Bank Tabungan Pensiunan Nasional (BTPN IJ) Short-term pain for long-term gains

Transcription

1 Equity Research Company Initiation Monday,13 November 2017 BUY Initiation Last price (IDR) 2,470 Target Price (IDR) 2,800 Upside/Downside +13.4% Previous Target Price (IDR) 0 Stock Statistics Sector Banks Bloomberg Ticker BTPN IJ No of Shrs (mn) 5,745 Mkt. Cap (IDRbn/USDmn) 14,190/1,050 Avg. daily T/O (IDRbn/USDmn) 0.2/0.0 Major shareholders Sumitomo Mitsui 40.0% Summit Global Capital Management BV % Estimated free float (%) 32.0 EPSConsensus(IDR) 2017F 2018F 2019F Danareksa Consensus Danareksa/Cons (6.2) (18.2) (17.4) BTPN relative to JCI Index Bank Tabungan Pensiunan Nasional (BTPN IJ) Shortterm pain for longterm gains We initiate coverage on BTPN with a BUY call and GGMderived TP of IDR2,800. BTPN is currently undergoing transformation so that it can fullyutilize its digital initiatives, BTPN Wow! and Jenius. Despite oneoff restructuring costs of IDR700bn in 4Q17, we believe that BTPN s business model will rely on the loweryield massmarket segment, i.e. SME lending. As such, we expect the NIM to drop to 11.2% next year due to a 70bps reduction in asset yields despite an improvement in blended CoF to 6.1%. Maintaining its focus on the massmarket segment. BTPN will rebalance its loans book towards the upper massmarket segment given the saturated pension loans market. Besides this, its micro lending products continue to face a challenge from the government s KUR program. As such, we assume 21.5% growth in SME loans, which will reduce assets yield to 16.7% in FY18F. The assets quality remains healthy, with a low gross NPLs ratio of 0.9%, whereas its closest competitors in the massmarket segment are struggling with assets quality issues. BTPN s management team will seek to cherry pick loan segments that match the bank s risk appetite, we believe. As such, the gross NPLs ratio is expected to touch 0.8% with 140bps credit cost and 139.3% LLC ratio next year. BTPN is undertaking a restructuring process from a brickandmortar business model toward a technologydriven business model. To achieve this goal, BTPN will close down around 50% of its branches and lay off some of its employees through an early retirement program. As a result, net profits are expected to fall by 27.3% in FY17F, mainly coming from IDR700bn of oneoff restructuring costs in 4Q17. For FY18F, however, we expect a recovery with net profits growth of +27.8%, helped by normalised opex and manageable credit costs. Initiate coverage, a BUY call and TP of IDR2,800. We initiate coverage on BTPN with a BUY call and GGMderived TP of IDR2,800 assuming 11.1% CoE, 10.3% sustainable ROAE and 3% longterm growth. The main risks to our call are: 1) the relatively saturated pension loans market, and 2) tight liquidity conditions that will pose risks to a higher blended CoF. Source : Bloomberg Eka Savitri (6221) ext 3506 eka.savitri@danareksa.co.id Key Financials Year to 31 Dec 2015A 2016A 2017F 2018F 2019F PPOP, (IDRbn) 3,246 3,479 2,919 3,572 4,006 Net profit (IDRbn) 1,702 1,752 1,273 1,628 1,945 EPS (IDR) EPS growth (%) (8.9) 4.7 (27.3) BVPS, (IDR) 2, , , , ,346.2 PER (x) PBV (x) Dividend yield (%) ROAE (%) Source : BTPN, Danareksa Estimates See important disclosure at the back of this report 1

2 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 Exhibit 1. LOANS AND GROWTH Exhibit 2. NET INTEREST INCOME AND GROWTH Exhibit 3. NIM AND LDR Exhibit 4. NPLs Exhibit 5. PE BAND CHART Exhibit 6. PBV BAND CHART x x % Fwd P/E Mean +1SD 1SD Fwd P/BV Mean +1SD 1SD ROAE (RHS) See important disclosure at the back of this report 2

3 FY12 FY13 FY14 FY15 FY16 9M17 FY17F FY18F FY19F Maintaining its focus on the high yield segment Shifting its core business away from pension loans BTPN s strong core business in extending pension loans has already reached its mature phase, in our view, amid stiff competition from its closest peers such as Bank Rakyat Indonesia (BBRI IJ, BUY, TP IDR3,600) and Bank Mantap a subsidiary of Bank Mandiri (BMRI IJ, BUY, TP IDR7,700). Despite its attractive loan yields and the low risk weight due to the automated deduction of monthly instalments, we expect pension loans growth of only 6.3% YoY in view of the sizeable nominal outstanding amount. This would result in lower pension loans exposure of 55.1% of its loans book by the end of 2018 (Sep2017: 57.5% of its loans book). Given the saturated pension loans market, BTPN has shifted its strategy towards other highyield loan segments aside from micro lending (the bank s micro lending products have struggled in the face of the stiff competition posed by the government s KUR program). As such, we expect SME loans and sharia loans through Tunas Usaha Rakyat (TUR) products to be the growth drivers in 2018F (with estimated growth of 21.5% and 27%, respectively). Exhibit 7. BTPN s loans breakdown with respective yields IDR trn % Opex (LHS) CIR (RHS) See important disclosure at the back of this report 3

