Bank Central Asia. Indonesia Company Guide

Transcription

1 Indonesia Company Guide Version 8 Bloomberg: BBCA IJ Reuters: BBCA.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 24 Mar 2017 BUY Last Traded Price ( 23 Mar 2017): Rp16,600 (JCI : 5,563.80) Price Target 12-mth: Rp18,400 (11% upside) (Prev Rp16,400) Potential Catalyst: Sustainable deposit franchise; stronger loan growth Where we differ: One of the highest TPs on the street Analyst Sue Lin LIM suelinlim@dbs.com Benedictus Agung SWANDONO agung.swandono@id.dbsvickers.com What s New Strong liquidity provides ample room for growth once real loan demand picks up Competition in the consumer segment is heating up but impact to NIM is likely to be minimal given its strong CASA franchise FY16 results in line despite higher provisions; NPL was better than guided Maintain BUY with higher TP of Rp18,400 after we lift earnings and lower risk-free rate assumption Price Relative Forecasts and Valuation FY Dec (Rpbn) 2016A 2017F 2018F 2019F Pre-prov. Profit 30,401 37,210 41,641 45,299 Net Profit 20,632 25,847 29,575 32,547 Net Pft (Pre Ex.) 20,632 25,847 29,575 32,547 Net Pft Gth (Pre-ex) (%) EPS (Rp) 836 1,048 1,199 1,319 EPS Pre Ex. (Rp) 836 1,048 1,199 1,319 EPS Gth Pre Ex (%) Diluted EPS (Rp) 836 1,048 1,199 1,319 PE Pre Ex. (X) Net DPS (Rp) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (Rp) 4,558 5,435 6,319 7,279 P/Book Value (x) Earnings Rev (%): Consensus EPS (Rp): 911 1,028 - Other Broker Recs: B: 20 S: 3 H: 11 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P. A head above others Ample room for growth, BUY. (BBCA) has the best liquidity among the big-4 banks with a loan-to-deposit ratio (LDR) of 77% as at FY16. This should provide BBCA ample room to grow its loan book without putting significant pressure in funding, enabling it to competitively price its loan products. We note stiff price competition among big banks to lure in the best tier clients, especially in the mortgage segment, after experiencing severe asset-quality issues in the past few years. However, we believe BBCA s should be a clear winner due to its lower cost of funds, thanks to its strong CASA deposit franchise with a CASA ratio of consistently above 75%. We believe this is the key reason for BBCA to be valued at a premium vs its peers. FY16 earnings, testimony of sustainability; buffering up reserves. 4Q16 net profit came in at Rp5.6tr (+3% q-o-q), bringing fullyear FY16 net profit to Rp20.6tr (+14% y-o-y). This was in line with our and consensus estimates. Higher net interest margin (NIM) and better efficiency were offset by higher provisions that rose 30% y-o-y to build up coverage ratio to above 200%. Management remains cautious. Loan growth is targeted at 10%, the lowest among the big-4 banks. Despite the modest loan growth target, management would likely to maintain its payout policy and prefers to build up CAR in preparation for the full implementation of Basel III and IFRS9, both by BBCA still guides for NPL ratio of % (vs 1.3% in FY16). However, as we believe there are upside risk to the guidance, we impute a lower NPL ratio. We raise earnings by 24%/28% for FY17/FY18 mainly for lower credit cost assumption. BBCA continues to spend on IT infrastructure, ATMs and cash deposit machines while depreciation is also expected to set in remains uncertain but hopes are banked on improved loan growth momentum. Valuation: We have a BUY on BBCA with a higher target price of Rp18,400 as we impute a lower risk-free rate of 8% vs 8.5% previously. Our TP is based on the Gordon Growth Model (20% ROE, 10% growth and 13% cost of equity), implying 3.4x FY17 BV. BBCA is trading at a large premium to peers because of its solid balance sheet and liquidity position. Key Risks to Our View: Soft GDP growth pick up. An uninspiring improvement in GDP growth could keep loan growth soft and a delay in asset-quality recovery. At A Glance Issued Capital (m shrs) 24,655 Mkt. Cap (Rpbn/US$m) 409,273 / 30,745 Major Shareholders (%) Farindo Investment Mauritius Lt 47.2 Free Float (%) m Avg. Daily Val (US$m) 17.7 ICB Industry : Financials / Banks ed: CK / sa: xxx, PY

