COMPANY VALUATION OF PT VALE INDONESIA TBK DURING ELECTRIC VEHICLE SALES BOOM

• Main Author: Rizki Nugroho, Daniswara
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/63472
• Institution: Institut Teknologi Bandung

More countries are joining the pledge to reduce carbon emission through the Paris Agreement and the United Nation’s Sustainable Development Goals. Both the government and the industries are collectively working in a collaborative effort to transform the existing supply chain into an inclusive ecosystem for a more sustainable power source. Road transport alone contributes to almost 12% of global greenhouse emissions annually. The global electric vehicles (EV) sales boom that has been going on since 2016 are expected to stay as analyst forecasts that the EV is predicted to replace the internal combustion engine (ICE) in the near future. Since then, nickel has become one of the most valuable materials in the EV industry as the mineral is one of the main ingredients for EV batteries. Indonesia is the home to the world’s largest nickel reserves with proven nickel reserves amounting to 22% of the world’s total reserve. The Indonesian government is actively inviting foreign investors as the nation is currently building an end-to-end supply chain for electric vehicles. As a result, PT Vale Indonesia Tbk has been dethroned from being the nation’s largest nickel-producing company. To cope with the competition, the company is planning to ramp up its nickel output through facility optimization and new smelter. The announcement has piqued the interest of both institutional and retail traders as the company’s stock price has spiked from Rp 3,000 per share in June 2020 to Rp 7,000 per share in January 2021. Referring to the information, the author conducted a study to determine whether the spike in stock price is appropriate in relation to the company’s valuation or not. The author uses the discounted cash flow (DCF) valuation method for intrinsic valuation and the market multiples method for relative valuation. Company valuation using both intrinsic and relative valuation suggests that Vale Indonesia’s stock is currently trading at a discount. Furthermore, historical data indicate that the company is only using a small portion of long-term borrowing to fund projects in the past. In response, the author recommend Vale Indonesia utilize more long-term borrowing in funding the upcoming expansion program as a strategy to reduce the company’s weighted average cost of capital (WACC).