Bank Tabungan Negara. Indonesia Company Guide

Transcription

1 Indonesia Company Guide Version 9 Bloomberg: BBTN IJ Reuters: BBTN.JK Refer to important disclosures at the end of this report DBS Group Research. Equity 27 Mar 2017 HOLD Last Traded Price ( 24 Mar 2017): Rp2,320 (JCI : 5,567.10) Price Target 12-mth: Rp2,300 (1% downside) (Prev Rp2,100) Potential Catalyst: Sustainable NIM and unchanged FLPP scheme Where we differ: We are more conservative on NIM Analyst Sue Lin LIM suelinlim@dbs.com Benedictus Agung SWANDONO agung.swandono@id.dbsvickers.com What s New We believe share price rally to date has factored in the good deliveries Stock unlikely to re-rate further due to downside risk on NIM Prefer to be more conservative despite the strong management guidance on FY17 outlook Maintain HOLD with higher TP of Rp2,300 after we impute lower risk free rate assumption Price Relative 2, , , , , , , Rp Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 (LHS) Relative JCI (RHS) Relative Index Forecasts and Valuation FY Dec (Rpbn) 2016A 2017F 2018F 2019F Pre-prov. Profit 4,060 4,698 5,338 5,963 Net Profit 2,619 2,979 3,225 3,544 Net Pft (Pre Ex.) 2,619 2,979 3,225 3,544 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) 1,848 2,017 2,242 2,490 P/Book Value (x) Earnings Rev (%): Consensus EPS (Rp): N/A Other Broker Recs: B: 24 S: 0 H: 3 Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P Strong growth path in the price Strong growth prospects priced in, maintain HOLD. Bank Tabungan Negara (BBTN) s share price rallied following betterthan-expected deliveries in FY16. Despite the good results, we see limited upside to BBTN s re-rating as we believe the current high ROE may not be sustainable due to downside risk to net interest margin (NIM), which should come from 1) lower asset yield due to higher proportion of FLPP loans (Fasilitas Likuiditas Pembiayaan Perumahan / Subsidised Mortgage Liquidity Facility), and 2) risk of higher cost of funds stemming from a higher interest rate environment. We remain watchful on the development of the new FLPP scheme and BBTN s exposure to infrastructure loans. Recent sanction by the Otoritas Jasa Keuangan (OJK) could pose operational risks if prolonged. Strong FY16 results. (BBTN) reported 4Q16 earnings of Rp998bn (+58.7% y-o-y), bringing FY16 net profit to Rp2,619bn (+41.5% y-o-y). FY16 net profit was above our/consensus forecast by 20%/13% mainly on lower provisions and better-than-expected NIM. Ambitious targets in Management has maintained a positive view on its 2017 outlook, with loan growth targeted at 21-23%, driven by the one million government housing programme. This year BBTN can disburse its full Rp9.7tr budgeted FLPP loans (vs effectively only Rp4tr last year). Management is also confident that net profit can grow above 20% and ROE can stay elevated at 16%-18% this year. Recent OJK sanction may cause a temporary setback to operations. BBTN was sanctioned by OJK after a forgery case was found at one of its outlets. BBTN is not allowed to open new branches or open new deposit accounts at cash outlets until OJK decides that the bank s internal control and operational risks have improved. A prolonged restriction could drag BBTN s operations to gather deposits. Valuation: Maintain HOLD, higher TP of Rp2,300. We derived a higher TP of Rp2,300 after we assuming a lower risk free rate of 8% (vs 8.5% previously). Our TP is based on the Gordon Growth Model (15% ROE, 10% growth and 14.7% cost of equity) implying 1.15x FY17 BV. Key Risks to Our View: Favourable FLPP scheme and sustained asset quality trends. Upside risk to our call would be favourable FLPP terms, timely mortgage subsidy disbursements, and sustained asset-quality trends particularly from non-subsidised mortgages. At A Glance Issued Capital (m shrs) 10,590 Mkt. Cap (Rpbn/US$m) 24,569 / 1,846 Major Shareholders (%) Government of Indonesia (%) 60.1 Free Float (%) m Avg. Daily Val (US$m) 3.2 ICB Industry : Financials / Financial Services ed: JS / sa: MA, PY