2 WHAT S NEW Liquidity is a crucial factor Highlights Liquidity remains key, and has always been BBCA s priority. In any uncertain operating environment, have a liquidity buffer is crucial. We rely on the crude metric, loan-to-deposit ratio as a measure of liquidity. And compared to peers, BBCA s stands out the most superior. BBCA has always placed liquidity as its utmost criteria in any operating environment. Its ability to sustain as the country s strongest deposit franchise bank is a testimony of management s strategic long-term thinking all these years. Solid CASA franchise. BBCA s CASA to total deposit ratio has stayed above 70% over the past 10 years, and over 75% in the past five years. Typically, CASA growth (for BBCA) correlates strongly with GDP growth. During the weaker GDP growth years (i.e. the past two years), BBCA still successfully kept its CASA franchise intact. This, we believe is a crucial weapon that BBCA has to withstand competition and enable it to price loan products more competitive than peers. BBCA: CASA to total deposit ratio above 70% sustainably 85% 80% 75% 70% 65% 60% 31% 73% 75% 73% 13% 76% 15% 17% 77% 19% 19% 80% 79% Source: Company, DBS Bank, DBS Vickers 75% 76% 77% Loan growth target remains conservative at 10% for FY17. Despite the solid liquidity condition, BBCA maintained a conservative growth target of 10%, in line with the industry but the lowest among the big-4 banks. Consumer business will be the main driver while management is waiting for investment and working capital loan demand to pick up. Management does not rule out the possibility in joining the infra loan bandwagon but the magnitude should not be significant, and it will focus on the lower risk shorter-term loans. Credit cost should stabilise; NPL conservatively guided at 1.5%-2.0%. Management indicated that credit cost will 9% 4% 7% 13% CASA to total deposits (%) (LHS) CASA growth % (RHS) 35% 30% 25% 20% 15% 10% 5% 0% follow NPLs. NPL is conservatively guided at 1.5%-2.0, higher than FY16 s level of 1.3%. Its high coverage ratio of 229% should provide enough buffer for any potential NPL shocks. Ongoing enhancement of transaction platform and systems. BBCA will continue to convert its old ATM into a cash recycling ATM that enables customers to deposit and withdraw cash. It will also continue to invest in systems and software to support its digital payment system. This is expected to support the strong transaction growth in mobile banking and Internet banking. Transaction value of mobile banking and Internet banking grew 30% y-o-y and 15% y-o-y respectively. We continue to expect steady growth in these volumes. Inorganic growth strategy is still on the table. BBCA indicated that it is planning to acquire one or two small banks this year as part of its inorganic growth strategy. However, it will take a prudent approach to the due diligence process and is in no rush in executing any acquisitions. No payout policy change on the cards. High CAR position and conservative growth outlook begs the question of whether BBCA might pay higher dividends this year. However, management did not see any urgency in increasing its dividend payout. BBCA should maintain CAR of at least 18% after Basel III is fully implemented and the difference from current CAR position should serve as buffer to support growth going forward. FY16 results review Strong close to a challenging FY16. BBCA's 4Q16 net profit came in at Rp5.6tr (+3% q-o-q), bringing full-year FY16 net profit to Rp20.6tr (+14% y-o-y). This was in line with our and consensus estimates. Higher NIM and better efficiency were offset by higher provisions which rose 30% y-o-y. Loan grew 7.3% towards the end of last year despite being flattish most of the time. Management indicated that loan facilities grew by c.9% y-o-y but the loan drawdown was weak due to soft loan demand, especially for investment activities. Sustainable strong liquidity position. LDR (loan deposit ratio) was 77% while management indicated that it is comfortable in pushing this up to 85%. CASA grew by 13% while time deposits grew 7.5% y-o-y, mainly driven by funds related with the tax amnesty programme. BBCA indicated that 40% of nationwide penalty payments were made through the bank. Furthermore, 50% of repatriation funds during Jun-Dec 2016 were made through BBCA, with 20% of the funds held at Page 2

