Bank Negara Indonesia

Transcription

1 Indonesia Company Guide Version 11 Bloomberg: BBNI IJ Reuters: BBNI.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 30 Nov 2017 HOLD Last Traded Price ( 29 Nov 2017): Rp8,400 (JCI : 6,061.40) Price Target 12-mth: Rp8,500 (1% upside) (Prev Rp7,000) Analyst Sue Lin LIM suelinlim@dbs.com Benedictus Agung SWANDONO agung.swandono@id.dbsvickers.com What s New Share price rally of 48% to date has priced in fundamental improvements; current valuation implies 16% ROE level Targeting 13-15% loan growth next year still driven by infra related loans NIM is expected to head lower due to higher corporate loans, but credit cost is also inching lower Maintain HOLD with higher TP of Rp8,500/share Price Relative Improvements priced in Fundamental improvements priced in, HOLD. The stock has rallied 48% year to date driven by strong earnings growth which has boosted ROE to c.15% as at 3Q17. In the past 2 years, (BBNI) has recorded strong loan growth and asset quality improvement. Based on these factors, we therefore raised our FY17F/18F/19F earnings by 7%/4%/3% which implies higher ROEs as well. However, we believe the improvements are priced in. Our calculations suggest that the current valuations already imply 16% ROE. Management s loan growth target is 13-15% for FY18, still driven by government related infra projects. There are still some weak points in BBNI including the high NPLs in small, medium and mortgage segments. Asset yields would still be under pressure as its loan book sees a bigger shift to infra-related corporate loans. Where we differ. Consensus remains bullish on this stock. We are more conservative on BBNI s recovery outlook. The bank is playing a huge role in supporting government related infrastructure program. Therefore, it is exposed to regulatory risks. Potential catalysts. BBNI has traded at a discount compared to the other big 3 banks due to market s perception on its aggressive risk appetite. The aggressive loan growth could lead to NPL and NIM shocks in the future. Better-than-expected NIM and NPL should put such concerns to rest. Forecasts and Valuation FY Dec (Rpbn) 2016A 2017F 2018F 2019F Pre-prov. Profit 20,705 22,898 25,768 29,363 Net Profit 11,339 13,420 15,477 17,507 Net Pft (Pre Ex.) 11,339 13,420 15,477 17,507 Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) PE Pre Ex. (X) Net DPS (Rp) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (Rp) 4,674 5,180 5,794 5,903 P/Book Value (x) Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs: B: 22 S: 1 H: 9 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P. Valuation: Maintain HOLD. We have a HOLD rating on BBNI with Rp8,500 TP after imputing higher ROE assumption. Our TP is based on the Gordon Growth Model (16% implied ROE, 10% growth and 14% cost of equity), implying 1.5x FY18 BV. Key Risks to Our View: Better-than-expected sustainable asset quality trends. While we have assumed a gradual recovery in asset-quality indicators, better-than-expected NPL trends could pose upside risk to our forecasts. At A Glance Issued Capital (m shrs) 18,649 Mkt. Cap (Rpbn/US$m) 156,649 / 11,610 Major Shareholders (%) Republic of Indonesia 60% Free Float (%) 40% 3m Avg. Daily Val (US$m) 8.9 ICB Industry : Financials / Banks ed: JS / sa: MA, PY, CS

