Bank Tabungan Pensiunan Nasional

Transcription

1 Indonesia Company Guide Version 9 Bloomberg: BTPN IJ Reuters: BTPN.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 27 Mar 2017 BUY Last Traded Price ( 24 Mar 2017): Rp2,730 (JCI : 5,567.10) Price Target 12-mth: Rp3,500 (28% upside) (Prev Rp3,300) Potential Catalyst: Strong traction of digital banking products Where we differ: Higher valuation as the forward looking vision should be positive for long term profitability Analyst Sue Lin LIM suelinlim@dbs.com Benedictus Agung SWANDONO agung.swandono@id.dbsvickers.com What s New Higher investment costs likely to hamper earnings growth in the short-term, but is positive in long run Traction of digital banking products should be the key item to monitor Asset quality should be stable Maintain BUY with higher TP of Rp3,500 after imputing lower risk free rate assumption Price Relative Rp Relative Index 6, , , , , , , , , , Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 (LHS) Relative JCI (RHS) Forecasts and Valuation FY Dec (Rpbn) 2016A 2017F 2018F 2019F Pre-prov. Profit 3,480 3,153 3,402 4,301 Net Profit 1,752 1,560 1,682 2,337 Net Pft (Pre Ex.) 1,752 1,560 1,682 2,337 Net Pft Gth (Pre-ex) (%) 3.0 (11.0) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) 3 (11) 8 39 Diluted EPS (Rp) PE Pre Ex. (X) Net DPS (Rp) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (Rp) 2,796 3,119 3,416 3,829 P/Book Value (x) Earnings Rev (%): Consensus EPS (Rp): N/A Other Broker Recs: B: 5 S: 1 H: 2 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P. Short term pain for long term gain Ongoing digital banking initiatives. Bank Tabungan Pensiunan Negara (BTPN) s lending units with the exception of its dwindling micro lending business are performing well. However, management has a huge vision to transform its currently weak funding and transaction banking franchise through its digital banking initiatives. Management guided that they are willing to tolerate flat or negative earnings growth in the next two years to heavily invest in their two main digital banking products, Jenius and BTPN WOW. With pedestrian loan growth, stable credit cost, and possibly higher cost of funds this year, we expect higher opex stemming from the new initiatives to take a toll on earnings growth. We believe revenues from these initiatives would be more visibly accretive from FY16 earnings below expectations due to higher opex. Net profit came in at Rp1.75tr (+3% y-o-y) in FY16, representing 93% of our estimate and 95% of consensus earnings. The main deviation to our forecast was higher operating expenses stemming from digital banking initiatives such as labour and promotional costs. Excluding these investment costs, earnings would have grown by 19% y-o-y. Net interest margin (NIM) was higher and helped to deliver positive net profit growth. Syariah business progressing well; micro still muted. Its Syariah business, which involves loans to the productive poor, is gaining traction with loan growth at 36% y-o-y, and 144% increase in net profit contribution. Some sizeable customers are ready to be converted into micro loan customers (with larger individual loan ticket sizes). We believe Syariah and SME businesses would be the main earnings drivers for BTPN ahead. Elsewhere, micro loans will remain muted as it is currently not profitable to compete with KUR (government subsidised micro loans) Valuation: We have a BUY call on BTPN with a higher target price of Rp3,500 as we imputed a lower risk free rate of 8% (8.5% previously) following the sustained low government bond yield. Our TP is based on the Gordon Growth Model (12% ROE, 10% growth and 12% cost of equity), and implies 1.1x FY17 BV. Key Risks to Our View: Digital banking initiatives flop. We believe failure to gain traction in its heavily invested digital banking initiatives is the main risk for BTPN. At A Glance Issued Capital (m shrs) 5,840 Mkt. Cap (Rpbn/US$m) 15,944 / 1,198 Major Shareholders (%) Sumitomo Mitsui Financial Group 40.0% Summit Global Capital (%) 20.0% TPG Nusantara (%) 8.4% Free Float (%) 31.6% 3m Avg. Daily Val (US$m) 0.01 ICB Industry : Financials / Banks ed: JS / sa: MA, PY

