FOCUS RESEARCH. Solid 9M17 Bottom Line PT BANK NEGARA INDONESIA (PERSERO) TBK NEUTRAL 17OCTOBER2017

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1 FOCUS RESEARCH 17OCTOBER2017 COMPANY UPDATE NEUTRAL STOCK INFORMATION Bloomberg Code BBNIIJ Sector Bank Current Price Rp7,525 Target Price Rp 7,700 Previous Target Price Rp 7,700 Upside/Downside 2% Share Out (bn shares) 18.6 Market Cap (Rpbn) Rp 140, w range (low-high) Rp5,000 Rp7, w average daily Rp6,361 PRICE CHART Jan 12 = BBNI IDX PT BANK NEGARA INDONESIA (PERSERO) TBK Solid 9M17 Bottom Line BBNI continued to record a solid 9M17 net profit of Rp 10.2 trillion which grew by +31.6% YoY backed by 1) higher FBI growth of 15.1% YoY and 3Q17 NPL improvement. Meanwhile the NPL continued to improve by 35 bps to 2.8% (vs 3.1% in 9M16) as a result of Rp 5.2 trillion write off and Rp 30.9 trillion in restructured loan. The share price has rallied by 38% YTD and traded close to its 5 years average PBV band of 1.36x while our fair value only offered limited upside potential of 2%, hence, it remains a Neutral call. Solid 9M17 net profit backed by higher FBI and NPL continued to improve BBNI continued to record a solid 9M17 net profit of Rp 10.2 trillion (+31.6% YoY vs Rp 7.7 trillion in 9M16) backed by 1) higher fee based income (FBI) of Rp 7.2 trillion (+15.1% YoY vs Rp 6.2 trillion in 9M16) and 2) 3Q17 NPL improvement had resulted lower provisioning cost of Rp 5.5 trillion (-17% YoY vs Rp 6.6 trillion in 9M16). It came in-line with our expectation which covered by 74% to our 2017F of Rp 13.7 trillion. Meanwhile, the company s net interest income (NII) only grew by 7.5% YoY (+6.0% QoQ) to Rp 23.5 trillion during the same period which was driven by strong loan growth of 13.3% YoY (higher than banking industry growth of 8.2% YoY in July 2017). The NII result was slightly below our expectation which covered 69% to our 2017F of Rp 34.2 trillion due to its average lending rate cut by 90 bps YoY to 10% (vs 10.9% in 9M16) Jan-12 Apr-12 Jul-12 Oct-12 Source: Bloomberg Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 NPL continued to improve In 9M17 period, BBNI s NPL continued to improve by 35 bps to 2.8% (vs 3.1% in 9M16) which was driven by 1) a write off of Rp 5.2 trillion (vs Rp 2.2 trillion in 9M16) dominated by corporate (31%), small (24%) and middle (24%) segments and 2) Rp 30.9 trillion in restructuring loan (+3.4% YoY vs Rp 29.9 trillion in 9M16) dominated by manufacture, trading restaurants & hotels and agriculture sectors. We note that the 9M17 NPL from corporate and small segments improved to 2.6% (vs 3.2% in 9M16) and to 3.5% (vs 3.8% in 9M16), respectively. Meanwhile, the total loan recovery was at Rp 1.5 trillion during the same period (vs Rp 834 billion in 9M16) contributed from medium, corporate and small segments. SHAREHOLDERS INFORMATION, AS OF 30 SEPTEMBER 2017 The Government of Republic Indonesia 60.0% Public (below 5%) 40.0% Source: Company data PBV BAND Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Source: Bloomberg and Lotus Andalan Research Oct-14 Jan-15 Apr-15 PBV Average Avg + stdev Avg - stdev Avg + 2 stdev Avg - 2 stdev Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct x 1.60x 1.36x 1.12x 0.89x Declining NIM as a result of lower lending rate environment The company s NIM in 9M17 declined by 70 bps became to 5.5% (vs 6.2% in 9M16), as a result of lower loan yield of 10.0% (vs 10.9% in 9M16) due to 1) lower lending rate environment; 2) the result of interest rate reduction in loan restructuring program and 3) lower CoF. We note that BBNI s CASA ratio improved to 60.4% from 59.7% in 9M16 which was contributed from current and saving account of Rp trillion (+31.6% YoY) and Rp trillion (+13.4% YoY), respectively. The total time deposit grew by 17.7% YoY during the same period from Rp trillion to Rp trillion. Neutral rating - TP Rp 7,700/share Year to date, BBNI s share price has rallied significantly by 38% and traded close to its 5-years average PBV band of 1.36x, while our fair value only offered limited upside potential of 2%, hence, we keep Neutral call on the counter. Financial Summary (Rp billion) 2015A 2016A 2017F 2018F 2019F Net interest income 25,560 29,995 34,227 42,039 48,513 PPOP 18,748 22,082 25,344 31,386 35,666 Net profit 9,067 11,339 13,697 18,187 21,152 EPS (Rp) ,135 PER (x) BVPS (Rp) 4,102 4,678 5,201 5,920 6,713 PBV (x) Dividend yield (%) RoAE (%) NIM (%) TheodorusArielKristian theodorus.ariel@lotussekuritas.com (+62-21) ext Please see important disclosures at the end of this report

