FOCUS RESEARCH NEUTRAL. Good Result but The Threat of NPL Risk Increases 30 OCTOBER 2018

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1 FOCUS RESEARCH 30 OCTOBER 2018 COMPANY UPDATE NEUTRAL STOCK INFORMATION Bloomberg Code BBTN IJ Sector Bank Current Price Rp 2,050 Target Price Rp 1,900 Upside/Downside 7% Share Out (bn shares) 10.5 Market Cap (Rp bn) Rp 21, w range (low high) Rp 2,050 Rp 3, w average daily Rp 3,055 PRICE CHART Jan 13 = Source: Bloomberg SHAREHOLDERS INFORMATION, AS OF 30 SEPTEMBER 2018 Government Of Republic Indonesia 60.0% Public (below 5%) 40.0% Source: Company data PBV BAND BBTN Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Source: Bloomberg and Lotus Andalan Research Theodorus ArielKristian theodorus.ariel@lotussekuritas.com (+62 21) ext IDX Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 PBV Average Avg + stdev Avg stdev Avg + 2 stdev Avg 2 stdev 1.54x 1.28x 1.02x 0.76x 0.51x PT BANK TABUNGAN NEGARA (PERSERO) TBK Good Result but The Threat of NPL Risk Increases BBTN s NPL continued to improve to the level 2.65% in 9M18 thanks to its better collectability system and active monitoring on special mentioned loan category. However, the share price has shrunk significantly by 47% from its 2018 highest closing price and traded at 0.82x 2019F PBV due to the 2019 expectations of weakening loan growth and tighter liquidity which will trigger the potential deterioration of asset quality performance. Neutral rating on the counter. BBTN booked an inline 9M18 result During the 9M18 periods, the company s net interest income (NII) and net profit came in line within our expectation, formed by 75% and 72% to our 2018 projection of Rp 10.1 trillion in NII and Rp 3.1 trillion in net profit. We note that the 9M18 NII grew by 15.3% YoY attained to Rp 7.5 trillion (vs Rp 6.5 trillion in 9M17) driven by its strong loan growth of 19.3% YoY (significantly higher than banking loan industry growth of 12.1% YoY in August 2018) which was entirely dominated from mortgage segment. Meanwhile, the net profit during the same period advanced by 11.5% YoY from Rp 2 trillion became to Rp 2.2 trillion owing to its higher fee based income growth of 18.8% YoY to offset a significant increases in provision cost allocation (+45% YoY) in order to mitigate the risk factor potential of its NPL deterioration in 2019F due to weakening loan growth and tighter liquidity environment as a result of rising interest rate benchmark. NPL continued to improve in 3Q18 BBTN continued to record 3Q18 asset quality improvement, where the NPL improved by 42 bps YoY and 13 bps QoQ to the level of 2.65% (vs 3.07% in 3Q17 and vs 2.78% in 2Q18) backed by NPL improvement from mortgages (subsidized and non subsidized) and non housing segments thanks to its better collectability system and active monitoring on special mentioned loan category. We note that the NPL of subsidized mortgage improved gradually to the lowest level at 1.08% in its history (vs 1.49% in 3Q17 and 1.21% in 2Q18) while the NPL s non subsidized mortgage also improved to the level of 3.11% (vs 3.35% in 3Q17 and 3.18% in 2Q18). Meanwhile, the NPL from non housing segment improved by 188 bps YoY and 20 bps arrived to the level of 4.9% during the same period. Loan grew by 19.3% YoY, higher than banking industry system BBTN managed to book 9M18 total loan of 19.3% YoY reached to Rp trillion (vs Rp trillion in 9M17), higher than banking industry growth of 12.1% YoY (as of August 2018), which was mainly contributed by mortgage loan. Loan from subsidized segment increased by 30.1% YoY to Rp 88.9 trillion (vs Rp 68.3 trillion in 9M17), as a direct beneficiary from government development of affordable housing. Meanwhile, loan from non subsidized mortgage during the same period grew by 13.2% YoY from Rp 65.9 trillion to Rp 74.7 trillion. Neutral rating fair value Rp 1,900/share Recently, BBTN s share price has shrunk significantly by 47% from its 2018 highest closing price at Rp 3,840/share (as of 19 February 2018) and traded at 0.82x 2019F PBV which will potentially be corrected close to its 5 years average forward PBV Band 1 std dev of 0.76x. It was caused by the expectations of weakening loan growth and tighter liquidity in 2019F due to the impact of recent BI 7 days RRR increase following the aggressive US interest rate benchmark this year and will be continued in 2019; therefore, the company s asset quality will potentially deteriorate in 2019F. We forecast that BBTN s total loan will grow by 17.9% YoY in 2019F (in line with 2019 management guidance between 15% YoY 18% YoY) while the NPL is projected to deteriorate to the level of 2.76% in 2019F. We call a Neutral rating on the counter since our fair value (at Rp 1,900 per share) offers 7% downside potential. Financial Summary (Rp billion) 2016A 2017A 2018F 2019F 2020F Net interest income 8,164 9,341 10,083 11,039 13,059 PPOP 4,060 4,776 4,930 5,428 6,397 Net profit 2,619 3,027 3,124 3,152 3,268 EPS (Rp) PER (x) BVPS (Rp) 1,808 2,047 2,271 2,510 2,765 PBV (x) Dividend yield (%) RoAE (%) NIM (%) Please see important disclosures at the end of this report

