Bank Negara Indonesia, Tbk (BBNI) Backed by Infrastructure Loan Disbursement Loan Growth and NPL Improvement: Net Profit Sustainer Decrease in non-performing loan (NPL) and growth in loan distribution sustained BBNI 1H17 performance. Its net profit reached IDR6.4 trillion edged up 46.7% y-y and pursuant to analysts estimate. NPL ratio edged down 2.8%. It caused decrease of 1.8% (vs decrease of 2.7% in 1H16 credit cost) in 1H17 credit cost and decrease in provision for loan loss. On the other side, third party fund (Dana Pihak Ketiga, DPK ) grew by 18.5% y-y with current account saving account (CASA) edging up by 19.4% y-y into 60.9% from the total DPK (vs 1H16 total DPK of 60.4%). Thus, loan to deposit ratio (LDR) was 88.9% (vs 1H16 LDR of 91.4%). Although LDR slipped down, BBNI was still capable of distributing substantial amount of loan. Government Infrastructure Project: Loan Growth Booster BBNI 1H17 loan grew by 15.4% y-y boosted by construction, electricity, gas, and water utility management sectors. We estimate that its 2017 loan growth will be consistently high, particularly loan deriving from government infrastructure projects potential for reducing NPL into 2.7% in the end of 2017 (vs 2Q17 NPL of 2.8%). However, the loan to the Indonesia government results in a relatively low net income margin (NIM). We estimate that its NIM will slip down to 5.5% in 2018 (vs its current NIM of 5.6%). However, low risk of loan to government will be positive catalyst for BBNI. Target Price of IDR8,200 We use an estimate of forward P/B of 1.4x as our basis of valuation method to obtain the target price. This target price implies a 2017/E P/B of 1.5x (vs 2017/E P/B of 1.3x by now). Bank Negara Indonesia, Tbk Summary (IDR bn) 2015/12A 2016/12A 2017/12E 2018/12E Revenue 36,895 43,768 48,667 55,914 Revenue growth 10.6% 18.6% 11.2% 14.9% Operating Profit 11,412 14,368 17,682 21,113 Net profit 9,067 11,339 14,264 16,907 EPS (IDR) 486.2 608.0 764.9 906.6 EPS growth -15.9% 25.1% 25.8% 18.5% BVPS (IDR) 4,206 4,786 5,412 5,906 NIM 5.2% 5.6% 5.6% 5.5% NPL 2.7% 3.1% 2.7% 2.5% ROE 13.0% 13.5% 15.0% 16.0% ROA 2.0% 2.0% 2.2% 2.3% LDR 87% 86% 88% 88% P/BV 1.2x 1.2x 1.3x 1.2x P/E 10.3x 9.1x 9.2x 7.7x DPS (IDR) 145 122 213 222 Dividend yield 2.9% 2.2% 3.0% 3.2% Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Update 2Q17 July 18, 2017 Buy Dec 2017 TP (IDR) 8,200 Consensus Price (IDR) 7,340 TP to Consensus Price +11.7% vs. Last Price +16.7% Shares data Last Price (IDR) 7,025 Price date as of July 17, 2017 52 wk range (Hi/Lo) 5,000/7,100 Free float (%) 40.9 Outstanding sh.(mn) 18,649 Market Cap (IDR bn) 132,405 Market Cap (USD mn) 9,874 Avg. Trd Vol - 3M (mn) 24.0 Avg. Trd Val - 3M (bn) 156.8 Foreign Ownership 22.2% Finance Bank Bloomberg Reuters Bima Setiaji +62 21 797 6202, ext:114 bima@nhsec.co.id Share Price Performance BBNI IJ BBNI.JK YTD 1M 3M 12M Abs. Ret. 27.9% 6.5% 12.0% 28.4% Rel. Ret. 17.2% 5.4% 7.4% 14.2%
Growth in BBNI net profit is boosted by loan distribution and maintained NIM. Stable NIM and Loan Distribution: Booster for Net Profit Increase BBNI succeeded to distribute 1H17 loan of IDR412.18 trillion growing by 15.4% y-y compared to 1H16 loan distribution of IDR357.22 trillion. The loan distribution was booster for 1H17 net interest income (NII) increasing by 10.7% into IDR15.40 trillion. The increase in NII contributed to the growth in BBNI 1H17 net profit soaring by 46.7% y-y into IDR6.41 from 1H16 net profit gain of IDR4.37 trillion. The solid net profit growth was primary factor boosting growth of 15.0% in 1H17 return on equity (ROE) from 1H16 ROE of 13.7%. Solid NII caused maintainable NIM at the level of 5.6%. The decrease of 3.1% in 1H16 credit cost into 3.0% in 1H17 credit cost was factor maintaining NIM at stable