Analysis of Stock Valuation State-owned Enterprises Banking in
Related of Forming Holding Company State-owned Enterprises in
Banking and Financial Service Sector: Case Study of PT Bank
Mandiri and of PT Bank BRI
Anton Adventus Kacaribu
1
,*, Fachrudin
2
and K. A. Fachrudin
2
1
Master of Property Management and Valuation Program, Universitas Sumatera Utara, Medan 20155, Indonesia
2
Management Department, Faculty of Economics and Business, Universitas Sumatera Utara, Medan 20155, Indonesia
Keywords: Fair Value, Free Cash Flow to Equity, Relative Valuation, Abnormal Earning, Discounted Cash Flow,
Price Earning Ratio, Price to Book Value, Price to Sales Ratio, Overvalue, Undervalue, Holding
Abstract: This research aimed to estimate equity per share of holding company that will be created by government is
undervalue or overvalue and the other aimed is to know and analyze the intrinsic value of PT Bank Mandiri
(Persero) Tbk and PT Bank Rakyat Indonesia (Persero) Tbk.. For that reason PT Bank Mandiri
(Persero)Tbk and PT Bank Rakyat Indonesia (Persero) Tbk is choosen, because it will be big part of equity
holding. For this research, the information was used is secondary data of PT Bank Mandiri (Persero) Tbk
and PT Bank Rakyat Indonesia (Persero) Tbk by using annual report, and other information from all report
from other institution that support the research. This research use Free Cash Flow to Equity with Discounted
Cash Flow, Relative Valuation (with Price Earning Ratio, Price to Book Value and Price to Sales Ratio) and
Abnormal Earning as methods to valuing the company .As for result from the research, PT Bank Mandiri
(Persero) Tbk isundervalue because the share fairvalue is Rp8.762,09/share and the closing price of the
share is Rp 8.000,00/share and For PT Bank Rakyat Indonesia is also undervalue, because the share
fairvalue isRp4.085,50/share and the closing price is Rp 3.640,00/share.
1 INTRODUCTION
The forming of State-Owned Enterprises as a
Holding Company in Banking and Financial Service
Sector, is a strategic masterplan from State-Owned
Enterprises Minister, to develop efficiency, synergy
and increase value added for each State-Owned
Enterprises in Banking and Financial Service Sector.
The holding process is really interesting and unique
because, in the process PT Bank Mandiri (Persero)
Tbk and PT Bank Rakyat Indonesia (Persero) Tbk is
involved, because the roles of PT Bank Mandiri
(Persero) Tbk and PT Bank Rakyat Indonesia is very
dominant if it measured in total asset, due the value
of total asset is very large. At the other side these
bank have performance achievement in very good
way. Holding company has function as a parent
company and play role for planning, coordinating,
consolidation, emphasize and controling for the
purpose to optimalize the performance of branch
company.
Valuation is process of determining the current
worth of an asset or a company; there are many
techniques used to determine value. An analyst
placing a value on a company looks at the
company’s management, the composition of its
capital structure, the prospect of future earnings and
market value of assets (Investopedia). Besides, for
purpose of holding, valuation is useful for investor
to do investment. Investment is the placement of the
funds at this time hoping to generate profits in the
future. Investors in making decisions need important
information as the base for determining investment
choices. Investment decision is very important
because to obtain the optimum return and avoid
losses(Fachrudin, 2016).
Karlsson, Jofefsson and Osterlund (2011)
conduct research about stock price valuation, a case
study in dividen discount model and free cash flow
to equity model. This research using dividend
discount model (DDM) and free cash flow to equity
model (FCFE). The result of this research is
52
Adventus Kacaribu, A., Fachrudin, . and Fachrudin, K.
Analysis of Stock Valuation State-owned Enterprises Banking in Related of Forming Holding Company State-owned Enterprises in Banking and Financial Service Sector: Case Study of PT
Bank Mandiri and of PT Bank BRI.
DOI: 10.5220/0009897400002480
In Proceedings of the International Conference on Natural Resources and Sustainable Development (ICNRSD 2018), pages 52-57
ISBN: 978-989-758-543-2
Copyright
c
 2022 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

