Leverage Supports ROE of SOEs

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PT Perusahaan Gas Negara Tbk (PGAS), PT Bank Rakyat Indonesia Tbk (BBRI), and PT Semen Gresik Tbk (SMGR) are state-owned enterprises (SOE) with the highest returns on equity (ROE). IFT Research Department said that high ROE is due to the profitability rate, assets-to-equity or leverage ratios, and good asset productivity rate.

Perusahaan Gas Negara posted 38.31 percent ROE, the highest among 18 SOEs in the Market, which have an average ROE of 15.14 percent. Perusahaan Gas Negara profitability rate is 1.82, measured from assets-to-equity ratio, and asset productivity rate of 0.64 percent.

BRI showed an ROE of 31.24 percent, the highest among SOE banks, including PT Bank Mandiri Tbk (BMRI) with an ROE of 19.11 percent and PT Bank Negara Indonesia Tbk (BBNI) with an ROE of 12.70 percent.

BRI's profitability rate is also higher at 9.34, compared to 8.1 for Bank Mandiri and 7.17 for BNI. BRI's asset productivity rate is 0.11 percent.

Semen Gresik has an ROE of 28.42 percent, with almost similar profitability, productivity and leverage rate with other publicly-listed SOEs. Assets-to-equity ratio is 1.29, while asset productivity rate is 0.87 percent.

In terms of price-to-book value (PBV), stock price of the three companies are high. Perusahaan Gas Negara PBV at a stock price of Rp 4,250 reached 6.01, BRI's PBV at a stock price of Rp 6,300 was 3.75, and Semen Gresik's PBV at a stock price of Rp 9,500 was 4.32. This shows that the book value of the three companies is considered to be higher by the market due to expectation of higher productivity in the future.

In terms of price-to-earnings ratio (P/E), stock price of the three companies are cheap. Perusahaan Gas Negara PER is 15.71, BRI at 12.01 and Semen Gresik at 15.20. This shows that stock price of the three companies has a potential to increase.

Lowest ROE

Two SOEs with the lowest ROE are PT Garuda Indonesia Tbk (GIAA) and PT Krakatau Steel Tbk (KRAS). Garuda Indonesia ROE was minus 0.11 percent, as the company recorded a net loss of Rp 183.66 billion in the first quarter of 2011. P/E is high at 78.26.

Krakatau Steel ROE was 7.7 percent, due to low company profitability margin of 3.35 percent. Market players, however, are still confident that the company will show better performance by end of 2011, which will lower the current P/E of 19 to 11.

PT Kimia Farma Tbk (KAEF) is an SOE with low market appreciation. The company’s REO is good, although not high, at 13.08. The P/E is only 6.61 and its PBV is less than one, which means Kimia Farma's stock price at Rp 186 is below its book value.

Pardomuan Sihombing, Head of Research from Recapital Securities, said that attractive SOE stocks are in financial, mining and manufacturing sectors. SOE stocks are attractive as they have large market capitalization.

From the financial sector, Pardomuan said that Bank Mandiri stocks have the largest potential to increase. The same is also possible for SOEs engaged in in mining, including PT Tambang Batubara Bukit Asam Tbk (PTBA), PT Timah Tbk (TINS) and PT Aneka Tambang Tbk (ANTM). Semen Gresik's stocks have the most potential in the manufacturing sector, said Pardomuan on Thursday.

Gina Novrina, an analyst from Reliance Securities, said that SOE stocks in construction sub-sector are relatively cheap, including those from PT Adhi Karya Tbk (ADHI) and PT Wijaya Karya Tbk (WIKA). Gina said the two countries have several construction projects. “PT Jasa Marga stocks also have higher potential due to the number of toll road projects,” said Gina. (