Equity Research

PT BANK NEGARA INDONESIA (PERSERO) TBK 

Strong Loan Growth – Higher than Industry

BBNI booked a strong loan growth of 20.0% YoY in 1H19, higher than banking industry growth of 11.1% YoY in May 2019 supported by strong customer deposit growth of 13.0% YoY and lending rate reduction in corporate segment. The company’s NPL continued to improve in 2Q19 which reached at low level of 1.8% triggered by NPL improvement in corporate and consumer segments. Upgrade to BUY since our new fair value offer 37% upside potential.

1H19 strong loan growth of 20% YoY, higher than industry

During the 1H19 period, BBNI booked a strong loan growth of 20.0% YoY reached to Rp 549.2 trillion (vs Rp 457.8 trillion in 1H18), mainly dominated by corporate and SoE segment (52% portion) which grew by 26.6% YoY to Rp 285.3 trillion (vs Rp 225.4 trillion in 1H18). We highlight this was higher than banking industry growth of 11.1% YoY in May 2019 thanks to 1) its strong customer deposit support which increased by 13.0% YoY to Rp 595.1 trillion (vs Rp 526.5 trillion in 1H18, higher than industry of 6.3% YoY in May 19) and 2) lending rate reduction in corporate segment by 60 bps. As a result, BBNI’s LDR has increased to the level of 92.3% in 1H19 (vs 87.3% in 1H18).

NIM continued to decrease due to lending rate reduction and higher CoF

On the profitability side, the company’s NIM in 1H19 continued to decrease by 50 bps to the level of 4.9% (vs 5.4% n 1H18), entirely affected by 1) lending rate reduction mainly in corporate segment by 60 bps; and 2) 40 bps increases in CoF (3.2% vs 2.8% in 1H18) due to higher time deposit interest rate and a 22.4% YoY increases in current account.We foresee that the company’s NIM will further increase during 3Q19-4Q19 in the midst of repricing interest rate in time deposit following the recent BI 7-days RRR cut by 25 bps.

NPL continued to improve at low level

BBNI’s NPL continued to improve in 2Q19 which reached at low level of 1.8% (vs 2.1% in 2Q18 and 1.9% in 1Q19) thanks to a write-off of Rp3.76 trillion and Rp33.4 trillion in restructuring loan as well as supported by NPL improvement in corporate and consumer segments at the level of 1.1% (vs 1.6% in 2Q18 in 1Q19) and of 2.1% (vs 2.5% in 2Q18 and 2.2% in 1Q19). Meanwhile, we note that a downgrade of Rp 245 billion medium loan into bad debt category, mainly from shrimp farming, pipe manufacture and staples trading sectors resulted in NPL’s medium segment deterioration to the level of 3.7% (vs 2.7% in 2Q18 and 1Q19).

In all, 1H19 result came in line with our expectation

All in all, the company’s 1H19 financial result came in line with our expectation, in which the net interest income (NII) and net profit covered by 47% and 45% to our 2019F of Rp 37.1 trillion in NII and Rp 17.1 trillion in net profit, respectively. Note that the NII only inched up 1% YoY became to Rp 17.6 trillion in 1H19 (vs Rp 17.4 trillion) as consequence of corporate’s lending rate reduction by 60 bps while its net profit only advanced by 2.6% YoY from Rp 7.4 trillion to Rp 7.6 trillion.

Upgrade to BUY – new fair value Rp 11,500 per share

We revise our Risk free rate assumption to 7.00% (previously at 8.43%, following the recent decline in 10 years government bond and BI 7-days RRR cut by 25 bps), thus resulted in higher fair value at Rp 11,500/share (previously at Rp 10,600/shr) implying with 1.61x PBV 2020F target. Recently, BBNI’s share price tradedat 1.18x PBV 202F which below its 5 years average forward PBV of 1.29x, hence, we upgrade our Neutral rating to BUY since our fair value only offer 37% upside potential.Key risk:Bad debt from Duniatex with total exposure of Rp440 billion will threat thecompany’s NPL.