3 accounts with BBCA. Despite the ample liquidity, management targets 10% loan growth this year, in line with the industry but the lowest among the big four banks. Solid asset quality; provisions well provided Non-performing loans (NPL) stood at 1.3% in FY16, higher y- o-y but lower q-o-q. Special mention and restructured loans were also maintained at 1.5% and 1.6% respectively. Coverage ratio stood at 229% in FY16, the highest among banks under our coverage. Higher fee income with improving cost efficiency. Non-interest income grew by 13.2% y-o-y, supported by strong fee income growth which mainly came from administration and transaction fees. Non-interest income growth was also enhanced by income from treasury activities particularly gain on sale of financial assets and derivatives. Meanwhile, cost-to-income ratio in FY16 headed lower to 43.9% from 46.5% a year ago. Valuation and recommendation Maintain BUY, TP lifted after lowering risk-free rate. We have a BUY on BBCA with a higher target price of Rp18,400 as we impute a lower risk-free rate of 8% vs 8.5% previously. Our TP is based on the Gordon Growth Model (20% ROE, 10% growth and 13% cost of equity), implying 3.4x FY17 BV. BBCA is trading at a large premium to peers because of its solid balance sheet and liquidity position. Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 3Q2016 4Q2016 % chg yoy % chg qoq FY2015 FY2016 % chg yoy Net Interest Income 9,618 10,195 10, ,869 40, Non-Interest Income 3,820 3,350 3, ,007 13, Operating Income 13,438 13,545 14, ,876 53, Operating Expenses (5,652) (5,462) (5,848) (21,714) (23,379) 7.7 Pre-Provision Profit 7,786 8,083 8, ,162 30, Provisions (1,968) (1,132) (1,423) (27.7) 25.7 (3,505) (4,561) 30.1 Associates nm nm nm Exceptionals nm nm nm Pretax Profit 5,818 6,951 6, (1.6) 22,657 25, Taxation (1,166) (1,394) (1,345) 15.4 (3.5) (4,621) (5,207) 12.7 Minority Interests (2.5) (122) 101 nm nm Net Profit 4,650 5,434 5, ,036 20, Growth (%) Net Interest Income Gth Net Profit Gth (3.7) Key ratio (%) NIM NPL ratio Loan-to deposit Cost-to-income Total CAR Source of all data: Company, DBS Bank, DBSVI Page 3

4 CRITICAL DATA POINTS TO WATCH Earnings Drivers: Better loan growth in Management is guiding for a slightly better loan growth at 10% from a low 7% last year. Management expects loan demand to stay sluggish in a still uncertain macro environment. Consumer business will be the main driver while management is waiting for investment and working capital loan demand to pick up. Management does not rule out the possibility in joining the infra loan bandwagon but the magnitude should not be significant, and it will focus on the lower risk shorter-term loans. NIM will likely slip on competition. We note an increasing competition among the big banks to win the lower risk client after experiencing NPL shocks in the past two years. The lower risk appetite and willingness to take on lower margin could induce pricing competition, especially in the mortgage and SME segments. We believe BBCA could hit back on lower pricing and therefore lower NIM. Furthermore, pressure from higher cost of funds might stem from the higher policy rate. Consistently strong fee-based income growth. BBCA has been registering strong growth in fee based income, leveraging on its established transaction banking franchise. BBCA s e-channel shows a strong growth trend and the bank is seeing a shift from in-branch transactions to using e-channels. In addition, BBCA s treasury activities have been robust, supporting its fee income in Separately, operating expenses would be an item to monitor in 2017 given a challenging operating environment. BBCA is likely to continue investing on its cash recycling machine ATMs to improve efficiency and service excellence Ongoing enhancement of transaction platform and systems. BBCA will continue to convert its old ATM into a cash recycling ATM which enables customers to deposit and withdraw cash. It will also continue to invest in systems and software to support its digital payment system. This is expected to support the strong transaction growth in mobile banking and Internet banking. Transaction value of mobile banking and Internet banking grew 30% y-o-y and 15% y-o-y respectively. Provision expense to taper off. We expect NPL s and provisions to be flattish this year. BBCA loan restructuring is less aggressive compared to the other banks while the worst of asset-quality problem of the industry is likely to be over Margin Trends Gross Loan& Growth Customer Deposit & Growth Loan-to-Deposit Ratio Trend Cost & Income Structure Inorganic growth strategy is still on the table. BBCA indicated that it is planning to acquire one or two small banks this year as part of its inorganic growth strategy. However, it will take a prudent approach to the due diligence process and is in no rush to execute any acquisitions Source: Company, DBS Bank, DBSVI Page 4

5 Balance Sheet: Ample liquidity but keeping a watch on this. BBCA has ample liquidity vs peers. Its loan-to-deposit ratio had finally hit a high of 80% at the end of BBCA has a strong funding franchise and more than 75% of its deposits are made up of CASA. CASA growth remained strong so far in 2016 despite the slow economy, as CASA growth is strongly correlated with GDP growth. Historically, CASA growth has been in the mid-teens. Looking ahead, CASA growth should improve along with the economy. Lowest NPL ratio; well capitalised. BBCA still has among the lowest NPL ratio and highest loan loss coverage in our Indonesian banking universe. Taking the cue from the softness in commodity prices over the past two years, management noted an increase in delinquencies within the corporate and commercial segment. Weakness was seen particularly in the tug boat and barges segment which is related to the coal sector. Despite the improving coal price recently, BBCA is still guiding for conservative NPL ratio of %. BBCA is also a wellcapitalised bank with core Tier-1 capital ratio making up the majority of capital. It intends to keep Total CAR above 18%. Asset Quality Capitalisation (%) ROE (%) Key Risks: Losing its trademark as a transaction bank. BBCA has been garnering significant amounts of low cost deposits over the years because of its transaction banking franchise. If it loses this edge, funding costs will escalate and NIM would be under pressure. Significant deterioration in asset quality. While management is taking a cautious stance where NPL ratios could spike up to % in 2016, an extreme negative spike beyond guidance could be negative and its loan loss coverage would likely drop below 200%. Forward PE Band (x) Company Background (BBCA) is Indonesia's premium transactional bank given its legacy with the Salim group pre-asian crisis. BBCA has successfully leveraged on this strength to deliver sustainable earnings growth. PB Band (x) Source: Company, DBS Bank, DBSVI Page 5