2 PT BANK TABUNGAN NEGARA (PERSERO)TBK 30 OCTOBER 2018 Interim Result 9M17 9M18 YoY FY18F %cover 2Q18 3Q18 QoQ The Comments P/L (In Rp billion) Net Interest Income 6,547 7, % 10,083 75% 2,398 2, % Inline Operating expenses (4,571) (5,312) 16.2% (7,007) 76% (1,819) (1,787) 1.8% PPOP 3,185 3, % 4,930 74% 1,148 1, % Provision (598) (867) 45.0% (930) 93% (211) (449) 112.8% Higher than expected Non op. inc (exp) net (8) 42 N.A. (16) N.A % Pre tax profit 2,579 2, % 3,984 71% 940 1, % Income tax (574) (611) 6.4% (861) 71% (200) (221) 10.5% Net Profit 2,005 2, % 3,124 72% % Inline BS ( In Rp billion) Loan gross 184, , % 242,522 91% 211, , % Strong growth higher than banking industry Customer Deposit 168, , % 212,305 92% 189, , % KFR NIM 4.5% 4.4% 3.9% 4.2% 4.4% Total CAR 17.0% 18.0% 18.3% 17.4% 18.0% LDR 109.8% 112.8% 105.2% 111.5% 112.8% Tighter liquidity CASA to Deposits 48.6% 46.2% 48.5% 46.5% 46.2% NPL gross 3.1% 2.7% 2.5% 2.8% 2.7% Continued to improve gradually Provisioning coverage 40.0% 46.2% 53.1% 41.7% 46.2% Loan Composition Period 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 YoY Loan (In billion Rp) Subsidized mortgage 45,924 49,864 52,260 56,835 59,529 63,995 68,347 75,278 79,148 83,360 88, % Non subsidized mortgage 54,996 57,158 58,594 60,469 62,189 63,469 65,971 69,309 69,804 72,005 74, % Other housing & construction 28,139 28,723 29,251 30,644 31,598 32,275 32,851 34,641 35,516 35,942 36, % Non mortgage 13,885 13,571 13,710 16,498 16,371 17,662 17,334 19,763 18,035 20,046 19, % Total 142, , , , , , , , , , , % Portion Subsidized mortgage 32.1% 33.4% 34.0% 34.6% 35.1% 36.1% 37.0% 37.8% 39.1% 39.4% 40.4% Non subsidized mortgage 38.5% 38.3% 38.1% 36.8% 36.6% 35.8% 35.8% 34.8% 34.5% 34.1% 33.9% Other housing & construction 19.7% 19.2% 19.0% 18.6% 18.6% 18.2% 17.8% 17.4% 17.5% 17.0% 16.7% Non mortgage 9.7% 9.1% 8.9% 10.0% 9.6% 10.0% 9.4% 9.9% 8.9% 9.5% 8.9% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Growth QoQ Subsidized mortgage 5.5% 8.6% 4.8% 8.8% 4.7% 7.5% 6.8% 10.1% 5.1% 5.3% 6.7% Non subsidized mortgage 2.7% 3.9% 2.5% 3.2% 2.8% 2.1% 3.9% 5.1% 0.7% 3.2% 3.7% Other housing & construction 1.1% 2.1% 1.8% 4.8% 3.1% 2.1% 1.8% 5.4% 2.5% 1.2% 2.3% Non mortgage 1.0% 2.3% 1.0% 20.3% 0.8% 7.9% 1.9% 14.0% 8.7% 11.2% 1.9% Total 2.9% 4.5% 3.0% 6.9% 3.2% 4.5% 4.0% 7.9% 1.8% 4.4% 4.1% NPL Gross Period 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 YoY* Loan Type Subsidized mortgage 2.43% 2.15% 2.05% 1.52% 1.67% 1.66% 1.49% 1.16% 1.22% 1.21% 1.08% 41.0 Non subsidized mortgage 2.85% 2.91% 3.00% 2.65% 3.09% 3.38% 3.35% 3.00% 3.15% 3.18% 3.11% 24.0 Other housing 3.77% 3.91% 4.17% 3.59% 4.25% 4.53% 4.63% 4.09% 4.27% 4.40% 4.22% 41.0 Construction 4.18% 3.94% 4.44% 3.21% 4.56% 3.84% 3.53% 3.14% 3.86% 4.28% 4.26% 73.0 Non mortgage 9.39% 8.97% 10.32% 7.14% 8.09% 6.86% 6.78% 5.82% 5.74% 5.10% 4.90% Total 3.59% 3.41% 3.60% 2.84% 3.34% 3.23% 3.07% 2.66% 2.78% 2.78% 2.65% 42.0 QoQ* Subsidized mortgage Non subsidized mortgage Other housing Construction Non mortgage Total *) In bps 2 P age