2 WHAT S NEW Improvements priced in Valuation is on an uptrend. BBNI s share price has risen 48% year-to-date, sending valuation to 1.5x FY18F book value, the highest level in the past 2 years. The higher valuation is justified by the fact that BBNI is able to show fundamental improvements since After an 8-year run of ROE improvements from , BBNI did a kitchen sinking exercise in 2015 after the new CEO and his management team took charge and decided to clean up the books. BBNI: PBV band and ROE x P/B (LHS) Source: Company, Bloomberg Finance L.P., DBS Bank, DBSVI Optimistic management targets. The bank is targeting continuous ROE improvement in 2018 driven by sustained strong loan growth and lower credit costs. The loan growth will still be driven by infra related corporate loans. But these loans generate lower loan yields. On the flipside, these loans are considered less risky (compared to medium and small loans) and therefore require less provisioning. NIM is expected to be lower due to the shift to corporate infra loans from small and medium loans, but so would credit cost. BBNI: Management guidance and 9M17 achievement 9M Target Loan Growth 13.3% 13%-15% NIM 5.5% 5.40% ROE (Bank Only) 15.9% 16%-17% Credit Cost 1.7% 1.5%-1.6% Source: Company, DBSVI, DBS Bank ROE (RHS) Strong growth in deposits thanks to institutional accounts. Deposits gathering was strong at 19.6% y-o-y in 9M17, driving LDR ratio to below 88%. We note that 55% of deposits came from institutional accounts, and 70-80% of these institutional funds came from SOE and government institutions. These should help fund BBNI s aggressive loan % growth target for next year. Contrary to what we believe, management guided that costs for these funds are not overly excessive. Gradual improvement in asset quality. The loans at risk ratio has been on a decreasing trend to 10.9% from the peak of 11.9% in 1Q17. The main source of improvement came from lower special mention loans, from 4.3% to 3.5% in 9M17. NPL also gradually improved to 2.8% from 3%. BBNI: Loan at risk ratio 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 9.9% 10.8% 4.3% 4.5% 5.9% 5.5% 5.5% 2.8% 3.5% 3.1% 3.0% 2.9% 4.3% 3.9% 3.5% 2.7% 2.8% 3.0% 3.1% 3.0% 3.0% 2.8% 2.8% Source: Company, DBS Bank, DBSVI 11.9% 11.6% 11.4% 11.9% 11.1% 10.9% 4.6% 4.4% 4.6% 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 NPL SML Restructured Current LAR Asset recovery is a bonus. We understand that the bank is able to recover c.75% of its bad loans. Write-offs in 9M17 has been a staggering Rp5.2tr, and the management has guided that write-offs would be Rp6tr for the full year. The write-offs are mainly contributed by a loan to Trikomsel of Rp1.4tr, medium segment at Rp1.2tr, small commercial at Rp1tr, and consumer at Rp1tr. Management expects the asset recovery of these write offs can be done in 2018, providing support to 2018 earnings. Raising earnings forecasts and TP; HOLD rating maintained. We increase our FY17F/18F/19F earnings by 7%/4%/3% to factor in better than expected NIM and lower provisions, mostly for FY17F. In addition, we also raised fee income and trimmed opex assumptions. This translates into higher ROE of 16% and higher TP to 8,500. Our TP is based on the Gordon Growth Model (16% ROE, 10% growth and 14% cost of equity), equivalent to 1.5x FY18 BV. Maintain HOLD as we believe most of these positives have been priced in. Page 2