2 WHAT S NEW Dipping into its pockets Pedestrian loan growth driven by SME and Syariah. Management guided for single digit loan growth this year. The growth in pension business (consisting 63% of the loan portfolio) should remain stable at mid-single digit. SME and Syariah loans are expected to be the main drivers to loan growth, each growing by c.20%, while micro business is still on a downsizing mode. NIM to head lower as funding costs may increase. We expect NIM to head lower this year as benefits from a lower interest rate environment fade. Management also expects 25-50bps increase in the policy rates. This should push cost of funds higher and lower NIM. Opex will remain elevated due to digital banking initiatives. Management guided that opex will be higher for the next two years. They are aware that competition in the digital banking space is not easy and are willing to pay higher marketing costs to win the game. However, management is optimistic that the campaign will yield fruitful results as its product, BTPN Jenius, is well positioned for success in the affluent middle class market since it offers more features compared to the other competitors. Expect earnings growth to be affected in the coming two years. The expected higher investment costs prompted us to slash earnings by 29%/31% for FY17-18F. Excluding these investments, earnings growth would be flat (instead of a contraction) in FY17F and rise by 11% in FY18F. Beyond that, it is still difficult to gauge how much the digital banking initiatives would contribute to the bottom line as management is still exploring new ideas for the new digital banking business strategy. That said, at this juncture, management has guided for benefits from its investments in digital banking to be visibly accretive to the bank s bottomline from Targeting 1 million BTPN Jenius customers. Management has a target of 1m BTPN Jenius customers this year (from 100k at the end of last year) and believes that BTPN Jenius should be able to contribute (in terms of increasing CASA and meaningful fee income) once it reaches this scale. Currently the average account balance is only a mere Rp1m, but should head north once this scale is achieved. Synergising BTPN WOW with Syariah business. The Syariah business runs with 11,800 employees serving 2.5m customers with total balance of Rp5tr (8% of BTPN s loan portfolio). This business model has forced the Syariah bank to operate with a 70% cost-to-income ratio because of its labour intensity. Management plans to integrate its conventional banking processess with BTPN WOW (its branchless banking initiative) to improve the underwriting and collection process while lowering operating costs. High capitalisation provides room for some capital management plans in future. CAR stood at 25% in FY16 and management does not rule out the probability of higher dividends or share repurchases to increase ROE in the future Valuation and recommendation Keeping our BUY rating and raising TP. We have a BUY call on BTPN with a higher target price of Rp3,500 as we imputed lower risk free rate to 8% (8.5% previously) following the sustained low government bond yield. Our TP is based on the Gordon Growth Model (12% ROE, 10% growth and 12% cost of equity). Page 2

