Bank Tabungan Negara BBTN IJ / BBTN.JK

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1 Vol (mn) Equity Research Bank Tabungan Negara BBTN IJ / BBTN.JK Company Update BCAS Vignette Banking Sector Still Striving Facts: Solid 2Q17 results; inline with our estimates BBTN recorded net profits of IDR677bn (+23% YoY) in 2Q17. This translates to 1H17 net profits of IDR1.27tn (+22% YoY), inline with our (44%) and consensus (43%) estimates. Strong earnings growth in 2Q17 mainly resulted from IDR2.2tn higher NII (+14.3% YoY, +7.2% QoQ) on the back of solid loan growth (+18.8% YoY) as of end of Jun17 and is also partly supported by robust noninterest income growth of 35% YoY in 2Q17. These factors worked to offset a lower NIM of 4.42% in 2Q17 vs. 4.65% in 2Q16; hence, NIM improved from 4.32% in 1Q17, thanks to lower CoF. Note that Management expects another oneoff income event in 3Q17/4Q17 from 2015 s FLPP compensation of IDR251bn. Loan growth of +18.8% YoY (+10bps QoQ, +40bps YoY) in Jun17. This is still primarily driven by strong subsidized mortgage loan growth of +28.3% YoY in Jun17. Note that subsidized mortgage portion has reached 36.1%, slightly higher than nonsubsidized of 35.8% in Jun17. On the deposit side, total deposits grew 18.3% YoY (170bps QoQ, +bps YoY) in Jun17, supported by strong demand deposit growth of 26% YoY in Jun17. This translates to higher CASA ratio of 47% in Jun17 vs. 46% in Mar17 and Jun16. As for asset quality, NPL were slightly up, to 3.41% in Jun17 vs. 3.34% in Mar17 but lower than 4.65% in Jun k targeted housing loans could be fully covered by SSB. Projected total housing loan disbursement for 180k units could conceivably still be fully covered by the SSB budget of IDR2tn, given that the average ticket size of a subsidized mortgage is only around IDR110mn. Currently, BBTN will have disbursed 82k units through SSB scheme as of end1h17, representing 46% of 2017 target. Outlook: Implementation of TAPERA to reduce dependency While the implementation is still unclear at this juncture, we believe TAPERA (public housing savings) could potentially replace the utilization of government mortgage subsidies, and should thus mitigate any potential risk of late disbursement. This should be seen as a potential upside to our 2018F subsidized mortgage loan growth projection of +25% YoY. Recommendation: Maintain BUY with TP upgraded to IDR2,800 Given the fact that FLPP budget cut could be well compensated for through SSB scheme and sustainable demand growth outlook in subsidized housing, we maintain our BUY rating on BBTN while rolling over our valuation to 2018F, with implied PBV of 1.2x, providing higher TP of IDR2,800 (from IDR2450) with 15% potential upside. Risks to our call: delayed disbursement of government subsidies and funding quality degradation. (This report marks a transfer of coverage) Exhibit 1. Financial summary Yearend 31 Dec (IDR bn) F 2018F 2019F Net int. inc. (IDRb) 6,867 8,252 9,148 10,071 11,077 Op. prof. (IDRb) 2,534 3,352 4,103 4,677 5,298 Net profit (IDRb) 1,851 2,619 3,057 3,482 3,941 Net Profit Bahana/cns. (%) EPS (IDR) EPS growth (%) P/E (x) BVPS (IDR) 1,310 1,808 2,047 2,318 2,625 P/BV (x) DPS (IDR) Div. yield (%) ROE (%) M PRICE PERFORMANCE (IDR) 3,000 2,500 2,000 1, BBTN IJ (LHS) STOCK PERFORMANCE BUY (Unchanged) 25 July 2017 Gilang Purnama gilang.purnama@bcasekuritas.co.id ext 178 Prasetya Gunadi prasetya.gunadi@bcasekuritas.co.id ext 183 Current Price: IDR2,440 Target Price: IDR2,800 (Previous TP: IDR2,450) Upside potential: 14.8% YTD 1M 3M 12M Absolute 40.2% 6.2% 4.7% 31.5% JCI Return 9.5% 0.5% 2.4% 11.6% Relative 30.7% 5.7% 2.3% 19.9% FINANCIAL HIGHLIGHT ROE EPSG P/E P/B (%) (%) (x) (x) F F Source: BCA Sekuritas MARKET DATA 12M price range (IDR) : 1,0 2,700 12M PE range (x) : Outstanding shares (mn) : 10,590 Market cap (IDRbn)/(USDmn) : 25,840 / 1,942 Avg daily turn. (IDRbn/USDmn) : 40.3 / 3.0 SHAREHOLDERS Government of Indonesia :.0% Public : 40.0% (%) () () (30.0) Rel. to JCI performance (RHS) Jul16 Oct16 Jan17 Apr17 Jul17

