Krakatau Steel (A)

Situation
Bambang Supriyanto has been diving in capital market for several
years. He is an investor with a moderate risk profile and has to be sure
whether he is investing on the right stocks. He always checking the
background and the financial recored of a company before deciding to
invest his money on certain stocks. Currently Bambang has been
considering on investing a big amount of money on Krakatau Steels
stock.
PT Krakatau Steel Tbk is an extremely well-known steel company
in Indonesia. In 2009, Krakatau steel company has become a market
leader with domestic market share of 57% in HRC (Hot Rolled Coil), 32%
in wire rod and 33% in CRC (Cold Rolled Coil). PT Krakatau Steel Tbk is
established in 1970 and has ten subsidiaries. PT Krakatau Steel Tbk has
been building a loyal relationship with its customers for more than 20
years. In November 2010 PT Krakatau Steel TBK has been officially listed
in BEI (Bursa Efek Indonesia) with a stock code KRAS. PT Krakatau Steel
Tbk offers 3.155.000.000 shares to public which is 20% of the paid-up
capital. This step is take order to expand its production capacity. They
planning to use 35,8% of the IPO income to add more production
machine for achieving the production target of 3,5 million-ton HRC per
year. Beside that PT Krakatau Steel Tbk is also planning to use 24,2% of
the IPO income to buy the raw materials, 25% to finance maturation of
388 hectares lad for integrated steel mills project with POSCO, and 15%
to increase the capital investment in two PT Krakatau Steel Tbk
subsidiary, PT Krakatau Bandar Samudera nad PT Krakatau Daya Listrik.
But during IPO the share price was claimed too low. At first offering,
3.155.000.000 shares were offered at price Rp 850,- per share. This
incident disappointed lots of people. People were outraged by the price
that was deemed inappropriate. At the same time Ministry of State
Owned Enterprises, Mustafa Abubakar and the underwriter denotes the
price of its initial public offering of shares of PT Krakatau Steel is already
optimal.
This issues triggers Bambang to do a financial performance
measurement of Krakatau Steel compare to other local steel companies.
The local companies is PT Gunawan Dianjaya Steel and PT Jaya Pari Steel
as the steel companies which were already settled in BEI before PT
Krakatau Steel. And to assess the financial performance, Bambang use 3
method : Trend Analysis, BUMN Financial Scoring, and DuPont Formula.

Analysis
1. Trend Analysis
A positive growth rate shows the capability of the company to
maintain the performance of the company. A company which has a
continuous growth year over year of course will potentially bring more
profit to the investors in the future. Compound Annual Growth Rate
(CAGR) is invented to assess the growth rate each year. CAGR can be
calculated through dividing the ending value to beginning value, raised
to the power of 1/(number of years) subtract it by 1. The function is :
CAGR(

V(

tn

) = Ending Value

V(

t0

) = Beginning Value

tn

t0

t 0, t n

)=

V (t n)
V (t 0)

1
t nt0

-1

= Number of Years

In analyzing the performance trend of a company, there is several

ratios which can be classified into 4 :
Revenue
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
COGS to Revenue
Operating Expenses to
Revenue
Market
Earnings per share
Book value per share
Return
Return on Assets
Return on Equity
Debt
Debt to Equity
Debt to Capital

Formula
Gross Profit / Revenue
Operating Profit / Revenue
Net Income/ Revenue
COGS / Revenue
Operating expenses / Revenue

Net Income / Revenue

Equity / Shares Outstanding
Net Income / Asset
Net Income / Equity
Debt / Equity
Debt / Capital

The result after use year 2007 2010 for the three steel companies :
PT Krakatau Steel
Krakatau Steel
2008
2009
2010
Gross Profit
Margin
Operating
Profit Margin
Net Profit
Margin
COGS to
Revenue

Gross Profit /
Revenue
Operating
Profit /
Revenue
Net Income /
Revenue
COGS /
Revenue

