Covered: PGAS, ICBP, BIRD, IPTV, WEGE
It's a good time to make a quick review of covered stocks so far starting from the most recent one.
PGAS (Perusahaan Gas Negara)
If PGAS could start to improve its EVA in this year, the odds would favor we have seen a major low. I do not think so. Yes, investors have never been this pessimistic looking at PGAS NPV. MVA was at a record low when PGAS share price hit 600/share. But it would be premature to call that point as an indication of extreme pessimism if one believes PGAS real condition (EVA) would soon further deteriorate. Either way, getting worse or not, PGAS should be valued below its book value.
Technically, PGAS is at an important level: the low point of 2008. There are some bearish indications from momentum indicators. I marked a triangle in the chart. One could easily make a price projection there. The projection paints an ugly picture for PGAS.
ICBP (Indofood CBP Sukses Makmur)
When Pinehill acquisition is said and done, Salim group would receive enormous money in its pocket, almost likely tax-free, and with a very low interest rate. In return, ICBP would have a major make-over to its financials, mostly bad. EVA would fall dramatically, ROIC would fall sharply to nearly its cost of capital, and that won’t change easily.
Investors’ expectation on ICBP NPV has always been a pipe dream, but at least it was backed by continued EVA growth (although it is far from enough to justify its share price). That backbone is now gone with Pinehill acquisition. This event is a game changer.
BIRD (Blue Bird)
Blue Bird business at its present condition is economically unsustainable. I do not see how it could even generate zero NPV. Its EVA has been negative for years and kept getting worse. Can it recover? Right now, BIRD investors are effectively pricing: “Stop. No more EVA contraction”. Historically, they have been pretty enthusiast that somehow BIRD could grow its EVA. No more. That expectation is now lowered substantially. Without a clear view on how EVA would develop, I think it is quite reasonable to say BIRD has been in a pessimistic phase. And that means, BIRD may have already formed a complete cycle from extreme optimism to extreme pessimism (see MVA chart below).
I have no strong views on BIRD share price. I see some strengths in technical chart. Fundamentally speaking, a slight improvement in EVA is a good enough reason to send BIRD share price quite substantially because investors expectation is very low right now. The main reason why I do not dare to get some BIRD is that I just can’t see how BIRD business could become at least economically value-neutral. It is too risky in that sense. But there is a price where I would assume the risk. Maybe if BIRD share price were to go below 500 (it’s a price where we expect EVA to remain lame. Right now, investors still expect a bit of improvement).
IPTV (MNC Vision Networks)
Let’s suppose you found a business that could have EVA momentum of 9.0% per year for at least 5 years. That would be a strong buy. Right? It is..IF other investors have not already expecting that success yet.
IPTV indeed grew its EVA substantially in 2018 at a momentum pace of 8.3%. However, investors have effectively already priced-in for that momentum to continue. To add, I believe there is no way such strong EVA improvement could continue. 2019 improvement was a fluke majorly aided by local currency appreciation, not by better real operational management.
Whether IPTV EVA would contract or not in this year would not matter since investors have priced it to the moon. From my perspective, this stock is not even attractive even if it is trading at its IPO price.
WEGE (Wika Gedung)
We might have seen the all-important bottom
WEGE 2020 development so far has followed pretty much everything from prior analysis. In the most recent twelve-month, EVA went down driven by heavier working capital and intensifying fixed assets. ROIC went down a lot from 45% in Q4 2019 to 27% in Q1 2020 (LTM).
I do believe even at current level IDR 178/share, WEGE is severely undervalued. Look at MVA chart below. Investors have been viewing WEGE as a wealth destroyer, and they are getting more pessimistic. This happens despite the fact WEGE has been able to generate positive EVA even as we speak. At its lowest point (120/share), expected EVA growth has never been that pessimistic. Add that with technical chart below, I believe we have seen the phase of extreme pessimism for this stock.
What Is Different Now?
Compared to prior analysis, Q1 2020 result showed a mild EVA contraction instead of a sharp contraction. If EVA contraction throughout this year turns out to be gentle, then we have just seen a record pessimistic expectation from investors. This implies IDR 120/share to be a potential turning point. I change my mind a bit. I doubt we would see a new low. But even if it does, this is still a good bet.
From technical chart, 120/share was indeed an important level (see the confluence zone). It was marked by momentum divergence where RSI failed to detect the divergence. Right now, both momentum indicators are resting at their moving averages. It is often signalling a sharp move is about to happen.
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