tendency of FCFE model works better towards
company with payout ratio and DDM model works
better in company high deviden payout ratio.
Benaji (2011) conduct research about valuation
fair value perum pegadaian related IPO planning in
2012 with free cash flow to equity method. This
research using discounted free cash flow to equity,
and the result is fair value range stock perum
pegadaian Rp 1.716,40/share to Rp 3.859,35/share.
The fair value is Rp 3.275,86.
Anggraeni, Rikumahu and Gustyana (2017)
make research about valuation analysis with Free
Cash Flow to Equity (FCFE) and Price Earning
Ratio (PER) . Study on infrastructure, utility and
transportation that listed on Indonesia Stock
Exchange from 2011-2015. The research using free
cash flow to equity(FCFE) and price earning ratio
(PER). There are three results,the first is FCFE
method can applied to calculate fair value stock. The
second is valuation model with price earning ratio
can applied to calculate fair value stock. The third, is
using FCFE method and the result 10 stocks is
undervalue, and the investment option is to buy the
stock, and 1 stock in undervalue, and the best option
is to sell the stock.
Magdalena (2012) research about stock valuation
in coal mining industry using free cash flow to
equity analysis, abnormal earning, and relative
valuation on PT Bukit Asam (Tbk). The research
method using FCFE,EAE and relative valuation. The
result is FCFE, EAE, and relative valuation shows
that undervalue. Singgih (2012) explained the
method using cross section regression with BLUE
(Best Linier Unbiased Estimator),The result is
growth rate of earning (GE) and systematic risk (β)
on simultaneously influence price earning ratio
(PER). Kristiantari (2012) conduct research about
analysis factors that influence under pricing stocks
on initial public offering on Indonesia Stock
Exchange. This research using analtytical
description with variable that got by emphrical
theoritic. The research conclusion is the
underpricing company do initial public offering is
influenced by underwriting reputation, company
size, purpose allocation fund. Saputra (2015)
researchs estimation of fair value stocks PT
Telekomunikasi Indonesia Tbk, using FCFE,
Dividen Discounted Model and Relative Valuation
using price earning ratio. The research concludes
stock of PT Telekomunikasi Indonesia Tbk. is a
good stock to buy. The reason is value of three
valuation is above average of closing price of PT
Telekomunikasi Tbk stock. Gardner, McGowan and
Moeller (2012) conduct research about valuing coca-
cola using free cash flow to equity valuation model.
This research using free cash flow to equity and the
result shows total value of coca-cola on 2010 is
$161.417, and the actual market value is $150.185.
Pratama (2010) did research about valuation analysis
about stock price using free cash flow to equity and
relative valuation (Study case: PT Bank Negara
Indonesia, Tbk.), using FCFE and relative valuation.
The research show the undervalue of FCFE method
and relative valuation method. Khasanah (2012)
conduct a research with the title about valuing stock
price with dividen discount model (DDM) and free
cash flow to equity (FCFE) (Study on stock index
LQ 45 in Indonesia Stock Exchange 2007-2011).
The method of this research using dividen discount
model (DDM) and Free Cash Flow to Equity
(FCFE) model (Study on stock index LQ 45 in
Indonesia Stock Exchange 2007-2011).
Through researches described above, there is two
purposes of this research, the first is to have better
understanding and valuing intrinsic share value of
PT Bank Mandiri (Persero) Tbk and PT Bank
Rakyat Indonesia (Persero) Tbk, with top down
analysis for knowing the information throughly
about financial statements of the company, and the
second is related of forming the holding company of
state-owned enterprises in banking and financial
sector service, for knowing and analyzing stock
price with valuation method to determine, is the
price undervalue or overvalue? The linkage of free
cash flow to equity, relative valuation, abnormal
earning and valuing company or share can be seen in
Figure 1.
Figure 1: Conceptual Framework
Top Down Approach
Macro Economic Data
Analysis of Banking Industry
Enterprise Analysis
Valuation
comparedwith
Rec onc iliation
and Estimated
Final V alues
-GDP
-Inflation
- Interest Rate
- Exchange Rate of
Rupiah Currency
Financial
Ratio
FCFE
Method
- Life Cycle Industry
- Factors influence
Busines s ac tivit ies
Relative Valuation
Method
Abnormal Earning
Method
Market Price
Undervalued
Overvalued
Analysis of Stock Valuation State-owned Enterprises Banking in Related of Forming Holding Company State-owned Enterprises in Banking
and Financial Service Sector: Case Study of PT Bank Mandiri and of PT Bank BRI
53

