
in Indonesia is increasingly challenging due to various regulations, including
the deforestation moratorium, the requirement to obtain a Plantation Business
License (IUP), as well as the need for ISPO and RSPO certifications, as
discussed in the PESTLE analysis.
Bargaining Power of Suppliers
The bargaining power of
suppliers is considered low. Indonesia has the largest land area and palm oil
production in the world. This creates opportunities for companies to supply
goods for plantations. Numerous suppliers in the palm oil industry provide
various materials such as fertilizers, pesticides, chemicals, packaging, and
fuel. This situation results in a small power of suppliers, as there are more
suppliers than buyers.
Bargaining Power of Buyers
The
bargaining power of buyers, particularly for SMAR's cooking oil products, is
low. SMAR's cooking oil brands, "Filma" and "Kunci Mas"
primarily cater to the market's demand for refined cooking oil, which accounted
for 61% of SMAR's total sales revenue in 2022. The high consumption of fried
food in Indonesia contributes to the strong demand for these products, further
reducing the power of buyers.
Threat of Substitute Products
The threat of substitute
products in the palm oil industry is medium. While alternatives exist, palm oil
remains difficult to replace as a key ingredient in various consumer products.
SMAR's cooking oil, for example, relies on palm oil as its primary ingredient,
and the demand for palm oil-based cooking oil in Indonesia is high. On the other hand, biodiesel can be replaced by
natural gas and geothermal energy.
Rivalry Among Competing Firms
The rivalry among existing
competitors in the palm oil industry is high, driven by the competition to
increase revenue and reduce costs. Companies with significant assets have an
advantage in producing more crude palm oil (CPO). Price plays a significant
role in the consumer product segment, such as cooking oil, as consumers tend to
choose based on the lowest price. Companies that can lower the cost of goods
sold and operating expenses can offer more competitive pricing. Further
research is necessary to assess the impact of cooking oil prices on consumer
purchase decisions.
Internal Analysis – Financial
Ratio Analysis
Liquidity Ratio
Figure 3. Liquidity Ratio of SMAR
The
movement of the current ratio demonstrates an increasing trend, suggesting that
SMAR's growth in current assets has outpaced the growth in current liabilities.
Based on these findings, SMAR can be considered a liquid company. In 2022, the
quick ratio of SMAR increased to 1.24. The amount of current assets and
inventory continued to increase, but there was a significant decrease in
current liabilities in 2022. As a result, the quick ratio of SMAR increased to
above one, indicating that in 2022, SMAR can be considered a liquid company.
Based on the two liquidity ratios used above, it can be seen that both ratios
had values above one in 2022. This indicates that SMAR is a liquid company and
is able to fulfil its short-term obligations.
Debt Ratio
Figure 4. Debt Ratio of SMAR
Over
the past five years, the debt-to-asset ratio calculations consistently show
values below one for SMAR. This indicates that SMAR's total assets consistently
exceeded its total liabilities, demonstrating SMAR's ability to fulfil its
obligations using its assets. The debt-to-equity ratio shows that SMAR relied
more on liabilities to finance its operational activities than equity. The
times interest earned ratio for SMAR has shown a positive trend over the past
five years, reaching its highest value of 5.01 in 2022. This indicates that
SMAR generates enough operating profit to cover its interest expenses 5.01
times. Based on the results of the three ratios used, it can be concluded that
the debt-to-asset ratio and times interest earned ratio reflect a favourable
condition for the company, indicating that SMAR is in a good financial
position. However, the debt-to-equity ratio indicates a less favourable
situation, suggesting that SMAR has a higher level of debt relative to its
equity.
Activity Ratio
Figure 5. Activity Ratio of SMAR
In 2022, SMAR achieved an asset turnover value of 1.76, indicating that
for every Rp 1 of assets owned by SMAR, it generated Rp 1.76 in revenue. This growth
signifies that SMAR has been able to generate higher revenue by efficiently
utilizing its total assets. The equity turnover calculation demonstrates a
growth trend, rising from 3.05 in 2018 to 3.90 in 2022. Similar to asset
turnover, SMAR has succeeded in improving the efficiency of utilizing equity to
generate more revenue. The calculation of inventory turnover also shows an
increasing trend from 6.98 in 2018 to 7.69 in 2022. This indicates that SMAR is
able to sell its inventory at a faster rate. Based on the three
activity ratios, there has been an improvement in asset turnover, equity
turnover, and inventory turnover. This indicates that SMAR has become more
efficient in utilizing its resources, leading to increased revenue.