Operating
Expenses to
Revenue

Operating
Expenses /
Revenue

Earnings per
share

Net Income /
Shares
Outstanding
Equity /
Shares
Outstanding

Book value per

share

Return on
Assets
Return on
Equity

Net
Income
/Asset
Net Income /
Equity

Debt to Equity

Debt / Equity

Debt to
Capital

Debt /
Capital

2007
11.95%

13.16%

7.01%

5.34%

6.59%

0.15%

15.04
%
6.68%

2.11%

2.23%

2.92%

7.15%

88.05%

86.84%

92.99
%

84.96
%

6.60%

6.57%

6.86%

8.36%

31.00

402.09

36.00

431.04

39.20

81.31

460.0
5

711.1
2

CAG
R
7.98
%
7.75
%
50.1
6%
1.19
%
8.17
%

37.9
1%
20.9
3%

2.82%

2.99%

3.87%

6.04%

28.9
4%

6.18%

8.45%

8.52%

11.43
%

22.7
8%

1.19

1.82

1.20

0.88

0.54

0.64

0.54

0.46

9.59
%
5.06
%

PT Gunawan Dianjaya

Gross Profit
Margin

Gross Profit /
Revenue

Operating
Profit Margin

Operating Profit /
Revenue

Net Profit
Margin
COGS to
Revenue
Operating
Expenses to
Revenue

Net Income /
Revenue
COGS / Revenue

Earnings per
share

Net Income /
Shares
Outstanding
Equity / Shares
Outstanding

Book value per

share

Operating
Expenses /
Revenue

Return on
Assets

Net Income /Asset

Return on
Equity

Net Income /
Equity

Debt to Equity

Debt / Equity

Debt to
Capital

2007
21.01%

14.86%

7.76%
78.99%
6.15%

Dianjaya Steel
2008
2009
18.54%
11.45
%
13.80%
16.63
%
2.75%
9.14%
81.46% 111.39
%
4.73% 5.24%

2010
17.36
%
12.05
%
10.02
%
82.64
%
5.31%

38.02

24.59

(25.98
)

20.91

(2.44)

51.30

82.10

111.7
8

18.19%

3.97%

1555.56
%

47.92%

15.45
%
31.64
%

15.95
%
26.55
%

(86.52)

11.08

1.05

0.66

1.01

0.92

0.51

0.40

Debt / Capital

CAGR
6.16
%
6.74
%
8.92
%
1.52
%
4.78
%
18.08
%
47.61
%

4.28
%
25.57
%

75.52
%
26.66
%

PT Jayapari Steel

Gross Profit
Margin
Operating
Profit Margin
Net Profit
Margin
COGS to
Revenue
Operating
Expenses to
Revenue

Gross Profit /
Revenue
Operating Profit /
Revenue
Net Income /
Revenue
COGS / Revenue

Earnings per
share
Book value
per share

Net Income / Shares

Outstanding
Equity / Shares
Outstanding

Operating Expenses /
Revenue

Return on
Assets
Return on
Equity

Net Income /Asset

Debt to
Equity
Debt to
Capital

Debt / Equity

Net Income / Equity

2007
16.17
%
12.82
%
9.60
%
83.83
%

2008
15.75
%
13.42
%
6.71
%
84.25
%

3.35
%

2.32
%

55.42

65.54

294.1
5

Jaya Pari Steel

2009 2010
11.69 13.03
%
%
6.70
8.98
%
%
0.63
6.65
%
%
88.31 86.97
%
%
4.99
%

CAGR
-6.96%
-11.19%
-11.53%
1.24%

4.05
%

6.49%

2.56

37.93

-11.88%

359.7
0

362.2
5

400.1
8

10.81%

15.46
%
18.84
%

12.31
%
18.22
%

0.54
%
0.71
%

6.92
%
9.48
%

0.22

0.48

0.30

0.37

19.25%

0.18

0.32

0.23

0.27

14.67%

-23.53%
-20.47%

Debt / Capital

Krakatau
Steel

Dianjaya
Steel

CAGR
7.98%

CAGR
-6.16%

7.75%

-6.74%

Gross Profit
Margin
Operating
Profit
Margin
Net Profit
Margin
COGS to
Revenue
Operating
Expenses to
Revenue

Gross Profit /
Revenue
Operating
Profit /
Revenue
Net Income /
Revenue
COGS /
Revenue
Operating
Expenses /
Revenue

Earnings per
share

Net Income /
Shares
Outstanding
Equity /
Shares
Outstanding

37.91%

Return on
Assets
Return on
Equity

Net Income
/Asset
Net Income /
Equity

28.94%

-4.28%

22.78%

-25.57%

Debt to
Equity
Debt to
Capital

Debt / Equity

-9.59%

-75.52%

Debt / Capital

-5.06%

-26.66%

Book value
per share

Jayapari
Steel
CAGR
-6.96%

-11.19%
50.16%

8.92%

-1.19%

1.52%

8.17%

-4.78%

-11.53%
1.24%

6.49%
-18.08%
-11.88%
20.93%

47.61%
10.81%

-23.53%
-20.47%

19.25%
14.67%

If we compare the CAGR of Krakatau Steel with DIanjaya Steel and

Jayapari Steel than we can assume that the growth of the Krakatau Steel
is in a good growth. For example : Based on CAGR for profit, Krakatau
Steel had a very good growth while other top 3 showed the downward
trend.