2 WHAT S NEW Will the strong deliveries continue? Highlights BBTN s ROE is currently high, could it re-rate further? BBTN delivered a high 16% ROAE (return on average equity) in Management even shared its bullish guidance of 16%- 18% ROE with >20% net profit and equity growth for We highlighted that these levels are equal with the ROAE BBTN achieved back in At that time, BBTN was trading at x trailing BV (vs 1.2x currently). However, we don t expect BBTN to trade at those levels mainly because of NIM s downside risk. Why we see downside risk from current NIM? We do not believe the current reported NIM of 4.98% will be sustainable because of the following reasons: 1. We expect lower asset yields this year. Our calculation suggests that loan yield was lower by 40bps y-o-y last year even with the help of one-time interest payment. A bigger portion of FLPP loans, the absence of the one-off items, and lagging impact of lower policy rate on nonsubsidised loans should lower the asset yield further. 2. Risk of higher cost of funds stemming from potentially higher policy rate. Our economist expects one (25bps) policy rate hike this year on the back of external factor uncertainty and potentially higher inflation. With 50% of its deposit base comprising time deposits, we believe a higher policy rate should quickly translate into lower NIM. How sensitive is NIM on profitability? Our sensitivity analysis suggests that every 10bps decrease in NIM would lower BBTN s earnings by 5% and ROE by 60bps. The high sensitivity on earnings is mainly due to the low margin business that BBTN is currently running. Where could we go wrong? We believe management has done a tremendous job in improving asset quality in the past two years. However, we prefer to be conservative by expecting a stable asset quality trend going forward rather than expect further significant improvements. Better-thanexpected asset quality could help NIM and lower provisions, which could eventually translate into a higher bottom-line. In addition, a further policy rate cut, although unlikely, would help to continue lower cost of funds and help BBTN deliver better-than-expected NIM. Update on the FLPP scheme limbo; positive surprise is likely. Management has prudently indicated that it has not reached a final agreement with the government with regard to a new FLPP scheme. However, based on recent discussions with the government, it is guiding that risk of any changes to the scheme is small. A confirmation of an unchanged scheme will ease concerns over regulatory risk and should be positive for BBTN. New business propositions in the pipeline. BBTN has started a pilot project for micro housing loans, a segment deemed risker but if successful, could add to BBTN s housing loan growth. The difference between this scheme and the FLPP is that this scheme will be self-funded (i.e. from its own deposits and bonds). The government is looking to set up a Housing Savings Plan (Tapera), a fund that employees could tap on in future to purchase subsidised housing. In addition, BBTN has also submitted a proposal to acquire Danareksa Finance and Danareksa Asset Management. The former will allow BBTN to tap into the micro housing loans it intends to initiate while the latter could allow BBTN to take advantage of Tapera funds which it could help manage with an asset management licence (a potential fee income generator). These initiatives are not included in our forecasts. Recent OJK sanction may cause a temporary setback to operations. BBTN was sanctioned by OJK after a forgery case was found at one of its outlets. BBTN is not allowed to open new branches or open new deposit accounts at cash outlets until OJK decides that the bank s internal control and operational risks have improved. In the meantime, BBTN will carry out new account opening activities at branch and subbranch offices. A prolonged restriction could drag BBTN s operations to gather deposits. BBTN has completed an action plan to improve business processes in customer deposit management. The action plan is expected to be implemented by 1 April and will be evaluated at the end of 1H17. Watchful at its participation in infrastructure sector. We noted an uptick in the commercial segment in 4Q16 a segment that was a culprit of high non-performing loans (NPLs) a few years ago. However, this time we are less worried as we see loans as more of a symbolic participation to support government infra projects rather than an intended expansion in that sector. Over-expansion in this segment could be negative for BBTN. Optimistic management targets. Overall, management is targeting 21-23% loan growth, driven by the strong disbursement of FLPP loans, while deposits are expected to grow at a slightly faster rate of 22%-24%. Management indicated that it can raise up to Rp14tr from bond issuance, negotiable certificates of deposits (NCD), bilateral lending (from ICBC and other SOE banks), and asset securitisation. NIM guidance is loose at 4.5%-5%. NPL is targeted at below 2.5%. Overall, management is confident of delivering 16%- 18% ROE for FY17. Our FY17F earnings are raised to reflect Page 2

3 lower credit costs, while FY18F earnings are trimmed on lower NIM expectations. Valuation and recommendation: sustained low government bond yield. Our TP is based on the Gordon Growth Model (15% ROE, 10% growth and 14.7% cost of equity) implying 1.15x FY17 BV. Maintain HOLD, TP raised to Rp2,300. We maintain HOLD with a higher target price of Rp2,300 after we impute lower risk free rate assumption of 8% (vs 8.5% previously) following Page 3