2 METHOD
This research used three approaches/ methods to
determine the fair value of equity. The first approach
using Discounted Cash Flow (DCF) with Free Cash
Flow to Equity (FCFE).The second approach using
Relative Valuation by using Price Earning Ratio
(PER), Price to Book Value (PBV) and Price to
Sales Ratio (P/S).And the third approach using
Abnormal Earning. These three approaches are used
for valuing the equity and estimating intrinsic value
with by dicounting value of future cash flows.
2.1 Analysis Technique
To estimate fair value of stock using Free Cash Flow
to Equity using Discounted Cash Flow, is required
projection of Free Cash Flow to Equity component,
like asset base. This research projection showed the
asset base to 5 years ahead. This is accordance to
Keputusan Kepala BAPEPAM-LK No. Kep-340-
BL/2012, that projection at least needed is 5 years
ahead.
2.2 Cost of Equity
The cost of equity is the rate of return that investors
require to invest in the equity of a firm. The purpose
of cost of equity is used to discount cash flows to
equity (Damodaran, 2012). Generally, the formula of
cost of equity can be earned by Capital Asset Pricing
written as follows:
E
(r)
=K
e
= R
f
+ β(ERP
mm
– CRP)
E
(r)
= Expected return of asset
K
e
= Cost of equity
R
f
= Risk-free rate
β = Beta of asset
ERP
mm
= Mature market equity risk premium
CRP = Country Risk Premium
In search value of β,this research using unlevered
beta of finance/banking sector, due to the
operational using deposit and debt from customer, so
levered beta value must be calculated. The formula
of levered beta can be seen as follows
Β
L
= β
U
(1+(1-t)L/E)
Β
L
= Beta levered
Β
U
= Beta unlevered
t = Tax rate
L = Book value of liabilities
E = Book value of equity
2.3 Free Cash Flow to Equity
Free Cash Flow to Equity with Discounted Cash
Flow says the formula used is different than the
normal one for banking and financial service sector.
This is because estimating net capital expenditure
and noncash working capital for a bank or insurance
company is difficult, because asset and liabilities in
form of financial claim, and the second reason is a
difficult way to define short-term debt for financial
service firms because the complexity of balance
sheet. So, we redefine reinvestment as investment in
regulatory capital. Not just that, Damodaran says the
truth of book value of banking and financial service
sector can be accounted for, because the strict
regulation in this sector. To estimate FCFE for bank,
the approach using reinvestment in regulatory
capital as reinvestment. Different than the usual one
look backwards, in this case the approach focus on
estimating future FCFE. So, it begin with current
values for asset base and current value of regulatory
capital (book equity). After that, we can estimate
and obtain current regulatory capital ratio and
current return on equity. The formula can be seen as
follows
Current regulatory capital ratio

Regulatory Capital
Asset Base
Current return on equity ratio

Net Income
Regulatory Capital
The Free Cash Flow to Equity for banking and
financial service can be written as follows:
FCFE
Bank
= Net Income – Increase in Regulatory
Capital.
2.4 Terminal Value/ Steady State
Terminal value is a measure of how much the
project is worth at the end of its lifetime N years. In
a simple way, terminal value can be explain as
approach of grow with a constant rate forever. With
assumption of long life company based on going
concern aspect, terminal value approach will be give
more reasonable yield. The general formula used in
calculating terminal value can be seen as follows
Terminal Value 
FCFE

Ke  g
FCFE = Free cash flow to equity n year
Ke = Cost of equity
g = Stable growth
ICNRSD 2018 - International Conference on Natural Resources and Sustainable Development
54

2.5 Determination of the Value of
Equity
Value of equity is total present value of estimation
of free cash flow to equity from 2017 as current year
to 2022 added with present value of terminal value.
The value of equity can be seen as.