3 Margin Trends CRITICAL DATA POINTS TO WATCH Earnings Drivers: Normalising NIM. We expect BTPN s NIM to normalise to 11% after recording a high 12% level in FY16. Cost of funds could be higher in FY17 along with the potentially higher policy rates and as funding costs rise. Loan yields could gradually slip due to the change in loan mix and mechanics of the industry. Micro borrowers tend to eventually migrate to the informal SME loan segment, which carries lower yields. In the meantime, there will be pressure on its micro lending business due to the new Kredit Usaha Rakyat (KUR) programme which the government initiated in August Separately, liquidity is not an issue as BTPN has access to cheaper structured funding facilities (with cost of funds at %) and ample liquid assets. Loan growth to moderate. BTPN is targeting single digit loan growth in 2017, driven by the productive poor Syariah and SME segments. Pension loan growth should be stable. BTPN is aware of the challenges faced by the micro loan segment as the KUR scheme continues in Its micro loan growth is likely to be under threat but BTPN intends to participate in the KUR programme on a small scale. Hence, there would be downside risk to BTPN s micro loan growth. Separately, the bulk of BTPN s loans will still be pension loans, which are projected to grow at steady single digit rate. Higher expenses due to new initiatives. As we have seen in the past, BTPN tends to invest in times of crisis to reap the benefits in the future. For example, it completed the majority of its capex in IT infrastructure and human resources in 2009, which has led to a strong micro and productive poor business model up till now. The bank spent Rp600bn last year to roll out its digital banking initiative (BTPN WOW and BTPN Jenius). The investment cost could be doubled this year in line with management s conviction to follow through on its vision. 10,000 8,000 6,000 4,000 2,000 0 Rp bn 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 87,839 82,839 0 Rp bn Rp bn Rp bn Net Interest Income Gross Loan& Growth Customer Deposit & Growth Loan-to-Deposit Ratio Trend Net Interest Income Margin Gross Loan (LHS) Gross Loan Growth (%) (YoY) (RHS) 2015A 2016F 2017F 2018F 2019F Customer Deposits (LHS) Customer Deposits Growth (%) (YoY) (RHS) 12.4% 11.9% 11.4% 10.9% 10.4% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 105% Branchless banking initiative. BTPN is one of the first four banks to receive approval from the OJK to launch a branchless banking product, which the bank has named BTPN WOW. The business model is simple customers will use mobile applications to perform transactions. Agents can be recruited from its best micro or productive poor customers. Once BTPN secures a sufficient number of branchless banking customers and becomes a transaction bank for the mass market, it will monetise this by potentially selling products such as micro loans and micro insurance. CASA levels will also be higher. Provision expenses under control. Provision expense has never been an issue for BTPN due to its low NPL ratio. We expect credit charge-off rates to remain at c.1.4% and there is no pressure on asset quality as of now. 77,839 72,839 67,839 62,839 57,839 52,839 Loans Deposit Loan-to-Deposit Ratio (RHS) Cost & Income Structure Rp bn 12,000 10,000 8,000 6,000 4,000 2, % 95% 90% 85% 70% 68% 66% 64% 62% 60% 58% 56% Net Interest Income Non-interest Income Cost-to-income Ratio Source: Company, DBS Bank, DBSVI Page 3

4 Balance Sheet: NPL is not an issue. NPLs have never been an issue for BTPN and this has historically been below 1%. There were increases in the NPL ratio recently for its productive poor segment, which is now becoming more seasoned and entering a more mature phase. BTPN s micro loans went through a similar phase before becoming more seasoned. Management indicated that its risk management strategies have been successful in keeping NPLs at low levels even during the current tough economic environment. 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Asset Quality NPL Ratio Provision Charge-Off Rate Solid capital base. BTPN has always been overcapitalised, with capital ratios of above 20% over the past five years. BTPN has never paid out dividends. However, the management acknowledge the currently high CAR provides ample room for growth and also dividends. Share Price Drivers: Strong growth in SME and Productive Poor Syariah loans. Top line growth and earnings will be driven by the traction in the SME and Productive Poor Syariah segment. Better than expected result could come from successful integration of BTPN WOW into the Syariah business model, leading to a faster underwriting and collection process. Investing for the future. While still not visible at this stage, we remain positive on BTPN s forward-looking management. Faced with threats in the micro business from government initiatives, BTPN has proven its ability to quickly draw up new business plans to position itself for the future. Key Risks: Change in business strategy. There has always been an ongoing concern that having SMBC as its new strategic shareholder would result in a possible change in BTPN s focus. It has been three years since, and BTPN s business focus has remained intact. Digital banking initiatives to flop. We believe failure to gain traction in its heavily invested digital banking initiatives to be the main risk for BTPN. Company Background BTPN specialises in pension loans and is currently on a strong growth path for micro loans and loans to the productive poor. Its funding profile largely hinges on time deposits and bonds (wholesale funding). Capitalisation (%) 27.0% 26.0% 25.0% 24.0% 23.0% 22.0% Tier-1 CAR Total CAR ROE (%) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2015A 2016F 2017F 2018F 2019F Forward PE Band (x) (x) +2sd: 15.9x +1sd: 13.7x Avg: 11.5x 1sd: 9.2x 2sd: 7x 5.9 Mar-13 Mar-14 Mar-15 Mar-16 (x) PB Band (x) +2sd: 3.27x Mar-13 Mar-14 Mar-15 Mar-16 +1sd: 2.53x Avg: 1.79x 1sd: 1.05x 2sd: 0.32x Source: Company, DBS Bank, DBSVI Page 4