4 FY12 FY13 FY14 FY15 FY16 3Q17 FY17F FY18F FY19F Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Sep 17 Dec 17F Dec 18F Dec 19F Exhibit 8. BTPN s loans portfolio projection IDR trn % Pension (LHS) Micro (LHS) SME (LHS) Sharia (LHS) Others (LHS) YoY loans growth (RHS) Expect a lower NIM With a rebalanced loans mix towards SME and sharia products, we expect loan yields to gradually decline. Indeed, 3Q17 s loans yield dropped to 19.9% as the central bank aggressively cut its policy rate starting in With 79.9% of its earning assets coming from loans by the end of next year, translate into 16.7% asset yields in FY18F. On the funding side, BTPN will benefit from having higher CASA deposits on the back of its digital initiatives called BTPN Wow! and Jenius. As of September 2017, CASA deposits accounted for 12.4% of customer deposits. By the end of next year, however, this figure should rise to 16.8%. As a result, the blended CoF should improve to 6.1% (9M17: 7%) amid recent 50bps policy rate cut by Bank Indonesia. All in all, the NIM will compress to 11.2% based on our forecast. Exhibit 9. Asset yields, blended CoF and NIMs % 2 1 NIM Blended CoF Asset yield See important disclosure at the back of this report 4

5 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Sep 17 Dec 17F Dec 18F Dec 19F 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 The assets quality remains healthy Despite deterioration in assets quality in the banking sector over the past two years, BTPN has been able effectively manage its loans portfolio. While its closest competitors in the massmarket segment are struggling with assets quality issues, BTPN s gross NPLs ratio remains healthy at 0.9% with a loans loss coverage (LLC) ratio of 129.4% as of September New NPL formation remains under control as BTPN employs the automated writeoff procedure given its sizeable exposure to the massmarket segment. Due to changes in its loans book toward SME and sharia loans, BTPN s management has provided guidance for a higher NPLs ratio while maintaining its credit cost guidance at bps for BTPN s management team will seek to cherry pick loan segments that match the bank s risk appetite, we believe. All in, we expect the gross NPLs ratio to touch 0.8% with 140bps credit cost next year. This will result in a safe LLC ratio of 139.3% by the end of 2018 based on our model. Exhibit 10. BTPN s quarterly new NPLs formation IDR bn bps New NPL formation (LHS) of loans (RHS) Exhibit 11. Manageable assets quality with an adequate LLC ratio % % Gross NPL (LHS) LLC (RHS) See important disclosure at the back of this report 5

6 FY12 FY13 FY14 FY15 FY16 9M17 FY17F FY18F FY19F Undertaking a restructuring process Oneoff restructuring costs in 4Q17 The rapid changes in the financial ecosystem related to the activities of fintech companies have prompted BTPN to realign its business model. BTPN s management will close nearly 50% of its branches. The surviving branches will offer all of BTPN s products unlike previously when BTPN had dedicated branches for each product, i.e. the BTPN Purna Bakti branch for pension loan products and BTPN Mitra Usaha Rakyat for sharia products. At the same time, BTPN will lay off some of its employees through an early retirement program. To achieve its goals, BTPN will better utilise its two business ventures called BTPN Wow! and Jenius whilst equipping its remaining employees with more skills so they can easily adapt to BTPN s new business processes. The restructuring costs of nearly IDR700bn for scaling down its branches and employees have been declared as a oneoff event by the bank. As such, we already include the costs in our total FY17F operating expenses of IDR7.3trn (+21% YoY). This will elevate the bank s costtoincome ratio (CIR) to 71.5%. However, as a oneoff event, we expect FY18F s opex to decline by 1.4% to IDR7.2trn, bringing down the CIR to 67% in FY17F s earnings, however, will decline by 27.3%. Expect 27.8% earnings growth in FY18F With the current major restructuring process, BTPN will continue to grow its business in the massmarket segment, especially SME and sharia (TUR), whilst lowering its micro lending exposure due to direct competition from the Government s KUR program. Funding should be safe given the strong support from its ultimate shareholder, Sumitomo Mitsui Banking Corporation (SMBC) through bilateral borrowings. Meanwhile, the bank s Wow! and Jenius initiatives should start to support its CASA deposits base. This would help to lower its blended CoF to 5.7%. All in all, we expect next year s earnings to grow by 27.8% due to: 1) an expected pickup in loans growth to 10.4% driven mostly by SME and sharia loans, 2) NIM compression to 11.2% on the back of an estimated 70bps reduction in the assets yield coming from the rebalanced loans mix towards lower yield segments, 3) 1.4%% YoY opex growth due to the highbase this year given the oneoff restructuring costs, and 4) manageable credit costs at 138bps given the bank s significant massmarket segment exposure. Exhibit 12. BTPN s opex and CIR projection IDR trn % Opex (LHS) CIR (RHS) See important disclosure at the back of this report 6