Profitability Ratio
|
|
|
Figure 6. Profitability Ratio of SMAR
The gross profit margin (GPM)
for SMAR shows fluctuating growth but shows an overall increasing trend. This
indicates that SMAR has effectively managed the growth of its cost of goods
sold, leading to higher revenue growth. The operating profit margin (OPM)
calculation demonstrates a growing trend, increasing from 4.23% in 2018 to
8.78% in 2022. One of the factors contributing to this improvement is the lower
growth of operating expenses compared to gross profit. The net profit margin
(NPM) calculation shows significant growth from year to year. The growth in NPM
indicates a larger growth compared to GPM and OPM. This improvement is
influenced by a reduction in interest expenses and other expenses, resulting in
a higher net profit margin.
The return on assets (ROA)
calculation exhibits significant year-on-year growth, highlighting the
company's enhanced profitability in utilizing its assets. The net profit growth
surpasses the growth in total assets, leading to a substantial increase in ROA
over time. Similarly, the return on equity (ROE) calculation reveals a rise
from 4.88% in 2018 to 28.60% in 2022. This growth in net profit outpaces the
growth in equity, resulting in a higher ROE compared to previous years.
Market Ratio
|
|
|
|
|
|
Figure 7. Market Ratio of SMAR
The price-to-earnings ratio
significantly decreased from 19.47 in 2018 to 2.58 in 2022. This decline is
attributed to the slower stock price growth compared to the earnings per share
(EPS), resulting in a decreasing P/E ratio over the years. This trend indicates
that the market may not fully recognize or appreciate the stock price of SMAR
in relation to its EPS growth.
In 2019, SMAR's PBV ratio
increased from 0.95 to 1.09, suggesting that the market price of SMAR was
approaching its book value. This was a result of a decrease in total equity
combined with an increase in the market price. However, from 2020 to 2022,
SMAR's PBV ratio declined. This occurred due to the growth of total equity
surpassing the market price, leading to a decrease in the PBV value. This
indicates that the price of SMAR during this period became more discounted.
Investors may view this as an opportunity to buy the stock at a discounted
price.
Stock Valuation Analysis
Calculating the WACC is one of
the first steps in the stock valuation analysis using the DCF method. Table 1
shows the necessary variables data for the WACC calculation.
Table 1. Data for WACC Calculation
|
Value |
Remark |
Source |
|
|
Government Bond 10
Years |
6.50% |
Government Bond 10
Years |
phei.co.id |
|
Risk-Free Rate |
4.17% |
Government Bond 10
Years - Country Default Spread |
Calculation |
|
Country Default
Spread |
2.33% |
Indonesia Default
Spread |
Damodaran |
|
Company Default
Spread |
1.42% |
Rating Interest Coverage
Rate (Moody’s) |
Calculation & Damodaran |
|
Equity Risk Premium |
9.23% |
Indonesia Equity
Risk Premium |
Damodaran |
|
Beta Stock |
0.990 |
Pefindo |
Pefindo |
|
Income (Marginal)
Tax Rate |
22% |
Corporate Tax Rate |
Annual Report SMAR |
The second step is to
calculate the cost of debt. Several components are needed to calculate the cost
of debt, as already generated from the table above. The calculation of the cost
of debt is shown below.
Pretax Cost of Debt = Risk-Free Rate + Country Default Spread +
Company Default Spread
= 4.17% + 2.33% + 1.42%
= 7.92%
After-Tax Cost of Debt = Pretax Cost of Debt × (1 –
Tax Rate)
= 7.92% × (1 – 22%)
= 6.18%
The third step is to calculate
the cost of equity. Several components are needed to calculate the cost of
equity. The calculation of the cost of equity is shown below.
Cost of Equity = Risk-free Rate + Beta Stock × Equity Risk
Premium
= 4.17% + 0.990 × 9.23%
= 13.31%
The fourth step is to
calculate WACC. The calculation of WACC uses the previous value that has been
generated. WACC is calculated by combining the cost of debt times the weight of
the debt and the cost of equity times the weight of the equity.
WACC = (CoE × Equity Weight) + (After Tax CoD × Debt Weight)
=
(13.31% × 0.452) + (6.18% × 0.548)
=
9.40%
The fifth step is to calculate
the revenue projection. In this research, the linear regression method is used
to calculate revenue projections for the years 2023 to 2027. The calculation
uses the Minitab application to get the value of intercept and slope that will
be used in the formula of revenue projection.
Figure 8.
Linear Regression
The
result from Minitab shows that the P-value generated is 0.032. It is below the
significance value of 0.05, so the linear regression model can be used as it
indicates a strong relationship between the independent (period) and dependent
(revenue) variables. After getting the result from linear regression, revenue
projection can be calculated by using the formula that has been generated.