5 Key Assumptions FY Dec Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds We are expecting a pedestrian loan growth at 8% for the next 2 years. Income Statement (Rpbn) FY Dec Net Interest Income 7,696 8,854 9,181 9,943 10,874 Non-Interest Income ,571 Operating Income 8,401 9,543 10,028 10,936 12,445 Operating Expenses (5,156) (6,064) (6,876) (7,535) (8,144) Pre-provision Profit 3,246 3,480 3,153 3,402 4,301 Provisions (786) (870) (829) (895) (820) Associates Exceptionals Pre-tax Profit 2,433 2,605 2,319 2,501 3,475 Taxation (680) (729) (649) (700) (972) Minority Interests (50.8) (124) (110) (119) (165) Preference Dividend Net Profit 1,702 1,752 1,560 1,682 2,337 Net Profit bef Except 1,702 1,752 1,560 1,682 2,337 Growth (%) Net Interest Income Gth Net Profit Gth (8.9) 3.0 (11.0) 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 Source: Company, DBS Bank, DBSVI Operating expenses will be the main drag on earnings for the next 2 years due to digital banking initiatives NIM should head lower as the benefit of lower cost of funds should fade. ROE is at low level mainly due to overcapitalisation. CAR in FY16 stood at 25% Page 5

6 Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Net Interest Income 1,996 2,032 2,218 2,267 2,338 Non-Interest Income Operating Income 2,169 2,205 2,391 2,363 2,506 Operating Expenses (1,447) (1,384) (1,485) (1,485) (1,631) Pre-Provision Profit Provisions (170) (212) (209) (181) (268) Associates Exceptionals Pretax Profit Taxation (184) (159) (180) (181) (209) Minority Interests (18.3) (20.7) (27.9) (36.0) (39.1) Net Profit Higher operating expenses stemming from the digital banking initiatives Growth (%) Net Interest Income Gth Net Profit Gth (26.7) (1.7) (26.2) Balance Sheet (Rpbn) FY Dec Cash/Bank Balance 6,194 6,932 6,966 8,500 8,973 Government Securities 1,099 2,699 2,699 2,699 2,699 Inter Bank Assets 6,206 7,004 7,704 8,474 9,322 Total Net Loans & Advs. 58,710 63,248 68,347 74,002 81,684 Investment 4,930 5,953 6,515 7,134 7,815 Associates Fixed Assets 876 1,632 1,451 1,265 1,074 Goodwill Other Assets 3,025 3,904 3,502 3,703 3,603 Total Assets 81,040 91,371 97, , ,169 Customer Deposits 60,538 66,449 70,591 76,405 82,701 Inter Bank Deposits Debts/Borrowings 5,401 6,258 6,759 7,434 8,178 Others 1,178 1,437 1,126 1,198 1,162 Minorities Shareholders' Funds 13,576 15,838 17,667 19,350 21,687 Total Liab& S/H s Funds 81,040 91,371 97, , ,169 Source: Company, DBS Bank, DBSVI Page 6

7 Financial Stability Measures (%) FY Dec 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 NPL should be maintained below 1% The bank is overcapitalised with CAR at 25% Source: Company, DBS Bank, DBSVI Target Price & Ratings History Rp Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 S.No. Date of Report Closing Price 12-mth Target Price Rating 1: 05 Apr HOLD 2: 11 Apr HOLD 3: 20 Apr HOLD 4: 19 May HOLD 5: 11 Jul BUY 6: 14 Jul BUY 7: 26 Jul BUY 8: 26 Oct BUY 9: 15 Nov BUY 10: 13 Dec BUY 11: 22 Feb BUY Note : Share price and Target price are adjusted for corporate actions. Source: DBS Bank, DBSVI Analyst: Sue Lin LIM Benedictus Agung SWANDONO Page 7

8 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: 25 Mar :59:15 (WIB) Dissemination Date: 27 Mar :22:38 (WIB) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). 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11 Dubai United States Other jurisdictions This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore Tel equityresearch@dbs.com Company Regn. No E Page 11