4 Margin Trends CRITICAL DATA POINTS TO WATCH Earnings Drivers: Strong loan growth supported by government programme. BBTN targets to grow loans by 21-23% in 2017, supported by the government's one million government housing programme. The government has also announced an increase in the FLPP budget to Rp9.7tr in 2017 from Rp9.2tr in BBTN will be the main player to deliver the programme. We have assumed the higher end of management s guidance for loan growth at 20% for FY17F. Expect higher funding costs in FY17. Currently, BBTN has a relatively weak funding portfolio: it has 50% CASA ratio which was mainly from FLPP funding while the major bulk (70%) of time deposits were from government-related institutions which tend to carry higher deposit rates. BBTN articulated that some of these deposits are priced at a special deposit rate which can be as high as 9% p.a. However, the tide could change. With the recent tight liquidity situation in the system, along with higher benchmark rate due to volatility of the rupiah, we expect cost of funds to be higher in FLPP scheme updates. The FLPP scheme is usually renegotiated on an annual basis. However, the revisions on the latest funding scheme have yet to unfold. BBTN is expected to continue playing a major role in disbursing Rp9.7tr FLPP funds in 2017, an increase from effectively Rp4tr in Concerns on the lower funding portion from the government may hurt funding costs, and hence NIM. Positively, because the budget for FLPP has increased, BBTN should rely less on the interest subsidy scheme, easing stress on BBTN s liquidity position. The only positive to the interest subsidy scheme is that it is priced at 5%+ BI rate, a rate that equals the normal mortgage rate. Benefiting from Himbara Link initiative. BBTN would stand out as one of the main beneficiaries of the Himbara Link integration initiative. The integration will allow BBTN s customers to use BMRI s vast ATM and EDC network at a lower price. This could potentially increase CASA and fee income in the future. The Himbara Link programme was launched in Dec The programme is expected to integrate 800 ATMs With this programme, transaction fees among Himbara members will be 50% lower at Rp4,000 while cash withdrawal fee will be 90% lower at Rp500. Flattish credit cost. We expect provision charge-off rates for 2017 to be around the same level as 2016, as BBTN will continue to focus on the mortgage segment. Rp bn 12, % 10, % 8, % 6,000 4, % 2, % 0 4.1% Net Interest Income Net Interest Income Margin Gross Loan& Growth Rp bn 30% 250, ,000 25% 150,000 20% 100,000 15% 50, % Gross Loan (LHS) Gross Loan Growth (%) (YoY) (RHS) Customer Deposit & Growth Rp bn 250,000 30% 200,000 25% 150,000 20% 100,000 15% 50, % Customer Deposits (LHS) Customer Deposits Growth (%) (YoY) (RHS) Loan-to-Deposit Ratio Trend Rp bn 296, % 276, , % 236, , % 196, , % 156,487 96% 136, ,487 91% Loans Deposit Loan-to-Deposit Ratio (RHS) Cost & Income Structure Rp bn 59% 14,000 59% 12,000 58% 10,000 58% 8,000 6,000 57% 4,000 57% 2,000 56% 0 56% Net Interest Income Non-interest Income Cost-to-income Ratio Source: Company, DBS Bank, DBSVI Page 4

5 Balance Sheet: Targeting NPL ratio at <2.5% for FY17. BBTN is targeting its NPL ratio to be below 2.5% by end-fy17f, driven by improvements in its screening and collection processes. However, we retain our cautious stance on BBTN s asset-quality position especially in non-subsidised mortgages and other nonhousing loans. NPLs are still high for the commercial loan segment and other housing and construction loans. We expect improvements from NPLs for these segments to remain a challenge. The subsidised mortgage loans are guaranteed by Jamkrindo and Askrindo, posing lower risk to BBTN s balance sheet. Funding plans. BBTN expects customer deposits to grow 22-23% to cope with the aggressive loan disbursements. BBTN also relies on other means of fund-raising including the issuance of asset-backed securities, negotiated certificates of deposits (NCD) and bonds, particularly to fund its non-subsidised mortgage growth. The bonds issuance plan was already approved by OJK and typically priced at basis points above the government risk-free bond. Note that as BBTN s loan-to-deposit ratio stays above 100%, it needs to maintain a minimum CAR of 14%. The government indicated that it has no plans for a capital injection to BBTN in the near future. Share Price Drivers: Strong growth and reduction in cost of funds. Strong loan growth supported by the government's 1m-unit housing programme will boost earnings. The reduction in cost of funds will also improve margins as well as provide better opportunities for BBTN to raise funds by issuing asset-backed securities, NCDs and bonds. 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Asset Quality Capitalisation (%) ROE (%) NPL Ratio Provision Charge-Off Rate Tier-1 CAR Total CAR Key Risks: Higher interest rate environment Higher policy rates should translate into higher cost of funds and higher NIM. Regulatory risk for its FLPP scheme BBTN faces risks when it negotiates its FLPP scheme annually. Failure to obtain favourable terms may pose risks to its NIM. Company Background (BBTN) provides commercial banking services. It has 88% of its loan book in property loans. BBTN specialises in subsidised mortgage loans and has the largest market share in this segment Forward PE Band (x) (x) Mar-13 Mar-14 Mar-15 Mar PB Band (x) (x) +2sd: 10.2x +1sd: 8.6x Avg: 7x 1sd: 5.4x 2sd: 3.8x Mar-13 Mar-14 Mar-15 Mar-16 +2sd: 1.33x +1sd: 1.17x Avg: 1.01x 1sd: 0.86x 2sd: 0.7x Source: Company, DBS Bank, DBSVI Page 5