FCFE


1K







Terminal Value


1𝐾𝑒



2.6 Relative Valuation
In relative valuation, the value of asset compared to
the values assessed by market for similar or
comparable assets. So, to do relative valuation we
need identify comparable asset, standarized values,
compare and controlling for any difference. Price
can be standarized using common variable such as
earnings, cashflow, book value or revenue.
2.7 Price/ Earning Ratio
Price/Earning Ratio is the ratio for valuing a
company that measure its share price per share to
per-share earning. This is to see the capable of
company to generate net income per share
PER 
Market Price per Share
Earning per Share
2.8 Price/ Book Value
Price/Earning Ratio is the ratio for valuing a
company that measure its market value per share to
book value per share.
PBV 
Market Value per Share
Earning per Share
2.9 Price/ Sale Ratio
Price/Sales Ratio is the ratio for valuing a company
that measure its market value of equity to revenue
This is to see the capable of company to generate
revenue.
P/S Ratio 
Market Value of Equity
Revenue
2.10 Abnormal Earning
Abnormal earning is a method for determining a
company’s equity value based on book value and
earnings (investopedia). It can be calculated by
initial book value of the year reduced by growth of
the book value. The formula can be seen as follows:
Abnormal Earning  E  K

BV
2.11 Discount for Lack of Marketability
and Control
Based by KEP-196/BL/2012, appraisal is must be
use discount for valuing. Discount for lack of
marketability is a percentage to reduce the value of
equity, due to the liquidity of appraised object .
Meanwhile, discount for lack of control is a
percentage to reduce the value of equity, due to the
control of appraised object.
2.12 Reconciliation of Value
The final result of stock valuation must be in single
value, on the other hand, to reviewing is the method
appropriate and the value is rational. Valuing
reconcilation done with give weight to each item.
3 RESULTS AND DISCUSSION
The results will be divided in three methods
3.1 Free Cash Flow to Equity
Table 1: Bank Mandiri
Hi
g
hli
g
hts Present Value
12
FCFE 0 7.551.193
FCFE 1 10.094.664
FCFE 2 13.034.889
FCFE 3 15.946.521
FCFE 4 18.829.228
FCFE 5 21.682.672
Total FCFE
(
A
)
(
in million
)
87.139.167
Terminal Vaiue (B) (in million) 288.418.130
Total A + B
(
in million
)
375.557.297
Total A + B 375.557.297.000.000
Current Outstandin
g
Shares 46.199.999.998
Indication Value per Share 8.128,95
Discount for Lack of
Marketability 30% 2.438,68
Discount for Lack of Control
35% 2.845,13
Value of E
q
uit
y
/Share 2.845,14
Analysis of Stock Valuation State-owned Enterprises Banking in Related of Forming Holding Company State-owned Enterprises in Banking
and Financial Service Sector: Case Study of PT Bank Mandiri and of PT Bank BRI
55