6 Key Assumptions FY Dec 2015A 2016A 2017F 2018F 2019F Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds Income Statement (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Net Interest Income 35,869 40,079 44,341 50,567 56,269 Non-Interest Income 12,007 13,700 19,509 21,661 24,052 Operating Income 47,876 53,779 63,849 72,228 80,321 Operating Expenses (21,714) (23,379) (26,640) (30,586) (35,022) Pre-provision Profit 26,162 30,401 37,210 41,641 45,299 Provisions (3,505) (4,561) (4,840) (4,602) (4,538) Associates Exceptionals Pre-tax Profit 22,657 25,839 32,369 37,039 40,760 Taxation (4,621) (5,207) (6,523) (7,464) (8,214) Minority Interests Preference Dividend Net Profit 18,036 20,632 25,847 29,575 32,547 Net Profit bef Except 18,036 20,632 25,847 29,575 32,547 Growth (%) Net Interest Income Gth Net Profit Gth Margins, Costs & Efficiency (%) Spread Net Interest Margin Cost-to-Income Ratio Business Mix (%) Net Int. Inc / Opg Inc Non-Int. Inc / Opg inc Fee Inc / Opg Income Oth Non-Int Inc/Opg Inc Profitability (%) ROAE Pre Ex ROAE ROA Pre Ex ROA Provisions should decline from a peak in 2016 Conservative NIM assumption due to tougher competition; expect cost of funds to stay stable Source: Company, DBS Bank, DBSVI Page 6

7 Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Net Interest Income 9,618 9,768 9,990 10,195 10,263 Non-Interest Income 3,820 3,060 3,310 3,350 3,848 Operating Income 13,438 12,828 13,300 13,545 14,111 Operating Expenses (5,652) (6,184) (5,889) (5,462) (5,848) Pre-Provision Profit 7,786 6,644 7,411 8,083 8,263 Provisions (1,968) (989) (1,017) (1,132) (1,423) Associates Exceptionals Pretax Profit 5,818 5,655 6,394 6,951 6,840 Taxation (1,166) (1,142) (1,326) (1,394) (1,345) Minority Interests (2.5) (5.5) 0.90 (122) 101 Net Profit 4,650 4,507 5,069 5,434 5,596 Growth (%) Net Interest Income Gth Net Profit Gth (3.7) (3.1) Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Cash/Bank Balance 113,336 95, , , ,278 Government Securities 34,713 76,307 84,192 92, ,576 Inter Bank Assets 6,986 8,403 8,823 9,265 9,728 Total Net Loans & Advs. 381, , , , ,090 Investment 18,739 40,077 50,724 64,034 80,671 Associates Fixed Assets 9,712 16,991 17,085 17,038 16,852 Goodwill Other Assets 29,335 32,184 34,554 39,235 43,978 Total Assets 594, , , , ,171 Ample of liquidity with high cash and short-term securities position Customer Deposits 474, , , , ,271 Inter Bank Deposits 4,156 4,901 4,529 4,715 4,622 Debts/Borrowings 4,564 5,121 5,540 6,000 6,505 Others 22,010 23,504 22,757 23,130 22,943 Minorities Shareholders' Funds 89, , , , ,548 Total Liab& S/H s Funds 594, , , , ,171 Source: Company, DBS Bank, DBSVI Page 7

8 Financial Stability Measures (%) FY Dec 2015A 2016A 2017F 2018F 2019F Balance Sheet Structure Loan-to-Deposit Ratio Net Loans / Total Assets Investment / Total Assets Cust. Dep./Int. Bear. Liab Interbank Dep / Int. Bear Asset Quality NPL / Total Gross Loans NPL / Total Assets Loan Loss Reserve Coverage Provision Charge-Off Rate Capital Strength Total CAR Tier-1 CAR Expect NPL to be flattish this year Source: Company, DBS Bank, DBSVI Target Price & Ratings History Source: DBS Bank, DBSVI Analyst: Sue Lin LIM Benedictus Agung SWANDONO Page 8

9 DBS Bank, DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 24 Mar :09:35 (WIB) Dissemination Date: 24 Mar :12:38 (WIB) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). 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