3 CRITICAL DATA POINTS TO WATCH Margin Trends Critical Factors Strong loan growth driven by corporates. Management remains keen to ride this infra boom by having one director specifically to maintain a good relationship with government officials and to win infra projects. Most of the infra loans would be syndicated loans channeled towards SOE contractors. We forecast loan growth of 15% for FY18F, the higher end of management s guidance of 13%-15%. NIM to moderate. BBNI would likely see bank-only NIM head lower to 5.4% in FY18F (from c.5.5% in FY17F). Asset yields will decrease due to lower-yielding corporate loans which changes the loan mix. Expansion on salary based loans should help asset yields but interest rate caps on credit cards might drag down yields for the credit card business, which contributes c.3% of BBNI's loan portfolio. Funding cost is expected to be flattish as we do not believe there is more room for further policy rate cuts. A rate hike might pose some risk to its funding cost. Reviewing risky loan segments. In the past, BBNI had struggled with asset-quality issues in its small and medium loan books. As such, there will be a concerted effort to focus on business process improvements and prudent growth for small and medium loans. The current management requires the compliance division to be involved in the credit origination process for small commercial loans to help mitigate further asset quality issues. Each of the debtors in the medium segment has also been reviewed, leading to an improvement in asset quality. BBNI currently runs its micro lending business via its Syariah unit, BNI Syariah, which is still comparatively small (c.4% of assets/less than 1% of earnings). Uplift from insurance business. Fee-based income is expected to continue to grow strongly as insurance premiums from the BNI Life- Sumitomo tie-up are starting to gain traction, while recurring ATM and credit card fees are also showing good growth. The subsidiaries, including BNI Syariah, BNI Life, BNI Multifinance, BNI Sekuritas, and BNI Asset Management, contribute c.7% of BBNI s net profit and the contribution from subsidiaries is expected to expand further. Credit cost to be lower in We expect credit cost to be lower as BBNI is shifting towards safer infra loans, and away from small and medium loans. BBNI's coverage ratio should be above c.140% in 2017, but we do not discount the probability of further downgrades and write-offs if the economy and commodity prices turn out weaker than expected. Gross Loan& Growth Customer Deposit & Growth Loan-to-Deposit Ratio Trend Cost & Income Structure Keeping an eye on the costs. Management is targeting to maintain 12-13% opex growth this year to support outlets expansion. Most of the opex costs are still driven by human resources expenses. Regulatory expenses (fee for the financial institution supervisory authority (Otoritas Jasa Keuangan/OJK) and deposit insurance (Lembaga Penjamin Simpanan/LPS) will also grow along with the deposits growth. Source: Company, DBS Bank, DBSVI Page 3

4 Appendix 1: A look at Company's listed history what drives its share price? Loan growth as a critical factor Remarks The stock price is largely driven by expectations of loan growth for the subsequent quarter/year. The relationship has shown strong positive correlation over the past 10 years. NPL as a critical factor Price Loan Growth +1Y Loan Growth Guidance NPL is negatively correlated (-76%) to BBNI s stock price. The NPL downtrend during had supported the share price rally during the stated period. Price NPL Source: Bloomberg Finance L.P., DBSVI Share price performance (10-year historical trend) : Improving fundamentals. ROE rose due to strong loan growth, higher NIM and lower credit cost. Jul 2015: Kitchen sinking with mounting provision expenses and NPL rise : Improving fundamentals. ROE rose due to lower NPL and strong loan growth. Jul 2013: Indonesian stock market crashed, along with government bond yield spiked due to deteriorating twin deficit : Strong loan growth from infra pojects drive up stock price May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 Price Source: Bloomberg Finance L.P., DBSVI Page 4