Table 2: Bank Rakyat Indonesia
Hi
g
hli
g
hts Present Value
1 2
FCFE 0 12.063.809
FCFE 1 12.754.548
FCFE 2 12.911.233
FCFE 3 13.064.703
FCFE 4 13.214.586
FCFE 5 13.360.490
Total FCFE (A) (in million) 77.369.369
Terminal Value (B) (in
million) 294.076.114
Total A + B
(
in million
)
371.445.483
Total A + B 371.445.483.000.000
Current Outstandin
g
Shares 122.112.351.900
Indication Value per Share 3.041,83
Discount for Lack of
Marketability 30% 912,55
Discount for Lack of Control
35% 1064,64
Value of E
q
uit
y
/Share 1.064,65
3.2 Relative Valuation
Table 3: Bank Mandiri
Description
Multiplie
r
EPS BVS RPS Amoun
t
PER
33,5
7
637,0
3 21.385,18
PBV
1,7
7
3.474,1
6 6.149,26
P/S
49,8
5
1.720,8
1 85.782,38
Amoun
t
113.316,9
3
Averag
es
37.772,31
DLOC 35% 13.220,31
DLOM 30% 11.331,69
Indication of the value
p
er share
13.220,3
1
Table 4: Bank Rakyat Indonesia
Descriptio
n
Multiplie
r
EPS BVS RPS Amoun
t
PER 33,57
284,8
4 9.561,98
PBV 1,77
1.309,1
0 2.317,11
P/S 49,85
842,6
6
42.006,6
0
Amoun
t
53.885,7
3
Average
s
17.961,9
1
DLOC 35% 6.124,78
DLOM 30% 5.249,81
Indication of the value
p
er share
6.286,6
7
3.3 Abnormal Earning
Table 5: Bank Mandiri
Present Value Abnormal Earning
(in million) 172.175.509
Present Value
Abnormal Earning
172.175.508.9
22.641
Outstanding Shares
46.199.999.99
8
Indication Value per Share
3.726,74
Discount for Lack of Marketability
30% 1.118,02
Discount for Lack of Control 35% 1.304,36
Value of Equity/Share 1.304,36
Table 6: Bank Rakyat Indonesia
Present Value Abnormal Earning
(in million) 175.439.042
Present Value Abnormal Earning 175.439.042.115.782
Outstanding Shares 122.112.351.900
Indication Value per Share
1.436,70
Discount for Lack of Marketability
30% 431,01
Discount for Lack of Control 30% 502,85
Value of Equity/Share 502,85
3.4 Reconcillation of Value
Table 7: Bank Mandiri
Method/Model
Indication
of Value
Weigth
Weighted
Value
A.Discounted Cash
Flow Method
2.845,14 20% 569,03
Free Cash Flow to
Equity Model
B. Abnormal
Earning
1.304,36
20% 260,87
C. Relative
Valuation
Value of PER,PBV
and P/S 13.220,31 60% 7.932,19
Amoun
t
(A+B+C) 100% 8.762,09
Estimated Fair
Value Per Share 8.762,09
Range Value of
Stock
Determination 8.512,09 s/d 9.012,09
ICNRSD 2018 - International Conference on Natural Resources and Sustainable Development
56

Table 8: Bank Rakyat Indonesia
Method/Model
Indicatio
n of
Value
Weight
Weighted
Value
A. Discounted Cash
Flow Method
1.064,65 20% 212.93
Free Cash Flow to
Equity Model
B. Abnormal
Earning
502,85
20% 100,57
C. Relative
Valuation
(PER,PBV,P/S)
Value of PER,PBV
and P/S 6.286,67 60% 3.772,00
Amoun
t
(A+B+C) 100% 4.085,50
Estimated Fair
Value Per Share 4.085,50
Range Value of
Stock
Determination 3.985,50 s/d 4.185,50
4 CONCLUSION
This study found that both Bank Mandiri (Fair
value: Rp 8.762,09; Market price: Rp 8.000,00) and
Bank Rakyat Indonesia (Fair value: Rp 4.085,50;
Market price: Rp 3.640,00) is undervalue.
Difference value of fair value price compare to
market price can be guideline for forming holding
company, for government, the best time for forming
the holding when the member of holding in
overvalue, but at the other hand it must be still look
condition of stabilize market and good performance
member of holding.
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Analysis of Stock Valuation State-owned Enterprises Banking in Related of Forming Holding Company State-owned Enterprises in Banking
and Financial Service Sector: Case Study of PT Bank Mandiri and of PT Bank BRI
57