United Tractor Beta Analysis

1.  Company profile

United Tractor is a company which particularly majoring business in distributing heavy equipment and was the largest company in the equipment business in Indonesia.

United Tractor was established on October 13th, 1972. They go public and listed its shares in Jakarta and Surabaya Stock Exchange as PT United Tractors Tbk (UNTR) on 1989, with PT Astra International Tbk as the majority shareholder.

2.  Analysis 

A.    Stock Price Analysis

	Stock Price	Date	IHSG	Date	LQ45	Date
Max	33,000.00	Mar 30,2012	4,811.61	Mar 1, 2013	827.97	Mar 1, 2013
Min	2,400.00	Oct 29, 2008	1,111.39	Oct 28, 2008	206.67	Oct 28, 2013

In the peak point of the stock price, we can see that it is not simultaneously increase along with the peak of the market index either in the IHSG or the LQ45.On March 30,2012 the stock price has the highest point of Rp 33.000, increase by 0.0185 point from previous day (32.600). According to our opinion, it is affected by the strength of IHSG. The strength of IHSG here means that the market was strengthened as well.

The lowest stock price happened on October 29, 2008 in the level 2.400 decrease 0.094 point from previous day, although the market index already increased. During September 18, 2008 until October 29, 2008 the stock price decline from 10.050 until 2.400. Because United Tractors deals with heavy equipment business, the economic crisis in 2008 gave a significant impact to the company. That is why its stock price declined substantially.

Overall the stock price is so fluctuate

IHSG and LQ45

Category	IHSG	LQ45
Equation	Ri = 0.000173552 + 1.543975479RmIHSG	Ri = 0.000487015 + 1.338619082RmLQ45
t-stat	34.63697961	35.275205
Hypothesis testing	·         Ho & Ha -          Ho à β = 0 -          Ha à β ≠ 0 ·         α = 5% à t˷, 0.25 = 1.96 ·         Accept Ho if -1.96 ≤ t ≤ 1.96 ·         Reject Ho if -1.96 > t > 1.96 ·         T-statistic =34.63697961 34.63697961 > 1.960 àreject Ho	·         Ho & Ha -          Ho à β = 0 -          Ha à β ≠ 0 ·         α = 5% à t˷, 0.25 = 1.96 ·         Accept Ho if -1.96 ≤ t ≤ 1.96 ·         Reject Ho if -1.96 > t > 1.96 ·         T-statistic =35.275205 35.275205> 1.960 àreject Ho
Conclusion	β ≠ 0, so, the Rm (market return) has a significant influence to Ri (stock return).	β ≠ 0, so, the Rm (market return) has a significant influence to Ri (stock return).
β	1.543975479	1.338619082

Analysis

1.      Equation

a.      IHSG

The equation has a constant or α = 0.000173552 which means that if there is no market return, the stock return will be 0.000173552.The coefficient of variable is 1.543975479indicating that the changes of 1 market return will affect 1.543975479 changing of the stock return. Because the slope is positive, it means that there is a positive relationship between marketreturn and stock return. So, if the market return increases, the stock return also increases, and vice versa.

b.      LQ45

The equation has a constant or α = 0.000487015. This means that when the market return is 0, the stock return will be 0.000487015. The coefficient variable or the slope which is 1.338619082 implies that the changes of 1 in market return will involve 1.338619082 changing in the stock return. In LQ45, the equation also shows positive slope. This denotes that an increase in market return leads to an increase in the stock return.

2.      Analysis of CAPM (Capital Asset Pricing Model)

Expected Risk Premium on Stock = beta x expected risk premium on market

                                    r  -  r_f     =  β(r_m  -  r_f )

Note:

r  = Expected return

r_f  = risk free rate

β  = beta

r_m = market return

From our calculation, the expected return (r) on stock based on:

a.       IHSG = 0.0008596753

b.      LQ45 = 0.0005837

We can see from the result that the expected return of UNTR stock based on IHSG is higher than based on LQ45. The consequence of the higher return is the higher risk. This is aligned with our result which finds that the β based on the IHSG market return is higher than LQ45 which means that IHSG has a higher risk.

3.      Analysis of β

The β of IHSG is more than 1 (1.543975479), as well as the β of LQ45 (1.338619082). It means that the stock return has a higher fluctuation than the market return. So, United Tractors’ stock is categorized as aggressive stock. The β also represents the systematic risk of the stock. The higher the β leads to the higher the risk of the company’s stock. β, variance, and standard deviation have a positive correlation. Hence, the increase in β will raise the standard deviation which represents the risk of the company’s stock.

The difference between β of IHSG and β of LQ45:

•  The substantial difference is in the composition. IHSG summarizes all of the stocks that are listed in the Indonesian Stock Exchange (IDX), while LQ45 consists of 45 most liquid companies that have big influence on market.
• The risk of LQ45 is lower than IHSG that is caused by the scope. Since LQ45 comprises only of 45 the best companies in term of liquidation, it leads to a lower value of risk compared to IHSG that lists all the companies in Indonesia. This can also be seen from the value of the beta. The beta of the LQ45 is lower than IHSG since beta has a positive correlation with the risk. 
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Diagram analysis

Arithmetic Average Stock Return      : 0.001071302

Standard Deviation Stock Return      : 0.035315199

IHSG Arithmetic Average Return      : 0.000581453

IHSG Standard Deviation                  : 0.016010013

The stock market condition of PT. United Tractor Tbk was very dynamic, starts from the beginning of January 2008 until the end of 2010. There is a substantial increase and decrease in one month. It indicates that the stock market of the company is risky investment.

There are a linearly relationship between the stock return and market return. The increase of market return (IHSG) will follow by the increase of the stock return. The reciprocal, when there is a decrease in market return (IHSG), it will follow by the decrease in stock return. The linearity is also relevant, in term of the risk. From the data of the average stock return, it has higher value than IHSG average return, means that the return of the stock is high. Unfortunately, it also follows with a high risk. The standard deviation of the stock return is higher than the IHSG standard deviation. This implies that the risk of the stock return is almost twice higher than the IHSG market return.

Arithmetic Average Stock Return      : 0.001071302

Standard Deviation Stock Return      : 0.035315199

LQ45 Arithmetic Average Return      : 0.000436485

LQ45 Standard Deviation                  : 0.018637319

There are a linearly relationship between the stock return and market return. The increase of market return (LQ45) will follow by the increase of the stock return

The linearity is also relevant, in term of the risk. From the data of the average stock return, it has higher value than LQ45 average return, means that the return of the stock is high.

CONCLUSION

1.      The stock price of United Tractor is very dynamic. The gap of stock price is significant from the highest price (Rp 33.000) to the lowest(Rp 2.400) in the last five years. It indicates that the United Tractor Company can’t maintain the stock price steadily.

2.      Beta of this company is more than 1, means that the company is categorized as aggressive stock. The stock return is higher than the market return, but it follows with the increase of risk.