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Valuation

Implementation
Annisa Regita
Ardifah Aghnia Ulhaq
Ria Sulistyawati
There are various approaches that analyst
can follow to value a firm’s equity :
■ To value the firm’s equity directly as, for example, the sum of its book value of equity
and the present value of forecasted net profits, discounted at the cost of equity.
■ To value the firm’s business assets as the sum of these assets’ book values and the
present value of forecasted NOPAT plus NIPAT then discounted at the weighted
average cost of capital first and then calculate equity value as the difference
between the value of business assets and the after-tax value of debt claims.
■ To separately value operating assets as the sum of these assets’ book values and
the present value of forecasted NOPAT then discounted at the required return on
operating assets first and then calculate equity value as the sum of the value of
operating assets and the value of investment assets minus the after-tax value of
debt claims.
ORI014 = 5.85% SBR004 = 8.05%
Amount Weight Amount Weight
Equity 22,754 0.23 Equity 22,754 0.23
Debt 75,140 0.77 Debt 75,140 0.77

Beta 1.86 Beta 1.86


Rm-Rf 2.95% Rm-Rf 0.75%
Cost of Equity 11.34% Cost of Equity 9.45%

Cost of Debt 8.00% Cost of Debt 8.00%


Tax Rate 25.00% Tax Rate 25.00%
After Tax Cost of After Tax Cost of
Debt 6.00% Debt 6.00%
Beta 1.86
Rm-Rf 0.75%

Total value of Cost of Equity 9.45%

equity claims (1) Cost of Debt


Tax Rate
8.00%
25.00%
SBR004 8.05%

total value of equity claims

2.015 2.016 2.017 2018F 2019F 2020F

Net profit 1.048 1.813 4.201 4.922 5.012 6.324


Discount rate 9,45% 9,45% 9,45% 9,45% 9,45% 9,45%

PV 11.090 19.185 44.455 52.085 53.037 66.921

after tax value debt claims 0,060375 0,060375 0,060375 0,060375 0,060375 0,060375
Discount rate 8% 8% 8% 8,0% 8,0% 8,0%
0,754687
PV 0,7546875 0,7546875 0,7546875 5 0,7546875 0,7546875

total value of capital claims 11.091 19.186 44.456 52.085 53.038 66.921
Beta 1.86
Rm-Rf 2.95%
Cost of Equity 11.34%
Total value of Cost of Debt 8.00%
equity claims (2) Tax Rate 25.00%
ORI014 5.85%

total value of equity claims

2.015 2.016 2.017 2018F 2019F 2020F

Net profit 1.048 1.813 4.201 4.922 5.012 6.324


Discount rate 11,34% 11,34% 11,34% 11,34% 11,34% 11,34%

PV 9.242 15.988 37.046 43.404 44.198 55.767

after tax value debt claims 0,043875 0,043875 0,043875 0,043875 0,043875 0,043875
Discount rate 8% 8% 8% 8,0% 8,0% 8,0%

PV 0,5484375 0,5484375 0,5484375 0,5484375 0,5484375 0,5484375

total value of capital claims 9.242 15.988 37.046 43.404 44.198 55.768
Computing
Estimated Value
Assets to Equity Values (all in Billions)
Steps

TA –TL – Financial Assets + Financial Liab.


