Economic Value Added (EVA) Brief: PT Pembangunan Perumahan Tbk (PTPP.JK)

It is pleasing to see another consistent wealth creator. PTPP has been a wealth creator for at least 3 years in a row. Yes, its EVA declined somewhat in 2018, a contraction of 1,2% EVA momentum in magnitude, but it is still a positive NPV company. That in itself is a good thing.

The reason for the contraction of EVA growth came from both decline in productivity and growth, with an emphasis on productivity.

As is usually the case, this decline in productivity could also be observed in ROIC, which has been in a downward trend since 2015.

This decline in productivity resulted because PTPP has been stepping up its capital, and especially so in the 2017-2018. Margin, on the other hand, is not an issue. If there is something to worry, it is in the trajectory of capital needed since 2017. If it continues, no doubt it would further reduce productivity gain and hurt EVA.

That being said, at IDR 1,750/share, the market sees PTPP as a negative NPV company, which has not been the case. It may be true that capital intensifies in this year as a consequence of national development without adequate financings, but as far as I am concerned, valuing a proven wealth creator to be a negative NPV company is taking it too far. MVA, as I calculate it is –IDR 718 Billion. As I suspected, this company worth a more detailed analysis, although for me, this layer of analysis is quite enough to make a decision.

Note: There are actually some substantial items that should be adjusted to arrive at a more accurate EVA figures. I did not do those adjustments as I deem the adjustments are not material to cause significant change in performance outlook.