7 Initiate coverage with a BUY call, TP of IDR2,800 We initiate coverage on BTPN with a BUY call and GGMderived TP of IDR2,800 assuming 11.1% CoE, 10.3% sustainable ROAE and 3% longterm growth. Our TP implies 0.9x 2018F P/BV multiple, slightly below 1SD of its 9years forward mean. BTPN s position in the 2018F P/BV and ROAE matrix suggests that the bank still offers decent ROAE with an attractive valuation. The risks to our call are: 1) the relatively saturated pension loans market, 2) tight liquidity conditions that will pose risks to a higher blended CoF due to the sizeable share of TD in total customer deposits, 3) direct competition from the government s KUR program faced by BTPN s micro lending, 4) share illiquidity given that SMBC owns 60% of BTPN. Exhibit F P/BV and ROAE matrix 2 % BBRI BBCA 1 BBTN BJTM BMRI BBNI BJBR BTPN BNGA PNBN BDMN x Source : Bloomberg as of Nov , Danareksa Estimates See important disclosure at the back of this report 7

8 Exhibit 14. Income Statement Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Interest Income 13,004 13,695 14,369 14,910 15,817 Interest Expense (5,308) (4,841) (4,766) (4,901) (4,941) Net Interest Income 7,696 8,854 9,604 10,009 10,876 NonInterest Income (NII) Oper. Income 8,401 9,543 10,258 10,811 11,838 Oper. Expenses (5,156) (6,064) (7,339) (7,239) (7,832) Preprovisions profit 3,246 3,479 2,919 3,572 4,006 Provisions & Allowances (786) (870) (938) (1,037) (1,099) Operating Profits 2,460 2,610 1,981 2,536 2,907 NonOperating Income (27) (5) (15) (16) (12) Exceptionals Pretax Profit 2,433 2,605 1,966 2,520 2,895 Income Tax (680) (729) (492) (630) (637) Minorities (51) (124) (201) (262) (314) Net Profit 1,702 1,752 1,273 1,628 1,945 Exhibit 15. Balance Sheet Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Gross Loans 58,587 63,168 68,214 75,316 83,967 Provisions (544) (685) (759) (850) (948) Net Loans 58,044 62,483 67,455 74,466 83,020 Govt. Bonds Securities 4,930 5,953 6,559 7,031 7,393 Other Earnings Assets Total Earnings Assets 71,558 80,492 84,865 93, ,490 Fixed Assets 1,888 2,880 3,282 3,755 4,262 NonEarnings Assets 2,931 3,736 3,333 3,535 3,434 Total Assets 81,040 91, , , ,544 Customer Deposits 57,222 61,806 67,712 75,151 84,924 Banks Deposits Int. Bearing Liab. Others 65,726 73,490 81,742 90, ,117 Total Liabilities 66,863 74,823 84,471 93, ,068 Share capital & Reserves 1,693 2,208 2,208 2,208 2,208 Retained Earnings 12,136 13,866 14,457 15,596 17,016 Shareholders' Funds 13,829 16,074 16,666 17,805 19,224 Minority interests ,252 Total Equity & Liabilities 14,177 16,549 17,341 18,743 20,476 See important disclosure at the back of this report 8

9 Exhibit 16. Ratios Year to 31 Dec (%) 2015A 2016A 2017F 2018F 2019F Yield on Earning Assets Cost of funds Interest Spread Net Interest Margin Cost/Income Ratio Oper. Exp./Oper. Gross Inc Gross NPL Ratio LLP/Gross NPL Cost of Credit Loan to Deposit Ratio Loan to Funding Ratio CASA Mix ROAE ROAA CAR Exhibit 17. Dupont and growth Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Dupont PreTax ROAA Tax Retention rate PostTax ROAA Goodwil, Assoc& Min (0.1) (0.1) (0.2) (0.2) (0.3) Leverage ROAE Growth (%) Interest income Net Interest Income Other Oper. Expenses (1.4) 8.2 Fee Based Income (4.6) (2.4) () 22.5 PreProvision Oper. Profit (1.7) 7.2 (16.1) Net Profit (8.9) 3.0 (27.3) Shareholders Equity Loan Earnings Asset Deposit Int. Bearing Liab CASA (1.3) (1.7) Total Asset Source : BTPN, Danareksa Estimates