Stock Valuation and Business Performance of Property Industry Post COVID-19 Era (Case Study of PT B)

COVID-19 emerged in late 2019 and led to Indonesia’s first confirmed cases in March 2020, triggering a rapid spread and a GDP contraction of −2.1% in 2020. Recovery began in 2021 with GDP growth of 3.7% and continued strong into 2022 at 5.2%, supported by rising private consumption and a higher Consumer Confidence Index (119.9 in Dec 2022 vs 118.5 in Dec 2021). The property sector benefited from this recovery and government stimulus. PT B, a leading Indonesian property developer (est. 1984, part of SM Group) with a large, diversified land bank and projects nationwide, showed improved profitability and reduced debt post-pandemic. However, its stock price did not reflect these fundamentals, remaining stagnant or declining. This research aims to evaluate PT B’s fundamentals, estimate intrinsic and fair value per share, and assess whether the stock is undervalued or overvalued in the post–COVID-19 era. Methods include Discounted Cash Flow (DCF) to derive intrinsic value (base and value-added scenarios) and Net Asset Value (NAV) to derive fair value. The study also examines broader market conditions, PT B’s business scope and prospects (balancing sales and recurring revenues, continued development of recurring income to 20% of revenue), and key issues such as rising residential prices (IHPR) and fluctuating commercial prices during and after the pandemic.

The literature defines valuation as determining a company’s fair worth using various approaches that yield a fair value range (Schmidlin, 2014). Discounted Cash Flow (DCF) valuation, based on present value of expected future free cash flows discounted at the weighted average cost of capital (WACC), is widely used (Damodaran, 2012). Free cash flow (FCF) represents cash available to creditors and equity holders after operating needs and net investments (Gitman & Zutter, 2010). WACC is the weighted average of the cost of equity and after-tax cost of debt according to the firm’s capital structure (Gitman & Zutter, 2010). Net Asset Value (NAV) estimates per-share fair value commonly for funds and real estate investments (Coskun, Erol, & Morri, 2020). The study also references external analysis frameworks: PESTEL for macro-environmental factors and Porter’s Five Forces for industry competitiveness (Thompson et al., 2018; Dobbs, 2014).

The study uses a quantitative approach to value PT B’s equity and analyze performance. Data collection relies on secondary sources: PT B’s and competitors’ audited financial statements (2018–2022) and annual reports from IDX, as well as books, journals, and articles. Analysis steps: (1) Assess internal and external business environment using PT B’s reports, PESTEL, and Porter’s Five Forces; (2) Analyze financial statements via ratio and cash flow analysis, using historical data to inform projections; (3) Determine equity value and intrinsic value per share using DCF, and fair value using NAV. The DCF employs WACC as the discount rate (with cost of equity and cost of debt estimated and weighted by capital structure). An added-value DCF scenario evaluates a proposed Gen Z affordable housing initiative. NAV valuation lists PT B’s land bank, applies market price per sqm and relevant taxes/discounts, adjusts for debt and cash, and divides by current shares outstanding to derive a fair value per share.

- Macroeconomic recovery: Indonesia’s GDP rebounded (2021: +3.7%; 2022: +5.2%) and CCI rose to 119.9 (Dec 2022), supporting property sector improvement. - External analysis: PESTEL highlights 2024 political uncertainty, interest rate movements (policy rate low at 3.50% in 2021, up to 5.75% in 2022), demographic dominance of millennials and Gen Z with affordability challenges, need for IoT/technology adoption, environmental push for green buildings, and regulatory compliance needs. Porter’s Five Forces indicates low supplier power, high buyer power, low substitutes, low threat of entrants due to high capital and land requirements, and high industry rivalry. - Internal resources and land bank: PT B manages numerous projects nationwide; significant land bank across multiple developments. - Balance sheet trends (IDR billion): Assets grew from 52,101 (2018) to 64,999 (2022); Equity from 30,287 to 38,045; Liabilities from 21,815 to 26,954. - Income statement trends (IDR million): Revenues increased from 6,628,782 (2018) to 10,235,480 (2022) (+54%); Gross profit from 4,754,508 to 6,826,040 (+44%); Construction costs surged from 123,051 to 980,497 (+697%). Net profit in 2022 was 546% of 2020 (486 in 2020 to 2,657 in 2022), reflecting recovery measures and effective national promotional strategy initiated in 2020. - Market performance: Stock price declined from 1,695 (2018) to 920 (2022); market cap fell from 35,885 to 19,478 (IDR billion). Dividend distributions ceased after 2016 (no dividend for 2017 onward), followed by a price decline. - Profitability and solvency: Net profit margin peaked in 2019, fell 83.2% in 2020, and recovered in 2021–2022. Debt ratios (DAR, DER) remained below 1 overall, with a spike in 2020. Management effectiveness improved: ROA rose from 0.8% (2020) to 4.09% (2022) (+412%), ROE from 1.41% to 6.98% (+395%). - WACC inputs: We=76.12%, Wd=23.88%, cost of equity=17.00%, cost of debt=7.93%, tax=22%, yielding WACC=14.42%. - DCF valuation (base): Intrinsic value per share = IDR 1,312. With closing price IDR 1,170 (June 9, 2023), the stock is undervalued by 10.80%. - DCF valuation (added-value scenario): Proposed development of 1,000 affordable Gen Z houses (30 sqm land; 40–45 sqm building; IDR 930 million price incl. furniture and VAT), assuming 80% sales, increases intrinsic value to IDR 1,708; margin of safety vs IDR 1,170 is 31.51%. - NAV valuation: After adjustments (tax, debt, cash) and applying an 80% discount to NAV, fair value per share = IDR 2,554. Reported margin of safety vs closing price is 118.29%. - Overall fair price range indicated: IDR 1,312 – 2,554 per share.

The study set out to determine whether PT B’s post–COVID-19 stock price reflects its underlying fundamentals and to estimate intrinsic and fair values. Despite improved profitability, stable solvency, and operational recovery, PT B’s share price remained depressed. The DCF analysis, using a WACC of 14.42%, indicates an intrinsic value (IDR 1,312) above the market price (IDR 1,170), suggesting undervaluation. The NAV approach, appropriate for property firms, yields a higher fair value (IDR 2,554), reinforcing the undervaluation and reflecting the substantial land bank value when marked to market with adjustments. The added-value DCF scenario demonstrates that targeted product strategy—affordable housing for Gen Z—could enhance equity value (IDR 1,708 per share), addressing demand-side constraints in the sociocultural context and potentially narrowing the gap between fundamentals and market price. Collectively, these findings support the hypothesis that PT B is undervalued and that strategic actions aligned with market demand can improve perceived value and price performance.

PT B, a leading Indonesian property developer with the largest land bank, experienced solid post-pandemic recovery in profitability and maintained sound solvency. However, its stock price has trended downward since 2017 and did not fully reflect improving fundamentals. Valuation results indicate undervaluation: DCF intrinsic value per share is IDR 1,312 (10.80% above the June 9, 2023 closing price of IDR 1,170). A value-added strategy—developing affordable Gen Z housing—raises intrinsic value to IDR 1,708, implying a larger margin of safety. Using NAV, a common approach for real estate firms, the fair value is IDR 2,554 per share. Overall, the fair price range is IDR 1,312–2,554 per share, and strategic alignment with affordability-driven demand could further enhance shareholder value. Future research could refine demand and pricing assumptions for the proposed Gen Z product, test sensitivity to macro variables (interest rates, inflation), and compare alternative valuation techniques or peer benchmarks.