Table 2. Revenue Projection
|
Year |
Revenue |
Forecast |
|
2018A |
37,392 |
29,992
|
|
2019A |
36,198 |
39,603
|
|
2020A |
40,434 |
49,215
|
|
2021A |
57,004 |
58,826
|
|
2022A |
75,046 |
68,438
|
|
2023F |
|
78,049
|
|
2024F |
|
87,660
|
|
2025F |
|
97,272
|
|
2026F |
|
106,883 |
|
2027F |
|
116,495 |
Before calculating FCFF,
several assumptions need to be calculated based on a percentage of revenue.
These variables include cost of goods sold, operating expenses, capital
expenditure (CAPEX), depreciation, and non-cash working capital.
Table 3. Variables Percentage of Revenue
|
2018 |
2019 |
2020 |
2021 |
2022 |
Avg % |
|
|
Revenue |
37,392 |
36,198 |
40,434 |
57,004 |
75,046 |
|
|
COGS |
32,758 |
32,286 |
34,557 |
46,047 |
61,734 |
|
|
% Revenue |
88% |
89% |
85% |
81% |
82% |
85% |
|
Operating Expense |
3,052 |
2,838 |
3,554 |
7,075 |
6,723 |
|
|
% Revenue |
8% |
8% |
9% |
12% |
9% |
9% |
|
CAPEX |
1,249 |
1,555 |
1,310 |
932 |
1,470 |
|
|
% Revenue |
3% |
4% |
3% |
2% |
2% |
3% |
|
Depreciation |
886 |
895 |
1,047 |
1,392 |
1,186 |
|
|
% Revenue |
2% |
2% |
3% |
2% |
2% |
2% |
|
Non-Cash Working
Capital |
3,501 |
-167 |
1,430 |
4,292 |
9,125 |
|
|
% Revenue |
9% |
0% |
4% |
8% |
12% |
6% |
Based on the data in table 3, the FCFF can be calculated for the
2023-2027 period. Table 4 shows the calculation of FCFF for 2023-2027.
Table 4. Free Cash Flow to the Firm
|
FCFF Calculation |
|||||
|
in Billion Rp |
2023 |
2024 |
2025 |
2026 |
2027 |
|
Revenue |
78,049 |
87,660 |
97,272 |
106,883 |
116,495 |
|
|
|||||
|
% COGS |
85% |
85% |
85% |
85% |
85% |
|
COGS |
66,389 |
74,565 |
82,740 |
90,916 |
99,091 |
|
% Operating Expense |
9% |
9% |
9% |
9% |
9% |
|
Operating Expense |
7,206 |
8,093 |
8,981 |
9,868 |
10,755 |
|
|
|||||
|
EBIT |
4,454 |
5,002 |
5,551 |
6,099 |
6,648 |
|
Tax Rate |
22% |
22% |
22% |
22% |
22% |
|
EBIT (1-Tax) |
3,474 |
3,902 |
4,330 |
4,757 |
5,185 |
|
|
|||||
|
% Depreciation |
2.29% |
2.29% |
2.29% |
2.29% |
2.29% |
|
Depreciation |
1,788 |
2,008 |
2,228 |
2,448 |
2,668 |
|
|
|||||
|
% CAPEX |
2.89% |
2.89% |
2.89% |
2.89% |
2.89% |
|
CAPEX |
2,259 |
2,537 |
2,815 |
3,093 |
3,372 |
|
|
|||||
|
% Working Capital |
6% |
6% |
6% |
6% |
6% |
|
Working Capital |
5,015 |
5,632 |
6,250 |
6,867 |
7,485 |
|
Changes in Working Capital |
- 4,110 |
618 |
618 |
618 |
618 |
|
|
|||||
|
FCFF |
7,113 |
2,755 |
3,125 |
3,495 |
3,865 |
The terminal value captures
the cash flow at the end of the research objective period. The required
variables include the last year's free cash flow, the long-term growth rate,
and WACC. The value of the long-term growth rate is using assumptions from average
GDP growth from the past five years. The calculation of terminal value is shown
below.
= 66,894
The next step is to
calculate the DCF from the previously calculated data. It will show the present
value from FCFF and terminal value.
Table 5. Discounted Cash Flow
|
Discounted Cash Flow Calculation |
||||
|
Period |
Year |
FCFF |
WACC |
Present Value |
|
1 |
2023 |
7,113 |
9.40% |
6,502 |
|
2 |
2024 |
2,755 |
2,302 |
|
|
3 |
2025 |
3,125 |
2,387 |
|
|
4 |
2026 |
3,495 |
2,440 |
|
|
5 |
2027 |
3,865 |
2,466 |
|
|
Terminal Value |
66,894 |
42,686 |
||
|
DCF |
58,782 |
|||
The final step is to calculate
the intrinsic value of SMAR. The enterprise value calculation involves
deducting the DCF value by net debt and non-controlling interest. The net debt
value is derived by subtracting the cash amount from the total debt. Table 6
presents the calculation of the intrinsic value.
