JCI’s PBV Ratio and Its Role In the Valuation Analysis of Stock Market
- 2 days ago
- 5 min read
When investors debate the valuation of the JCI (Jakarta Composite Index) aka IHSG, they almost always refer to the Price-to-Earnings (P/E) Ratio. However, for the Indonesian stock market, there is one equally important metric that often escapes attention: the Price-to-Book Value (PBV).
The reason is simple yet fundamental. The JCI is dominated by the banking sector, that are naturally evaluated using PBV, not just the P/E Ratio alone. This article discusses how PBV and P/E complement each other as valuation analysis tools and why PBV is a highly relevant lens for understanding the current condition of the Indonesian stock exchange.
What Is Market PBV?
Market PBV is a ratio that compares the total market price (market capitalization) of all listed companies within an index to the combined total book value of those companies. In simple terms, PBV answers the question:
For every Rp1 of a company’s net asset value, how many rupiah is an investor willing to pay?
If PBV = 1.0×, it means the market values the company exactly equal to its book value. If P/BV = 1.63×, as is the current condition of the JCI*, investors are paying a 63% premium over the book value. And if PBV is below 1.0× (below book), the market is actually valuing the company below its book value—a strong signal of extreme pressure or discount.
*As of May 31, 2026
Why Do PBV and P/E Ratio Complement Each Other for the JCI?
These two metrics actually work best side by side. The choice of which one becomes the primary focus of analysis heavily depends on the sectoral composition of the index being analyzed. Based on data as of the end of May 2026, the Financial and Banking sector dominates the JCI’s weight by more than 30% of the total market capitalization—with the four private and state-owned banks (BBCA, BBRI, BMRI, BBNI) being the index’s largest constituents. This dominance of the banking sector is what makes PBV a highly relevant metric to use alongside the P/E Ratio in reading the JCI’s valuation.
Reason | Explanation |
Bank Earnings Are Highly Volatile | Banks can make large loan loss provisions in a single quarter. The book value is much more stable compared to annual net income. |
Capital-Based Regulation | The Financial Services Authority (OJK) regulates bank capital adequacy (CAR) based on the book value of equity. PBV directly reflects how much premium the market places on that regulatory capital. |
Main Assets = Receivables & Securities | Unlike technology companies whose assets are intangible, bank assets (loans, bonds, marketable securities) have a tangible and verifiable book value on the balance sheet. |
Dividend & ROE Linked to BV | Return on Equity (ROE) of banks—the key performance indicator—is profit divided by book value. A high P/BV reflects expectations of better ROE in the future. |
Unlike exchanges such as the S&P 500, which are heavily populated by technology companies (Meta, Nvidia, Google) with intangible assets that are difficult to value on a book basis, P/BV becomes highly relevant for JCI analysis because the banking sector has a more transparent and standardized balance sheet. Meanwhile, P/E remains useful as a complement—especially for reading earnings cycles and comparing profitability across sectors.
How to Calculate Market PBV
Conceptually, market PBV is calculated using a simple formula:
Market PBV = Total Index Market Cap ÷ Total Book Value (Equity) of Listed Company
The result is a weighted average figure based on the weight of each listed company within the index. Companies with larger market capitalizations contribute more heavily to the aggregate market PBV figure. That is why the four major banks—which have market capitalizations in the trillions of rupiah—heavily determine the overall direction of the JCI’s PBV.
JCI at a Discount: 1.63× vs. Historical Average of 2.15×
This is the figure that attracts the most attention right now. As of the end of May 2026, the JCI’s PBV is at the 1.63× level, while its historical average during the chart period (Jan 2024–May 2026) stands at 2.15×. This means that the Indonesian stock exchange is currently trading at a discount of about 23% from its historical fair value.
Current JCI’s PBV | 1,63× | Trading below the historical average, an attractive undervalued signal for value investors. |
JCI’s Historical PBV Average | 2,15× | Average PBV of JCI over the period Jan 2024–May 2026. This figure serves as a measurable ‘fair value’ benchmark. |
Discount vs. Historical Average | -23% | JCI is currently trading approximately 23% below its historical PBV average, leaving ample room for appreciation. |
JCI’s PBV Trend Chart
The following chart shows the monthly movement of JCI’s PBV over nearly three years, complete with the historical average line as a valuation reference:
From the chart above, the JCI’s PBV over the period January 2024–May 2026 reached its peak at 2,53× in January 2026, after having previously been pressured down to around 1,86× in March 2025. The current level of 1.65× represents the lowest point within the observation period, which fundamentally makes it an attractive entry point for investors with a medium-to-long-term investment horizon.
PBV vs P/E Ratio: When to Use Which?
Dimension | P/E Ratio | PBV |
Suitable For | Technology companies, consumer goods, manufacturing with stable earnings. | Banks, insurance companies, investment firms, financial holdings. |
Weakness | Highly susceptible to provisioning manipulation and bank earnings cycles. | Less relevant for asset-light companies (technology, software). |
Relevance for JCI | Moderate — the JCI’s P/E is heavily influenced by large bank provisioning cycles. | Very High — Banks dominate the JCI, with real and measurable assets. |
Conclusion
The PBV ratio is an essential and contextual valuation indicator for the JCI, particularly for measuring the real net worth of companies amidst the dominance of the banking sector. The fact that the JCI’s current PBV is at 1.63×—approximately 23% below its historical average of 2.15×—is a strong signal that cannot be ignored. This figure reflects that the market is offering a structural discount on Indonesian assets with fundamentally solid footing; a valuation dimension that is not always optimally captured when relying solely on the P/E ratio.
Nevertheless, the historical average of PBV should only serve as a directional reference, not an absolute benchmark. Comparing the current figure directly without accounting for the dynamics of shifting sectoral composition risks drawing inaccurate conclusions. Therefore, PBV must be analyzed synergistically alongside P/E and ROE indicators. P/E Ratio complements the earnings dimension missed by PBV, while ROE determines whether a low valuation genuinely reflects an undervalued stock or simply a rational market adjustment due to deteriorating performance.
For long-term investors, this solid analytical framework, combined with strong market liquidity, makes the JCI’s current discount a highly compelling target for accumulation. Akin to buying property below its fair market value, a PBV valuation sitting well below its historical average presents a tangible opportunity and a clear signal for investors to step in, rather than step away.
Disclaimer: This content is created for educational purposes or service promotion, and does not constitute a recommendation to buy or sell any specific Securities. Any risks arising from investment decisions made based on the information in this publication are the sole responsibility of the respective audience. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (Otoritas Jasa Keuangan / OJK).
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