STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY
Coal business is very interesting because the increasing demand and the increasing of the fuel mix share for power generation, expected to be 48% share in 2025. Indonesia is the most increasing country in South East Asia with 35.000 MW electricity addition program that will increase the coal demand...
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id-itb.:357872019-03-01T14:32:09ZSTOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY Ardian, Rivo Indonesia Theses Valuation, Regression, DCF, Sensitivity, Monte Carlo Simulation INSTITUT TEKNOLOGI BANDUNG https://digilib.itb.ac.id/gdl/view/35787 Coal business is very interesting because the increasing demand and the increasing of the fuel mix share for power generation, expected to be 48% share in 2025. Indonesia is the most increasing country in South East Asia with 35.000 MW electricity addition program that will increase the coal demand around 70 to 100 million tons of the current level. However, coal companies are affected by global coal commodity prices. In 2011 the coal industry gained huge profits when coal prices rose to USD 120/ton. But in 2012 coal prices dropped to the lowest price of USD 54/ton. In 2016 coal prices surged to past the previous highest price record and continued until 2018. At the end of 2017, PT Adaro Energy, Tbk (ADRO) had the largest market capitalization for the mining sector on the Indonesia Stock Exchange, approximately USD 4.4 billion or IDR 59.5 trillion. Adaro is developing vertical business integration from the mining industry to the energy supply industry (from pit-to-power business). While coal is still the company's main business, Adaro continues to develop the non-coal mining business to prepare a more stable revenue base to offset volatility in the coal sector. Beside the volatility of the commodity price, coal sector in Indonesia is also facing policy issue regarding the Domestic Market Obligation (DMO). The government regulates the DMO 2018 policy with ceiling price of USD 70 / ton for mandatory sales of coal companies to PLN in the framework of the national electricity program of 35,000 MW. This can be disadvantage for Adaro's business and the other coal companies as well. Based on issues of global coal price volatility and DMO 2018 policy, the fair value of ADRO shares must be recalculated considering the factors that might affect the valuation. The root cause analysis is carried out to determine the factors that influence stock valuations. Linear regression modelling is conducted to predict the effect of global coal commodity price on Adaro's revenue. The absolute valuation model (DCF) will show the fair value of ADRO shares at the end of 2017. Sensitivity analysis is carried out to provide a range of confidence in stock valuations. Finally, statistical hypothesis testing for two population parameters was conducted to determine the effect of DMO 2018 policy on the valuation of listed coal companies in Indonesia. With the DCF method, the valuation of ADRO shares at the end of 2017 is Rp.2,424. By running Monte Carlo simulation on stochastic factors, at certainty level of 50%, the valuation of shares will be in the range of Rp. 1,329 - up to Rp. 2,112, -. After conducting the statistical hypothesis testing for two population parameters of the listed coal companies in Indonesia, it is found that there is no statistically significant difference on the financial ratio PER, PBV, ROA, and NPM between before and after DMO 2018 policy. text |
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Coal business is very interesting because the increasing demand and the increasing of the fuel mix share for power generation, expected to be 48% share in 2025. Indonesia is the most increasing country in South East Asia with 35.000 MW electricity addition program that will increase the coal demand around 70 to 100 million tons of the current level. However, coal companies are affected by global coal commodity prices. In 2011 the coal industry gained huge profits when coal prices rose to USD 120/ton. But in 2012 coal prices dropped to the lowest price of USD 54/ton. In 2016 coal prices surged to past the previous highest price record and continued until 2018.
At the end of 2017, PT Adaro Energy, Tbk (ADRO) had the largest market capitalization for the mining sector on the Indonesia Stock Exchange, approximately USD 4.4 billion or IDR 59.5 trillion. Adaro is developing vertical business integration from the mining industry to the energy supply industry (from pit-to-power business). While coal is still the company's main business, Adaro continues to develop the non-coal mining business to prepare a more stable revenue base to offset volatility in the coal sector.
Beside the volatility of the commodity price, coal sector in Indonesia is also facing policy issue regarding the Domestic Market Obligation (DMO). The government regulates the DMO 2018 policy with ceiling price of USD 70 / ton for mandatory sales of coal companies to PLN in the framework of the national electricity program of 35,000 MW. This can be disadvantage for Adaro's business and the other coal companies as well.
Based on issues of global coal price volatility and DMO 2018 policy, the fair value of ADRO shares must be recalculated considering the factors that might affect the valuation. The root cause analysis is carried out to determine the factors that influence stock valuations. Linear regression modelling is conducted to predict the effect of global coal commodity price on Adaro's revenue. The absolute valuation model (DCF) will show the fair value of ADRO shares at the end of 2017. Sensitivity analysis is carried out to provide a range of confidence in stock valuations. Finally, statistical hypothesis testing for two population parameters was conducted to determine the effect of DMO 2018 policy on the valuation of listed coal companies in Indonesia.
With the DCF method, the valuation of ADRO shares at the end of 2017 is Rp.2,424. By running Monte Carlo simulation on stochastic factors, at certainty level of 50%, the valuation of shares will be in the range of Rp. 1,329 - up to Rp. 2,112, -. After conducting the statistical hypothesis testing for two population parameters of the listed coal companies in Indonesia, it is found that there is no statistically significant difference on the financial ratio PER, PBV, ROA, and NPM between before and after DMO 2018 policy. |
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Theses |
author |
Ardian, Rivo |
spellingShingle |
Ardian, Rivo STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY |
author_facet |
Ardian, Rivo |
author_sort |
Ardian, Rivo |
title |
STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY |
title_short |
STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY |
title_full |
STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY |
title_fullStr |
STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY |
title_full_unstemmed |
STOCK VALUATION OF PT ADARO ENERGY TBK; IMPACT OF THE COAL PRICE VOLATILITY |
title_sort |
stock valuation of pt adaro energy tbk; impact of the coal price volatility |
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