Table 6. Intrinsic Value
|
DCF |
58,782 |
|
Net Debt |
20,873 |
|
Total Debt |
23,353 |
|
Cash |
2,480 |
|
Non-Controlling
Interest |
13,181 |
|
Enterprise Value |
24,727 |
|
Share Outstanding |
3 |
|
Intrinsic Value |
8,609 |
|
Current Market
Price |
5,200 |
|
Condition |
Undervalued |
Based on the calculation of
intrinsic value above, it shows that the intrinsic value or fair value from
SMAR is Rp 8,609 per share, while the current market price is Rp 5,200 per
share. Based on this result, the market value of SMAR is below its intrinsic
value, indicating that SMAR is currently in an undervalued position.
Relative Valuation
Relative valuation is used to determine the value of a stock by
comparing it to similar stocks in the market. SMAR has several main competitors
in the palm oil industry that will be compared in this research. The companies
chosen for comparison in this relative valuation are selected based on market
capitalization in the palm oil industry. Based on market capitalization, the
companies chosen for comparison with PT SMART Tbk (SMAR) are PT Astra Agro Lestari Tbk (AALI) and PT Sawit Sumbermas
Sarana Tbk (SSMS).
Price to Earnings Ratio
Figure 9. Price
to Earnings Ratio
Based on the figure above, SMAR's price-to-earnings ratio (PER)
tends to decrease annually, indicating potential undervaluation. The higher
growth in net income compared to stock prices suggests the market's incomplete
appreciation of SMAR's earnings growth. This may be due to cautious investor
sentiment and uncertainty in the palm oil industry. Based on the calculation
results, SMAR's price-to-earnings ratio is lower than the industry average. The
price-to-earnings ratio of SMAR in 2022 is 3 times, while the industry average
is 6 times. Therefore, based on this PER calculation, SMAR can be considered
undervalued.
Price to Book Value
Figure 10.
Price to Book Value
Based on Figure 10, SMAR's PBV ratio has fluctuated in the past
5 years, mostly below 1. This suggests that SMAR's stock price has been
cheaper or discounted compared to its book value. Based on the calculation
results, SMAR's PBV ratio is lower than the industry average. The PBV ratio of
SMAR in 2022 is 0.74 times, while the industry average is 1.16 times.
Therefore, based on this PBV calculation, SMAR can be considered undervalued.
Enterprise
Value to EBITDA
Figure 11. EV /
EBITDA
Based on
the figure 11, EV/EBITDA ratio from SMAR has shown a decreasing trend over the past 3 years. The growth in EBITDA has outpaced
the growth in enterprise value, indicating an improving operational performance
of SMAR. However, the market has not fully recognized this performance, as the
growth in enterprise value has not been as significant. Based on the
calculation results, SMAR's EV/EBITDA ratio is lower than the industry average.
SMAR's EV/EBITDA ratio in 2022 is 5.06 times, while the industry average is
6.33 times. Therefore, this EV/EBITDA calculation shows that SMAR can be
considered undervalued.
CONCLUSION
Based on financial ratio analysis, the business
performance of SMAR can be stated to have kept improving over the years. The
company's fundamentals over the past five years show significant progress,
especially in the substantial increase in profitability ratios. Furthermore, in
2022, SMAR achieved a remarkable 95% growth in net profit, indicating
outstanding performance. However, the market has not fully appreciated the
improvement in SMAR's business performance, as the market ratios show a decline
over the past five years.
Based on the FCFF method, the intrinsic value of SMAR is
Rp 8,609, while the market price is Rp 5,200, indicating that SMAR is
undervalued. Furthermore, based on relative valuation methods of PER, PBV, and
EV/EBITDA, SMAR is below the industry average, indicating that SMAR is
undervalued.
In order to close the discrepancy gap, there are two
proposed solutions, signaling and buybacks. SMAR needs to enhance market
confidence by engaging in effective communication with investors regarding its
long-term growth potential, business strategies, and exclusive value
proposition. SMAR can strengthen its market position by focusing on enhancing
product reputation and branding, thereby increasing investor interest.
Implementing share buybacks can signal confidence in the company's future and
contribute to a higher stock price per share.
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Copyright holders:
Fitradi Ramiza, Raden Aswin
Rahadi (2023)
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