3 30 OCTOBER 2018 PT BANK TABUNGAN NEGARA (PERSERO) TBK Customer Deposits Period 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 YoY Deposits in billion Rp Current account % Saving account % Time deposits % Total %. Growth QoQ Current account 4.5% 2.7% 15.2% 20.2% 9.0% 0.0% 6.7% 22.8% 6.4% 4.9% 0.9% Saving account 2.8% 0.8% 0.9% 19.8% 11.7% 7.5% 12.5% 10.2% 7.6% 10.4% 6.4% Time deposits 4.3% 3.9% 10.5% 0.9% 6.8% 0.7% 2.4% 12.7% 2.0% 2.3% 3.3% Total 2.7% 2.6% 9.6% 8.6% 1.7% 1.1% 5.6% 14.8% 0.8% 2.5% 2.9% Portion CASA 46.7% 46.0% 45.6% 50.4% 46.0% 47.0% 48.6% 49.5% 49.0% 46.5% 46.2% Time deposits 53.3% 54.0% 54.4% 49.6% 54.0% 53.0% 51.4% 50.5% 51.0% 53.5% 53.8% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Page 3

4 PT BANK TABUNGAN NEGARA (PERSERO)TBK 30 OCTOBER 2018 Financial Highlights of PT Bank Tabungan Negara (Persero) Tbk In Rp Billion BALANCE SHEET 2016A 2017A 2018F 2019F INCOME STATEMENT 2016A 2017A 2018F 2019F ASSETS Interest income 17,139 19,272 22,149 26,610 Cash and cash equivalent 1,007 1,028 1,053 1,244 Interest expenses (8,975) (9,931) (12,066) (15,571) Current account with BI and others bank 11,019 13,111 15,638 18,834 Net Interest income 8,164 9,341 10,083 11,039 Placement with BI and others bank 17,581 24,698 26,581 27,070 Marketable securities 13,415 15,890 12,400 12,759 Fees and commissions Gross loans 164, , , ,884 Other non interest income 1,283 1,606 1,854 2,080 Loan provisions (2,116) (2,356) (3,185) (3,602) Total net operating income 9,446 10,947 11,937 13,119 Fixed assets 4,659 4,837 5,010 5,203 Others 4,157 5,167 4,142 4,489 Salaries expenses (2,122) (2,554) (2,921) (3,167) TOTAL ASSETS 214, , , ,880 G&A expenses (2,466) (2,953) (3,316) (3,623) Other expenses (799) (663) (770) (902) Pre Provision Operating profit (PPOP) 4,060 4,776 4,930 5,428 LIABILITIES & EQUITY Provision (708) (884) (930) (1,380) Customers deposits 159, , , ,729 Operating profit 3,352 3,892 4,000 4,048 Other banks deposits 3,653 5,445 5,265 5,362 Fund borrowings 5,000 7,991 8,769 10,475 Non operating income (22) (30) (16) (28) Subordinated borrowings 17,919 23,480 25,167 21,917 Profit before tax 3,330 3,862 3,984 4,020 Others 8,479 10,312 10,335 10,839 Total Liabilities 195, , , ,322 Tax expense (711) (834) (861) (868) Capital stock 5,295 5,295 5,295 5,295 Net profit before non controlling interest 2,619 3,027 3,124 3,152 Additional paid in capital 2,054 2,054 2,054 2,054 Others 2,773 2,802 2,802 2,802 Non controlling interest Retained Earnings 9,008 11,512 13,879 16,406 Total Equity 19,131 21,663 24,030 26,557 Net profit 2,619 3,027 3,124 3,152 Non Controlling Interest TOTAL LIABILITIES & EQUITY 214, , , ,880 EPS (Rp) KEY FINANCIAL RATIO 2016A 2017A 2018F 2019F MARKET RATIO 2016A 2017A 2018F 2019F Growth (%) Total assets PER (x) Gross loans PBV (x) Customer deposits BVPS (Rp) 1,808 2,047 2,271 2,510 Risk weighted assets Dividend yield (%) Net interest income PPOP Net profit Profitability (%) Earning Asset Yield Cost of Fund NIM ROAA ROAE Cost to Income Ratio BOPO Capital & Assets Quality (%) CAR LDR CASA to Deposits NPL gross Provisioning coverage Notes: The definitions of Lotus Andalan Research for Investment Ratings: BUY : +15% and above, over the next 12 months Neutral : 15% to +15%, over the next 12 months SELL : 15% and worse, over the next 12 months 4 P age

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