2 Exhibit 2. Financial Summary Income Statement Yearend 31 Dec (IDRbn) F 2018F 2019F Interest income 15,567 17,852 19,090 20,628 22,795 Interest expense 8,700 9,0 9,942 10,558 11,717 Net interest income 6,867 8,252 9,148 10,071 11,077 Noninterest income 1,132 1,285 1,570 1,786 2,032 Total operating income 7,998 9,537 10,718 11,857 13,109 Operating expenses 4,563 5,477 5,828 6,289 6,931 Loan loss provisions Operating profit 2,534 3,352 4,103 4,677 5,298 Nonoperating inc./(exp.) 8 (22) (28) (35) (43) Pretax profit 2,542 3,330 4,076 4,643 5,255 Corporate tax (691) (711) (1,019) (1,161) (1,314) Minorities Net profit 1,851 2,619 3,057 3,482 3,941 Balance Sheet Yearend 31 Dec (IDRbn) F 2018F 2019F Placement with other banks ,065 1,172 1,289 Loans 138, , , ,393 2,851 Government bonds 8,231 7,831 7,431 7,031 6,631 Other assets 20,286 33,232 33,727 33,573 33,705 Impairments (2,064) (2,132) (2,015) (2,265) (2,623) Net earnings assets 165, , , , ,852 Cash on hand 1,181 1,007 1,258 1,573 1,966 Fixed assets 1,553 4,659 5,686 6,146 6,635 Other assets 3,102 4,157 5,377 5,925 6,529 Total assets 171, , , , ,982 Customer deposits 127,746 1, , , ,104 Deposits from other banks 1,721 3,653 4,201 4,831 5,555 Borrowing 18,661 20,934 21,581 22,510 23,486 Other liabilities 9,819 10,259 5,105 (1,830) (9,942) Total liabilities 157, , , , ,203 Minorities Equity 13,8 19,131 21,664 24,534 27,779 Total liab. and equity 171, , , , ,982 Breakdown Yearend 31 Dec (%) % to earnings assets Gross loans F F F 86.2 Government bonds Other earnings assets % to loan portfolio Housing Loan Non Housing Loan % to total deposits Core funding Time deposits Ratios Yearend 31 Dec (%) F 2018F 2019F ROA ROE NIM Loan to deposit ratio Loan to funding ratio Cost efficiency ratio CIR Gross NPL NPL coverage LLR to total loans CARtotal CARtier I Major Assumptions Yearend 31 Dec (%) F 2018F 2019F Operating profit growth Net profit growth Loan growth Deposit growth Nonint. inc./opt. inc Corporate tax rate Payout ratio We expect net profit to reach IDR3.1tn (+17% YoY) in 2017F Total 2017F loans should touch IDR194tn (+18.1% YoY) Housing loan portion continues to dominate loans Gross NPL likely to stabilize 2

3 Exhibit 3. Summary of Results QoQ YoY yy 6M17/ 6M17/ (IDRbn) 2Q16 1Q17 2Q17 (%) (%) 6M16 6M17 (%) 2017F cons Interest Income 4,291 4,559 4, ,482 9, Interest expense 2,382 2,523 2, ,786 5, Net interest income 1,908 2,036 2, ,696 4, Noninterest income Total operating income 2,210 2,420 2, ,280 5, Operating expense 1,344 1,498 1, ,588 2, Impairment of fin. assets Operating profit ,385 1, Pretax profit ,382 1, Net profit ,042 1, BS & ratio analysis 2Q16 1Q17 2Q17 6M16 6M17 Gross loans (IDRbn) 149, , , , ,401 Third party funding (IDRbn) 134, , , , ,130 Key ratios Net interest margin (%) Cost efficiency (%) Cost to income (%) Loan/deposit (%) Loan/funding (%) Capital adequacy (%) Gross NPL (%) LLP/NPL (%) ROAE (%) Exhibit 4. Subsidized vs. nonsubsidized mortgage (IDRtn) (%) Subsidized mortgage loan growth was way stronger than nonsubsidized Subsidized Subsidized YoY growth Nonsubsidized Nonsubsidized YoY growth 3

