If you buy PWON shares in stock-exchange market, it means you pay for this company in worth of IDR 25 billion value per December 2014. The value of the intangible assets of this company is 4 times of its book value.
By 1st December 2014, Agung Podomoro Land Tbk has its capitalization value in worth of IDR 7.3 billion. Its P/BV ratio value is 1.19 which means the value of its intangible assets is only 0.19 times of its book value. Meaning, for this company, the value of its market capitalization and book value are not really different.
Both of a.m. examples for big developer companies have shown us that the intangible assets in the property industry play the important roles and lead toward the values of companies. The shareholders might be able to gain the value of the company which is higher comparing with the asset or book value. This intangible asset is commonly known as goodwill if there is any merge process or acquisition of the company.
How Much is Value of the Intangible Assets?
Each industry has its own different intangible asset. The range of total value for the intangible asset of a company which has been 'go public' is around 1.5 to 2 times of its book value. It shows that the value of company capitalization is more driven by the value of the intangible asset than by its book value.
How about property industry? The ratio value of P/BV is 2.04 times [based on research of Bisnis Indonesia, dated on 8 December 2014, as printed in Property-in Magz page 6]. This figure indicates that the value of intangible asset of property industry is around 1.04 times or almost the same with its book value.
Therefore, the value of intangible asset in property industry is really below of the average of the intangible asset of among all of industries in average. In example, the consumer goods, this industry has very high P/VB since its intangible value is very high. The P/VB ratio value of Unilever, for example, might reach 40 times. Meaning, the book value of this company is relatively low while its capitalization value is high. Even, if the top-10 property companies are united, the capitalization value is low to be compared to PT Unilever Indonesia Tbk.
Sources of Intangible Asset
So, what are the sources of the intangible asset in property industry? I am sure that the sources are not different than others. The first one is the power of developer's brand. Secondly, customer's loyalty. Other source which driven the intangible asset is management quality and great relationship between suppliers and other stakeholders.
Pakuwon Jati Tbk and Metropolitan Kencana Tbk posses their powerful brands and loyal customers. It is understandable indeed, since both of these developers operate the successful shopping centers. They have customers who become the long-term-period renters. Here are the elements which drive the value of great intangible assets of those companies.
The larger the size of a developer company is, the more important its brand become in playing its role. The brand creates the intangible asset because with a powerful brand, the possibility of a developer to gain its profit is getting higher and more sustainable. The great brands have the opportunities to determine the premium prices. In the same location, with the same concept and the same quality for the building, a developer who has powerful brand will be able sell even before the start building. They are able to sell the image to customers.
Some of property projects which are not running properly, sometimes they have to cooperate with developers which having strong brands. With the powerful brands of developer, a project might become more attractive for the investors. They will believe easily to the great name and reputation of a developer company without considering other factors.
Beside the brand and customer's loyalty, the other intangible assets include the quality of management and relationship with suppliers and stakeholders. These might be able to influence the intangible assets of the company. The things that are not easy is to determine the size of the portion of the sources which drive the intangible asset, e.g. from the total intangible asset, how many percent of the contribution of the brand of a developer company?
Theoretically, if a company has the last 5 years financial report and the survey result - about how the role of its name and reputation of a developer influence the decision of prospects in buying the property - then value of this brand can be estimated.
Surely, we cannot expect the contribution of great brand just like in consumer goods industry, where the contribution of brand might reach 80-90% high towrad the intagible assets. In my estimation, the role of developer's brand toward th eintangible asset is around 10-30%. If the intangible asset reaches more than IDR 10 billion - like Bumi Serpong Damai, Pakuwon Jati and Ciputra - then the price of the brand, which consists of a name and logo, might reach a value worth of billions rupiah. This is great figures and requires strategy to maintain the power of the brand in order to keep it popular and has its good reputation.
How about property industry? The ratio value of P/BV is 2.04 times [based on research of Bisnis Indonesia, dated on 8 December 2014, as printed in Property-in Magz page 6]. This figure indicates that the value of intangible asset of property industry is around 1.04 times or almost the same with its book value.
Therefore, the value of intangible asset in property industry is really below of the average of the intangible asset of among all of industries in average. In example, the consumer goods, this industry has very high P/VB since its intangible value is very high. The P/VB ratio value of Unilever, for example, might reach 40 times. Meaning, the book value of this company is relatively low while its capitalization value is high. Even, if the top-10 property companies are united, the capitalization value is low to be compared to PT Unilever Indonesia Tbk.
Sources of Intangible Asset
So, what are the sources of the intangible asset in property industry? I am sure that the sources are not different than others. The first one is the power of developer's brand. Secondly, customer's loyalty. Other source which driven the intangible asset is management quality and great relationship between suppliers and other stakeholders.
Pakuwon Jati Tbk and Metropolitan Kencana Tbk posses their powerful brands and loyal customers. It is understandable indeed, since both of these developers operate the successful shopping centers. They have customers who become the long-term-period renters. Here are the elements which drive the value of great intangible assets of those companies.
The larger the size of a developer company is, the more important its brand become in playing its role. The brand creates the intangible asset because with a powerful brand, the possibility of a developer to gain its profit is getting higher and more sustainable. The great brands have the opportunities to determine the premium prices. In the same location, with the same concept and the same quality for the building, a developer who has powerful brand will be able sell even before the start building. They are able to sell the image to customers.
Some of property projects which are not running properly, sometimes they have to cooperate with developers which having strong brands. With the powerful brands of developer, a project might become more attractive for the investors. They will believe easily to the great name and reputation of a developer company without considering other factors.
Beside the brand and customer's loyalty, the other intangible assets include the quality of management and relationship with suppliers and stakeholders. These might be able to influence the intangible assets of the company. The things that are not easy is to determine the size of the portion of the sources which drive the intangible asset, e.g. from the total intangible asset, how many percent of the contribution of the brand of a developer company?
Theoretically, if a company has the last 5 years financial report and the survey result - about how the role of its name and reputation of a developer influence the decision of prospects in buying the property - then value of this brand can be estimated.
Surely, we cannot expect the contribution of great brand just like in consumer goods industry, where the contribution of brand might reach 80-90% high towrad the intagible assets. In my estimation, the role of developer's brand toward th eintangible asset is around 10-30%. If the intangible asset reaches more than IDR 10 billion - like Bumi Serpong Damai, Pakuwon Jati and Ciputra - then the price of the brand, which consists of a name and logo, might reach a value worth of billions rupiah. This is great figures and requires strategy to maintain the power of the brand in order to keep it popular and has its good reputation.
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Author: Handi Irawan D. | CEO of Frontier Consulting Group
Follow him on Twitter @handiirawanD
Printed version in Indonesia published by Property-in Magazine Edition 1 | January 2015
English Editorial: +Premium House
Image courtesy of Forbes