5 Balance Sheet: Ample liquidity, ready for growth. The LDR ratio stood at 88% as at 9M17 well below the regulatory limit of 92% after the bank grew its deposits strongly YTD. The solid liquidity level should help the bank achieve its loan growth target of 13-15% in FY18. Asset quality remains a concern. While the tide has passed for the worst of credit cost and NPLs, we remain watchful on BBNI s asset-quality position. Its asset quality may deteriorate further, arising from its small and medium loan books. NPL in the mortgage segment was also at a high level due to aggressive growth in the non-fixed income borrower in the recent past. Asset Quality Capitalisation (%) Safe level of capitalisation. BBNI is well capitalised with CAR at c.19%. IFRS 9 is expected to be implemented in January 2020 and this may have an impact on its capital levels. However, BBNI, along with a third party consultant, is still studying the impact of IFRS 9 on its capital. Share Price Drivers: Sustained improvement in asset quality. The management is targeting strong loan growth and higher ROE (bank only) at 16%-17% next year which is at a similar level with Bank Mandiri (BMRI). However, BBNI s trading multiple is c.20% lower than that of BMRI. If BBNI can prove that it can maintain strong loan growth while sustaining good asset quality level, we believe the discount should narrow thus provide upside to BBNI s share price. ROE (%) Key Risks: Inability to protect NIM. NIM may be pressured further if BBNI has to reduce lending rates to achieve its loan growth targets. Higher cost of funds due to higher policy rate next year could also put more pressure on NIM. Therefore, we believe NIM would be lower next year. Another NPL surprise. Aggressive loan expansion, if not managed well, may trigger further NPL formations in the future. While we have assumed a gradual recovery in asset-quality indicators, coming out of the NPL cycle could happen and pose upside risk to our forecasts. Company Background (BBNI) is a state-owned enterprise bank that conducts commercial and consumer banking services. BBNI ranks fourth in the Indonesian banking sector based on assets, lending and thirdparty deposits. BBNI offers integrated financial services to its customers, supported by its subsidiaries: Bank BNI Syariah, BNI Multi Finance, BNI Securities and BNI Life Insurance. Forward PE Band (x) 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 25,560 29,995 31,969 35,333 39,409 Non-Interest Income 10,593 14,182 16,817 18,563 20,514 Operating Income 36,153 44,177 48,786 53,896 59,924 Operating Expenses (18,995) (23,472) (25,888) (28,127) (30,560) Pre-provision Profit 17,158 20,705 22,898 25,768 29,363 Provisions (5,746) (6,475) (6,095) (6,381) (7,422) Associates Exceptionals Pre-tax Profit 11,466 14,303 16,882 19,474 22,039 Taxation (2,326) (2,893) (3,376) (3,895) (4,408) Minority Interests (74.0) (71.4) (85.7) (103) (124) Preference Dividend Net Profit 9,067 11,339 13,420 15,477 17,507 Net Profit bef Except 9,067 11,339 13,420 15,477 17,507 Growth (%) Net Interest Income Gth Net Profit Gth (15.9) 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 Page 6

7 Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Net Interest Income 7,963 8,121 7,758 7,646 8,107 Non-Interest Income 2,879 3,323 2,994 3,296 3,257 Operating Income 10,842 11,444 10,752 10,942 11,364 Operating Expenses (4,741) (5,697) (4,884) (4,891) (4,976) Pre-Provision Profit 6,101 5,747 5,868 6,051 6,388 Provisions (1,878) (1,243) (1,800) (2,024) (1,665) Associates Exceptionals Pretax Profit 4,201 4,603 4,053 4,008 4,702 Taxation (855) (981) (826) (821) (959) Minority Interests Net Profit 3,346 3,622 3,227 3,186 3,744 Growth (%) Net Interest Income Gth (4.5) (1.4) 6.0 Net Profit Gth (10.9) (1.3) 17.5 Balance Sheet (Rpbn) FY Dec 2015A 2016A 2017F 2018F 2019F Cash/Bank Balance 52,821 47,613 75,464 89, ,385 Government Securities 47,599 64,671 65,539 66,519 67,614 Inter Bank Assets 33,417 33,662 35,341 37,108 38,964 Total Net Loans & Advs. 314, , , , ,715 Investment 9,963 23,822 26,037 28,518 31,247 Associates Fixed Assets 20,757 21,972 21,765 21,518 21,229 Goodwill Other Assets 29,972 34,698 35,166 36,923 38,253 Total Assets 508, , , , ,406 Customer Deposits 370, , , , ,787 Inter Bank Deposits 4,698 10,224 7,461 8,843 8,152 Debts/Borrowings 29,890 40,193 42,202 44,312 46,528 Others 25,149 27,816 26,032 26,849 26,441 Minorities 2,024 2,097 2,182 2,285 2,409 Shareholders' Funds 76,415 87,157 96, , ,090 Total Liab& S/H s Funds 508, , , , ,406 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 Source: Company, DBS Bank, DBSVI Target Price & Ratings History Source: DBS Bank, DBSVI Analyst: Benedictus Agung SWANDONO Sue Lin LIM 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: 30 Nov :23:13 (WIB) Dissemination Date: 30 Nov :50:38 (WIB) Sources for all charts and tables are DBS Bank, DBSVI unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group ) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. 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10 DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Oct Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months. 1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant. Page 10

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