4 Exhibit 5. Loan breakdown (IDRtn) % 2.6% 11.8% 7.2% 39.4% % 2.5% 12.5% 7.1% 39.3% 28.3% 29.6% % 2.8% 13.6% 6.4% 38.5% 31.3% % 2.9% 13.2% 5.3% 36.5% % 2.5% 13.5% 5.1% 36.6% % 2.7% 13.3% 4.9% 35.8% 34.4% 35.1% 36.1% Commercial loan Consumer loan Construction loans Other housing loans Nonsubsidized mortgages Subsidized mortgages Subsidized mortgage loan growth muscled out strongly since 2013 Exhibit 6. Housing vs. nonhousing loans (%) Nonhousing loan portion slightly up, to 10% in 2Q17 from 9.6% in 1Q17, due to loans from SOE companies Nonhousing Housing Exhibit 7. Restructured loan (IDRtn) (%) Restructured loan portion rose up in 2Q17 to 5.3% from 5.0% in 1Q17 Restructured loan % to total loan 4

5 Exhibit 9. BBTN loan growth vs. Industry (%) BBTN loan growth way stronger than industry average, partly helped by strong lowcost housing loans * Q17 2Q F Industry BBTN, *as of May17 Exhibit 9. Subsidized mortgage scheme Subsidized mortgage scheme FLPP SSB Loan yield 5.0% 5.0% Government subsidy na 6.0% BBTN funding portion %.0% Government funding portion 90.0% 0.0% Government funding cost 0.5% na Margin 45% 45% Both FLPP and SSB schemes will likely generate similar margins Exhibit 10. Earnings revision Old New Change (%) (IDRbn) 2017F 2018F 2017F 2018F 2017F 2018F Net profit 2,880 3,265 3,057 3, Shareholder equity 21,487 24,176 21,664 24, EPS (IDR) BVPS (IDR) 2,030 2,285 2,047 2, We increase our 2017F earnings as we take into account oneoff income from 2015 s FLPP compensation 5

6 Teguh Hartanto Director of Equity, ext: 129 RESEARCH DIVISION Pandu Anugrah Jennifer Frederika Yapply Arga Samudro Head Of Research, ext: 168 Senior Manager, ext: 179 FI Analyst, ext: 181 Strategy, Automotive, Heavy Equipment Cigarettes, Consumer, Health Care, Media FI Strategies & Macroeconomist Aditya Eka Prakasa Johanes Prasetia Michael Ramba Equity Analyst, ext: 182 Equity Analyst, ext: 185 Equity Analyst, ext: 184 Telco, Coal, Metal Mining Retail, Poultry Construction, Property Residential Nyoman Widita Prabawa Gilang Purnama Willy Suwanto Equity Analyst, ext: 180 Equity Analyst, ext: 178 Equity Analyst, ext: 178 Cement, Plantation, Oil & Gas Banking, Industrial Estate Banking, Consumer Prasetya Gunadi Achmad Yaki Yamani Equity Analyst, ext: 183 Technical Analyst, ext: 186 Banking Technical Analyst Yuni Pratiwi Anindra Alief Mattawang Research Assistant, ext: 183 Research Assistant, ext: 186 EQUITY CAPITAL MARKET DIVISION Ermawati Agustina Erman Head of Institutional Sales, ext: 159 Haslienda Santoso Jodikin Arief Iskandar Equity Capital Market, ext: 137 Sales Trader, ext: 164 Institutional Dealer, ext: 136 DISCLAIMER By receiving this research report ("Report"), you confirm that: (i) you have previously requested PT BCA Sekuritas to deliver this Report to you and you are legally entitled to receive the Report in accordance with Indonesian prevailing laws and regulations, and (ii) you have fully read, understood and agreed to be bound by and comply with the terms of this Report as set out below. 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