2 PT BANK NEGARA INDONESIA (PERSERO)TBK 17 OCTOBER 2017 Interim Financial Result 9M16 9M17 YoY FY17F cover 2Q17 3Q17 QoQ The Comments P/L (In Rp billion) Net Interest Income 21,874 23, % 34,227 69% 7,646 8, % Below Operating expenses (13,520) (14,751) 9.1% (21,678) 68% (4,891) (4,976) 1.7% PPOP 16,336 18, % 25,344 72% 6,051 6, % Inline Provision (6,610) (5,489) -17.0% (8,208) 67% (2,024) (1,665) -17.7% Lower allocation due NPL improvement Non op. income - net (25) (55) 120.0% 141 n.a. (19) (21) 10.5% Pre-tax profit 9,701 12, % 17,277 74% 4,008 4, % Income tax (1,984) (2,607) 31.4% (3,494) 75% (822) (960) 16.8% Net Profit 7,717 10, % 13,697 74% 3,186 3, % Inline BS (In Rp billion) Loan - gross 372, , % 459,917 92% 412, , % Customer deposit 401, , % 487,439 99% 463, , % Profitability Avg Loan Yield 10.9% 10.0% 9.0% 10.0% 10.0% Cost of Fund 3.1% 3.0% 2.8% 3.0% 3.0% NIM 6.2% 5.5% 6.3% 5.6% 5.5% YoY Lower NIM due lending rate reduction BOPO 74.6% 70.3% 73.9% 71.0% 70.3% Capital & Assets Quality Total CAR 18.4% 19.0% 19.8% 19.0% 19.0% LDR 92.8% 87.9% 90.2% 88.9% 87.9% CASA 59.7% 60.4% 65.7% 60.9% 60.4% NPL - gross 3.1% 2.8% 2.9% 2.8% 2.8% YoY NPL improvement, QoQ stable NPL Provisioning coverage 143.2% 147.4% 121.5% 147.2% 147.4% Loan Segment (Rp trillion) Period 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 YoY Segments Corporate & SoE % Consumer % Medium % Small % Subsidiaries % International % Total % Growth - QoQ Corporate & SoE -5.2% 10.2% 7.6% 2.4% 0.3% 11.8% 4.3% 7.9% -0.4% 2.8% 1.7% Consumer -5.1% 1.8% 2.5% 4.9% 0.2% 5.8% 2.9% 3.7% 0.8% 2.2% 2.2% Medium -2.2% 9.8% 7.0% 10.3% 2.5% 11.3% 4.1% 1.0% 3.4% 2.9% 3.7% Small 2.4% 3.1% -0.5% 8.0% 3.2% 10.1% 3.9% 2.1% 0.4% 3.5% 2.0% Subsidiaries 4.4% 6.7% 1.4% 4.9% 1.6% 5.4% 3.4% 5.4% 4.1% 6.2% 0.1% International 1.9% 5.4% 40.7% 28.2% -14.6% -2.4% 9.3% 19.3% 1.4% 20.3% 4.8% Total -2.9% 7.1% 6.4% 6.2% 0.2% 9.3% 4.1% 5.7% 0.8% 3.9% 2.2% Portion Corporate & SoE 42.1% 43.3% 43.8% 42.3% 42.3% 43.3% 43.4% 44.3% 43.7% 43.2% 43.0% Consumer 19.5% 18.5% 17.9% 17.6% 17.6% 17.1% 16.9% 16.5% 16.5% 16.3% 16.3% Medium 14.6% 15.0% 15.1% 15.7% 16.0% 16.3% 16.3% 15.6% 16.0% 15.8% 16.1% Small 14.1% 13.6% 12.7% 12.9% 13.3% 13.4% 13.3% 12.9% 12.8% 12.8% 12.8% Subsidiaries 5.8% 5.8% 5.6% 5.5% 5.6% 5.4% 5.3% 5.3% 5.5% 5.6% 5.5% International 3.8% 3.8% 5.0% 6.0% 5.1% 4.6% 4.8% 5.4% 5.4% 6.3% 6.4% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% NPL Gross (%), Bank Only Period 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 YoY* Segment Corporate Medium Small Consumer Total Change - QoQ* Corporate Medium Small Consumer Total *) In bps 2 P a g e