2. BUMN Financial Scoring

BUMN Financial Scoring framework is a new framework introduced
by the government and based on Keputusan Menteri Badan Usaha Milik
Negara,
KEP-100/MBU/2002.
Through
BUMN
Financial
Scoring
Framework, performance of company can be classified into three
categories such as healthy, less healthy and unhealthy. In BUMN
Scoring Framework, performance of company is based on three
aspects, financial aspect which contributes 70% of the total score,
Operational and administration aspect with contribution of 15%
each. For the financial aspect, the ministry of state-owned
company has approved several financial ratios that are considered
to be important in assessing a financial performance of a company.
There are 8 financial ratios where each of ratios has specific weight
contributed to the overall score.

For the EBITDA, it is gotten from EBIT + Depreciation, the EBIT can be
derived from (Income from tax + Interest Expense Interest Income).
The score for health classification :

BUMN measurement will only using the latest year which is year 2010.
Weight
ed

Return on
Equity (ROE)
Return on
Investment
(ROI)
Cash Ratio
Current Ratio

Collection
Period
Inventory
Turnover
Total Asset
Turnover
Total Equity /
Total Asset
Total Score
Rating
(Adjusted

Net Income /
Equity
EBITDA / (Total
Asset - Net
Fixed Asset)
Cash / Current
Liability
Curret Asset /
Current
Liability
Account
Receivable x
365 / Revenue
Inventory x
365 / Revenue
Revenue /
Asset
Equity / Asset

20%
15%

5%
5%

Krakatau
Steel
2010
11.43
%
13.77
%

1
6
1
2

60.51
% 5
177.2
9% 5

5%

Dianja
ya
Steel
2010
26.55
%
29.34
%

Jaya Pari
Steel

20
15

0.89%
169.03
% 5

5
31.11

5%
160.9
2
5%
84.49
%
10%
52.85
%
70%

12.17
%
276.8
3%

79.87

4
118.86

4.
5
4

99.58

159.15
%
60.09
%

5
8
62

58
AA

10.65
%

5
20.08

3.
5
8.
5

2010
9.48% 14

AA

104.0
1%
72.98
%

4
7.
5
50
A

Score)

From the table we can see the top 3 rating of healthy company is all
good and healthy company. The Krakatau Steel and the Dianjaya Steel
the compare to the Jayapari Steel is better.
3. DuPont Formula
DuPont formula is a common model to measure a companys
financial performance. DuPont analysis calculates the ROE since it
gives a brief look on how profitable the company to the investors
interest. The higher the ROE, the more attractive the company in the eye
of the investors.
ROE is affected by three things:
- Operating Efficiency (represented by the Profit Margin Ratio)
- Asset used efficiency (represented by Total Asset Turnover)
- Financial Leverage (represented by the Equity multiplier)
The equation is
ROE = Profit Margin x Total Asset Turnover x Equity Multiplier

DuPont analysis will be only using the latest year.

Profit Margin
Ratio
Total Asset
Turnover
Euity
Multiplier

Net Profit /
Revenue
Revenue / Asset
Asset / Equity

Krakatau
Dianjaya
Jaya Pari
Steel
Steel
Steel
2010
2010
2010
7.15%
10.02%
6.65%
84.49%

159.15%

104.01%

189.20%

166.42%

137.03%

ROE

11.43%

26.55%

9.48%

From the table the ROE PT Krakatau Steel compare to Jayapari Steel
gained more profit. But, if compared to PT Dianjaya Steel, the PT
Krakatau Steel gained less profit. The financial performance of Krakatau
Steel is behind Dianjayas although it is better than Jayaparis.
Conclusion
Since two out of three of tools for analysis the financial
performance of the PT Krakatau Steel show good result. It means that
the PT Krakatau Steel is worth investing. And Bambang can invest
happily.