6 Key Assumptions FY Dec Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds Income Statement (Rpbn) FY Dec Net Interest Income 6,811 8,164 9,467 10,977 12,483 Non-Interest Income 1,107 1,283 1,380 1,619 1,899 Operating Income 7,918 9,446 10,847 12,596 14,383 Operating Expenses (4,490) (5,387) (6,149) (7,258) (8,420) Pre-provision Profit 3,427 4,060 4,698 5,338 5,963 Provisions (894) (708) (853) (1,174) (1,385) Associates Exceptionals Pre-tax Profit 2,542 3,330 3,819 4,134 4,544 Taxation (691) (711) (840) (910) (1,000) Minority Interests Preference Dividend Net Profit 1,851 2,619 2,979 3,225 3,544 Net Profit bef Except 1,851 2,619 2,979 3,225 3,544 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 Source: Company, DBS Bank, DBSVI Page 6

7 Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Net Interest Income 1,909 1,787 1,909 1,902 2,654 Non-Interest Income Operating Income 2,256 2,069 2,211 2,210 3,048 Operating Expenses (1,198) (1,243) (1,345) (1,224) (1,664) Pre-Provision Profit 1, ,384 Provisions (243) (137) (170) (173) (228) Associates Exceptionals Pretax Profit ,139 Taxation (179) (195) (145) (230) (141) Minority Interests Net Profit Growth (%) Net Interest Income Gth 8.2 (6.4) 6.8 (0.4) 39.5 Net Profit Gth 60.9 (21.9) Lifted by lower provision expenses and better-thanexpected NIM (one-off interest payment for the one million housing scheme) Balance Sheet (Rpbn) FY Dec Cash/Bank Balance 12,369 12,025 13,172 19,404 26,916 Government Securities 8,231 9,244 9,706 10,191 10,701 Inter Bank Assets 7,840 17,581 17,999 18,899 19,844 Total Net Loans & Advs. 136, , , , ,245 Investment 1,808 4,172 4,372 4,583 4,804 Associates Fixed Assets 1,553 4,659 4,479 4,283 4,073 Goodwill Other Assets 3,102 4,157 3,681 3,919 3,800 Total Assets 171, , , , ,382 Strong loan growth expected Customer Deposits 127, , , , ,448 Inter Bank Deposits 1,721 3,653 2,687 3,170 2,928 Debts/Borrowings 20,219 22,919 28,895 36,663 46,762 Others 8,299 8,479 8,384 8,431 8,408 Minorities Shareholders' Funds 13,860 19,131 20,879 23,211 25,779 Total Liab& S/H s Funds 171, , , , ,325 Source: Company, DBS Bank, DBSVI Page 7

8 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 ratio easing Source: Company, DBS Bank, DBSVI Target Price & Ratings History 2420 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: 11 Apr HOLD 2: 26 Apr FULLY VALUED 3: 19 May FULLY VALUED 4: 14 Jul FULLY VALUED 5: 26 Jul FULLY VALUED 6: 25 Oct FULLY VALUED 7: 15 Nov FULLY VALUED 8: 13 Dec HOLD 9: 14 Feb HOLD 10: 24 Feb HOLD Note : Share price and Target price are adjusted for corporate actions. 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: 25 Mar :38:35 (WIB) Dissemination Date: 27 Mar :21:20 (WIB) 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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Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. 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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. 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DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from as of 28 Feb DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for in the past 12 months, as of 28 Feb 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: 7. 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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. 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