level. BBNI NPL Ratio Q4 2014 - Q2 2017 BBNI NIM breakdown Q4 2015 - Q2 2017 Source: Company, Bank Indonesia Source: Company Massive government project surges the loan demand from construction sector. SOE Infrastructure Sector: Booster for Credit Growth BBNI 1H17 loan distribution to SOE (State Owned Enterprises) grew by 27.0% y-y into IDR82.54 trillion. The high loan distribution was boosted by demand from construction, electricity, gas, and water utility sectors. Meanwhile, the loan from private corporation only grew by 6.7% y-y into IDR95.65 trillion. BBNI is one of banks the Indonesia government trusts to provide infrastructure finance. It helps BBNI 1H17 loan to grow above the average of banking industry. BBNI 1H17 loan portfolio in infrastructure sector reached IDR136.6 trillion or equal to 33% from the total loan of IDR412 trillion. PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 22
Loan disbursement by infrastructure industry is a positive catalyst for BBNI. Infrastructure Loan Disbursement: Fortune for BBNI The optimism for better economic conditions triggers infrastructure industry to disburse the approved loan. The accelerated infrastructure project will boost the trend of loan disbursement. According to the Financial Services Authority (OJK), 1Q17 undisbursed loan decrease from IDR39.58 trillion into IDR1,314 trillion. We estimate that BBNI 2017 loan distribution will grow by 18%. It is triggered by massive loan disbursement to finish the completion target of varied infrastructure projects such as toll road and power plant in the period of 2018-2019. Banking Undisbursed Loan 4M 2016-3M 2017 Loan Breakdown Q2 2017 Source: OJK Source: Company BBNI is potential for increasing revenue from fee based income until the year end. Potency for Revenue from Non-Interest Income BBNI 1H17 books fee based income of IDR4.64 trillion (+17.9% y-y). One of fee based income contributors is remittance service primarily deriving from two countries such as Malaysia and Hong Kong where many Indonesian labors work. We estimate that fee based income from digital banking and trade finance segments can give substantial contribution for non-interest income. Trade finance revenue majorly derives from corporation segment, particularly from SOE. PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 33
Multiple Valuation Forward P/B band Last 3 years Dynamic Forward P/B band Last 3 years Rating and target price update Target Price Date Rating Target Price Last Price Consensus vs Last Price vs Consensus 2/1/2017 Buy 6,900 5,850 6,491 +17.9% +6.3% 5/5/2017 Buy 7,500 6,500 7,016 +15.4% +6.9% 7/18/2017 Buy 8,200 7,025 7,340 +16.7% +11.7%, Bloomberg Analyst Coverage Rating Closing and Target Price Source: Bloomberg NH Korindo Sekuritas Indonesia (NHKS) stock ratings 1. Period: End of year target price 2. Rating system based on a stock s absolute return from the date of publication Buy : Greater than +15% Hold : -15% to +15% Sell : Less than -15% PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 44
Financial Summary BBNI Summary Last Price (IDR) July 17, 2017 7,025 Target Price (IDR) Dec 2017 8,200 2015/12A 2016/12A 2017/12E 2018/12E Analyst: Bima Setiaji Rating: Buy ROE 13.0% 13.5% 15.0% 16.0% ROA 2.0% 2.0% 2.2% 2.3% INCOME STATEMENT ROIC 9.1% 8.8% 9.4% 10.1% NIM 5.2% 5.6% 5.6% 5.5% in IDR bn 2015/12A 2016/12A 2017/12E 2018/12E BOPO 67.6% 64.1% 60.3% 60.3% Interest income 36,895 43,768 48,667 55,914 EBITDA/Equity 15% 16% 18% 19% Growth (% y/y) 10.6% 18.6% 11.2% 14.9% EBITDA/Assets 2.2% 2.4% 2.6% 2.7% Interest expense (11,335) (13,773) (15,500) (17,615) Cash Dividend (IDR bn) 2,696 2,267 3,969 4,137 Net interest income 25,560 29,995 33,167 38,299 Dividend Yield (%) 2.9% 2.2% 3.0% 3.2% Non Interest Income 9,698 10,065 11,343 14,876 