1 Net operating assets
(Financial Assets 2017 = 9,175,498,843)
Projection of short-term investment
2 Investment assets
(Short-term Investment 2017 = 8,448,200,000)
3 Net assets held for sale Not available (N/A)
4 PV of tax shield (Interest expense x Tax rate) x Discount factor
5 (Value debt) Projection of net debt
Projection of Profit (loss) attributable to non-controlling interests
6 (Value minority interest) Profit (loss) attributable to non-controlling interests 2017 =
319,860,573,416
Assets to Equity Values (all in Billions)
Calculation
Equity Value 2018 F 2019 F 2020 F TOTAL
TA 56,182 60,256 64,654
(TL) (28,325) (30,378) (32,596)
(Financial Assets) -15.77 -15.82 -15.86
Financial Liab 0 0 0
Value of net operating assets 27,841 29,862 32,042 89,746
Value of investment assets 9,531 10,222 10,968 30,721
Value of net asset held for sale - - - -
Interest expense 511.26 618.63 723.80
Tax rate 25% 25% 25%
Tax shield 127.82 154.66 180.95
Disc. Factor 0.819672131 0.671862403 0.624370556
PV of tax shield 155.93 230.19 1217.21 1,603
Proceeds from bank loans 54,509.06 58,460.96 62728.61
Payments of bank loans (36,250.75) (38,878.93) -41717.09
Proceeds from bonds payable 4,992.30 5,354.25 5745.11
Payments of bonds payable (1,259.60) (1,350.92) -1449.54
Proceeds from other
2,995.17 3,212.32 3446.82
borrowings
Payments of other borrowings (5,138.10) (5,510.61) -5912.88
(Value of debt) (19,848) (21,287) (22,841) (63,976)
(Value of minority interest) -550.16 -949.02 -1641.81 (3,141)
TOTAL 54,953
Discounted Cash Flow Using
Terminal Value
Free Cash Flow can be categorized into 2 types of company:
● Free Cash Flow to Equity (FCFE) = suitable for a company that has a strong equity financing, in this type
we assuming that every free cash flow will deliver to shareholder as dividend
● Free Cash Flow to Firm (FCFF) = while this one is suitable for a firm which has many method of
financing; debt and equity
The important thing using this FCF is fundamental because the value of a firm can be obtained by looking its
FREE CASH FLOW
Within this method, there are 3 approaches that can be used:
1. Constant growth = suitable for a firm that had been mature enough in industry, so their growth only
stable for a long time
2. Two-stages = suitable for a firm which indicates will be own a higher growth in the early period,
then continuously with stable growth at the end
3. Three-stages = suitable for a firm which has a fluctuating growth in the cycle, for early period
they will projected has a high growth then declining for a while, and at the end will be stable
Computing Discount Rate re = rf + β E rm − rf
Capital Asset Pricing Model (CAPM)
Beta = 1.86
Risk free = 8.05% (SBR004, mature at 2020)
Risk free = 5.85% (ORI014, mature at 2020)
Market risk = 8.8% (Source: Research KPMG)
re = 8.05% + 1.86 (8.8% - 8.05%) re = 5.85% + 1.86 (8.8% - 5.85%)
re = 9.45% re = 11.34%
rd = 6% (After tax)

This approach concept is based on the nature the amount that investors
demand as additional return for bearing beta risk.
Computing Discount Rate
Weighted Average Cost of Capital (WACC)
Amount (in Billions) Weight
Equity 22,754 0.23
Debt 75,140 0.77
11.34%
Cost of equity
(ORI014)
Cost of debt 6.00%

WACC 7.24%

WACC indicates the return that both kinds of stakeholders (equity owners and
lenders) can expect to receive
Discounted Free Cash Flow (in Billions)
2017 2018F 2019F 2020F
Net Income 4,201 4,921 5,012 6,324
Increase in Net Debt (1,333) (1,439) (1,554) (1,667)

(Changes in Operating WC) (8.00) (8.50) (9.17) (9.90)

(Change in investment assets) (640) (691) (746) (801)

(Change in net non-current


(341) (366) (393) (426)
operating assets)

FCF 3,857 4,547 4,606 5,894

Free Cash Flow =


Net income + Increase in net debt – Changes in operating working capital – Change in investment assets -
Changes in net non-current operating assets
Terminal Value (in Billions)
Perpetuity Growth

FCF (last year) = 5,894


Cost of equity = 11.34%
Terminal growth = 5%
𝐹𝐶𝐹 (𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟)
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
(𝑟 − 𝑔)

Terminal value = 93,008


Calculating Enterprise Value (in Billions)

2018F 2019F 2020F Terminal


FCF 4,547 4,606 5,894
Discount Factor 1.0724 1.1501 1.2333
PV 4,240 4,005 4,779 93,008
Enterprise Value 106,033
𝑡
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑓𝑎𝑐𝑡𝑜𝑟 = 1 + 𝑊𝐴𝐶𝐶
Calculating Fair Price
Shares Outstanding
Enterprise Value (in Billions) 106,033
Shares Outstanding (in Billions) 13.574

Fair Price Rp 7,811


52-Weeks High Rp 3,150
52-Weeks Low Rp 1,415
Nov, 5 Rp 1,505
Undervalued
Discounted Dividen Model
Using Terminal Value
ddm
Price Multiple Using Terminal
Value