Jakarta, CNBC Indonesia \u2014 Turmoil surrounding MSCI since last Friday\nhas sent hundreds of shares tumbling, pushing them well below their\nfundamental values.<\/p>\n
The Jakarta Composite Index (IHSG) has fallen by more than 10% since\nMSCI raised the possibility of Indonesia being moved to standalone\nmarket status. So far this year, the IHSG has plunged by 40%.<\/p>\n
However, a low share price does not necessarily mean a low valuation.\nConversely, shares with high prices or large market capitalisations are\nnot necessarily trading at expensive valuations.<\/p>\n
Several LQ45-listed companies with market capitalisations of tens or\neven hundreds of trillions of rupiah still have relatively low\nvaluations. Some have price-to-earnings ratios (PER) of around three\ntimes and price-to-book ratios (PBV) below one.<\/p>\n
How to assess whether a share is cheap or\nexpensive<\/strong><\/p>\n A share\u2019s valuation cannot be judged solely by its price per share.\nInvestors can also use financial ratios, particularly PER and PBV, to\ncompare a share price with a company\u2019s fundamentals.<\/p>\n PER measures the share price against earnings per share. For example,\na PER of five times means the share price is equivalent to five times\nthe annual earnings per share used in the calculation. All else being\nequal, the lower the ratio, the less an investor pays for each rupiah of\nearnings.<\/p>\n PBV, meanwhile, compares the share price with the book value per\nshare. A PBV below one means the market price is lower than the share\u2019s\naccounting book value.<\/p>\n Dividend yield can also be considered. It shows dividends per share\nas a proportion of the share price, giving an indication of the dividend\nreturn at a particular price level.<\/p>\n LQ45 shares with low valuations<\/strong><\/p>\n Valuation data show that several LQ45 shares have single-digit PERs\nand PBVs below one, although the companies\u2019 market capitalisations vary\nconsiderably.<\/p>\n PT Astra International Tbk (ASII) has the largest market\ncapitalisation on the list, at Rp180.15 trillion. Its shares trade at a\nPER of 6.05 times and a PBV of 0.78 times, with a dividend yield of\n8.76%.<\/p>\n Next is PT Bank Negara Indonesia (Persero) Tbk (BBNI), with a market\ncapitalisation of Rp117.49 trillion, a PER of 5.67 times and a PBV of\n0.72 times. BBNI\u2019s dividend yield is 11.08%.<\/p>\n PT Alamtri Resources Indonesia Tbk (ADRO) has a market capitalisation\nof Rp68.26 trillion, a PER of 6.96 times and a PBV of 0.83 times. Its\ndividend yield is 11.10%, the highest among the companies listed.<\/p>\n By PER, PT Bank Tabungan Negara (Persero) Tbk (BBTN) has the lowest\nratio, at 3.06 times, followed by PT Indah Kiat Pulp & Paper Tbk\n(INKP) at 3.41 times.<\/p>\n INKP also has the lowest PBV on the list, at 0.30 times, followed by\nBBTN at 0.34 times. This means both shares trade below their book value\nper share.<\/p>\n In terms of dividends, ADRO and BBNI have the highest yields, at\n11.10% and 11.08% respectively, followed by PT Perusahaan Gas Negara Tbk\n(PGAS) at 9.51%.<\/p>\n Low share valuations do not necessarily mean shares are\nundervalued<\/strong><\/p>\n Even with low PER and PBV ratios, these shares are not necessarily\ntrading below their fair value.<\/p>\n A low PER may indicate that a share is relatively cheap compared with\nearnings, but it may also reflect temporarily high profits or\nexpectations of weaker future performance.<\/p>\n Similarly, a PBV below one does not always mean a share is\nundervalued. The market also takes into account a company\u2019s ability to\ngenerate returns from its assets and capital.<\/p>\n The companies on the list operate in different sectors, so\ncomparisons should take account of each company\u2019s business\ncharacteristics, profitability, earnings outlook and risks.<\/p>\n PER and PBV are therefore best used as an initial guide to valuation,\nrather than as the sole basis for deciding whether a share is worth\nbuying.<\/p>",
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