3 17 OCTOBER 2017 PT BANK NEGARA INDONESIA (PERSERO) TBK Third Party Fund (Rp Trillion) Period 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 YoY Deposits Demand % Savings % Time Deposits % Total % CASA ratio 63.0% 63.2% 60.9% 61.1% 58.5% 60.4% 59.7% 64.6% 58.5% 60.9% 60.4% Growth - QoQ Demand -4.3% 14.4% 2.4% -1.9% -3.8% 8.8% 2.5% 25.4% -11.9% 11.9% 6.5% Savings -5.6% 2.9% 3.2% 12.7% -4.1% 8.9% 0.8% 11.6% -4.0% 6.0% -0.1% Time Deposits 1.3% 6.6% 13.5% 5.5% 7.0% 0.5% 4.4% -4.7% 19.7% -1.7% 5.0% Total -2.8% 7.2% 6.8% 6.0% 0.3% 5.4% 2.7% 8.4% 2.2% 4.2% 3.6% P a g e 3

4 PT BANK NEGARA INDONESIA (PERSERO)TBK 17 OCTOBER 2017 Financial Highlights of PT Bank Negara Indonesia (Persero) Tbk In Rp Billion BALANCE SHEET 2015A 2016A 2017F 2018F INCOME STATEMENT 2015A 2016A 2017F 2018F ASSETS Interest income 36,895 43,768 48,766 56,126 Cash and cash equivalent 12,890 11,168 13,205 16,719 Interest expenses (11,335) (13,773) (14,539) (14,087) Current account with BI and others bank 39,931 36,445 41,992 48,116 Net Interest income 25,560 29,995 34,227 42,039 Placement with BI and others bank 33,417 33,662 29,684 32,254 Marketable securities 57,150 86,771 85,796 96,080 Net premium income 1,133 1,342 1,409 1,479 Gross loans 326, , , ,250 Other non-interest income 8,565 9,963 11,387 13,902 Loan provisions (12,039) (16,681) (15,958) (20,308) Total net operating income 35,258 41,299 47,022 57,420 Fixed assets 20,757 21,972 23,122 24,234 Others 30,384 36,420 41,696 48,732 Salaries expenses (7,366) (8,834) (10,165) (12,230) TOTAL ASSETS 508, , , ,078 G&A expenses (5,758) (6,212) (6,770) (8,012) Other expenses (3,386) (4,171) (4,743) (5,792) Pre Provision Operating profit (PPOP) 18,748 22,082 25,344 31,386 LIABILITIES & EQUITY Provision (7,336) (7,853) (8,208) (8,553) Customers deposits 370, , , ,483 Operating profit 11,412 14,229 17,136 22,833 Other banks deposits 4,698 10,224 10,836 12,798 Fund borrowings 22,524 32,965 27,745 30,355 Non - operating income Subordinated borrowings 7,367 7,227 7,227 7,227 Profit before tax 11,466 14,303 17,277 22,955 Others 25,148 27,816 24,692 25,885 Total Liabilities 430, , , ,748 Tax expense (2,326) (2,893) (3,494) (4,642) Capital stock 9,055 9,055 9,055 9,055 Net profit before non-controlling interest 9,141 11,410 13,783 18,312 Additional paid in capital 14,568 14,568 14,568 14,568 Others 11,254 12,736 12,736 12,736 Non-controlling interest Retained Earnings 41,538 50,798 60,531 73,923 Total Equity 76,415 87,157 96, ,282 Net profit 9,067 11,339 13,697 18,187 Non-Controlling Interest 2,023 2,097 2,023 2,048 TOTAL LIABILITIES & EQUITY 508, , , ,078 EPS (Rp) KEY FINANCIAL RATIO 2015A 2016A 2017F 2018F MARKET RATIO 2015A 2016A 2017F 2018F Growth (%) Total assets PER (x) Gross loans PBV (x) Customer deposits BVPS (Rp) 4,102 4,678 5,201 5,920 Risk weighted assets Dividend yield (%) Net interest income PPOP Net profit (15.91) Profitability (%) Earning Asset Yield Cost of Fund NIM ROAA ROAE Cost to Income Ratio Op. exp to Op. inc (BOPO) Capital & Quality Assets (%) CAR LDR CASA to Deposits NPL - gross Provisioning coverage Notes: The definitions of Lotus Andalan Research for Investment Ratings: - BUY : +15% and above, over the next 12 months - Neutral : -15% to +15%, over the next 12 months - SELL : -15% and worse, over the next 12 months 4 P a g e

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