Payout Ratio (%) 30% 20% 28% 24% Net Revenue 35,258 40,060 44,510 53,176 Cash Ratio 9% 8% 7% 7% Gross Margin 95.6% 91.5% 91.5% 95.1% Common Equity/Total Assets 15% 15% 15% 14% Provisions for Loan Losses (7,336) (6,754) (5,469) (6,705) Book Value per Share 4,206 4,786 5,412 5,915 Operating Expense (16,510) (18,938) (21,358) (25,358) Provisions for Loan Losses (7,336) (6,754) (5,469) (6,705) Operating Profit 11,412 14,368 17,682 21,113 Total Risk Based Capital 73,799 87,199 94,662 104,999 Operating Margin 30.9% 32.8% 36.3% 37.8% Non-Performing Loans 2.7% 3.1% 2.7% 2.5% Non-Operating Income 54 (65) 287 157 Loans to Deposit Ratio 87% 86% 88% 88% EBT 11,466 14,303 17,969 21,270 CASA 61% 65% 63% 64% Income Tax (2,326) (2,893) (3,562) (4,280) Capital Adequacy Ratio 19% 19% 19% 18% Non Controlling Interests (74) (71) (143) (83) Par Value (IDR) 50 50 50 50 Net Profit 9,067 11,339 14,264 16,907 Total Shares (bn) 18.6 18.6 18.6 18.6 Growth (% y/y) -16% 25% 26% 19% Share Price (IDR) 4,990 5,525 7,025 7,025 Net Profit Margin 24.6% 25.9% 29.3% 30.2% Market Cap (IDR bn) 93,057 103,034 131,007 131,007 BALANCE SHEET in IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E Cash & Near Cash Items 43,823 47,613 50,506 53,353 Price /Earnings 10.3x 9.1x 9.2x 7.7x Interbanking Assets 42,792 35,326 45,951 62,084 Price /Book Value 1.2x 1.2x 1.3x 1.2x Investments 57,186 86,771 93,357 97,248 Price/Sales 2.5x 2.4x 2.7x 2.3x Net Loans 322,898 376,595 444,355 517,723 PE/EPS Growth -64.5x 36.3x 35.6x 41.8x Other & Fixed Assets 41,897 56,727 52,738 57,002 EV/EBITDA 7.8x 7.8x 8.0x 6.9x Total Assets 508,595 603,032 686,906 787,410 EV/EBIT 7.7x 7.8x 7.8x 6.8x Total Deposits 370,421 435,545 503,656 587,157 EV (IDR bn) 88,513 111,700 140,596 144,956 Demand Deposits 91,194 122,652 137,078 162,882 Sales Growth 10.6% 18.6% 11.2% 14.9% Saving Deposits 135,065 158,662 181,398 214,050 EPS Growth -15.9% 25.1% 25.8% 18.5% Time Deposits 144,161 154,230 185,179 210,226 Basic EPS (IDR) 486 608 765 907 ST & LT Borrowings 37,255 54,182 57,926 65,133 Diluted EPS (IDR) 486 608 765 907 Total Liabilities 430,157 513,778 585,982 677,109 BVPS (IDR) 4,206 4,786 5,412 5,915 Retained Earnings 50,534 61,277 72,875 82,089 Sales PS (IDR) 1,978 2,347 2,610 2,998 Total Equity 78,438 89,254 100,924 110,301 DPS (IDR) 145 122 213 222 CASH FLOW STATEMENT in IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E Net Income 9,067 11,339 14,264 16,907 DCF (USD mn) Depreciation 8,120 7,694 3,946 1,037 NOPAT 9,097 11,462 14,177 16,864 Oth Non-Cash Adj 1,913 (1,337) (5,574) (8,476) +Depr./Amor. 8,120 7,694 3,946 1,037 CFO 19,099 17,696 12,636 9,468 -CAPEX (4,422) (2,213) (1,583) (2,413) Capex (4,422) (2,213) (1,583) (2,413) -Incr. (Decr.) in Working Cap. 1,913 (1,337) (5,574) (8,476) Investment (49,355) (90,710) (63,067) (74,647) (Unlevered) FCFF 14,708 15,606 10,967 7,012 CFI (53,777) (92,923) (64,649) (77,060) WACC Dividends Paid (2,696) (2,267) (3,969) (4,137) Cost of Debt (Tax Adj.) 10.3% 9.5% 8.1% 11.1% Others 67,469 72,171 71,919 90,709 Cost of Equity (COE) 11.3% 10.4% 12.1% 11.3% CFF 64,774 69,904 67,950 86,572 WACC (%) 11.0% 10.1% 10.9% 11.2% Net Changes in Cash 30,096 (5,323) 15,936 18,980 RIM Spread (FROE-COE) (%) -11.3% -10.4% -12.1% -11.3% OWNERSHIP PROFITABILITY & STABILITY VALUATION INDEX DCF, RIM & EVA Residual Income (USD mn) 2,152 3,162 3,437 5,537 Equity Charge 6,914 8,177 10,827 11,370 By Geography % Shareholders % EVA Indonesia 77.8 Republic Of Indonesia 58.8 Invested Capital (USD bn) 84,061 115,693 143,436 158,850 United States 8.1 Blackrock 3.2 ROIC-WACC (%) -0.2% -0.2% -1.0% -0.6% Luxembourg 3.9 Vanguard 2.0 EVA (USD mn) (174) (246) (1,471) (941) DISCLAIMER This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. 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