Equity Research

PT BANK CENTRAL ASIA TBK 

Good 1H19 Result – Strong Liquidity

BBCA’s net interest income and net profit grew by 13.1% YoY and 12.6% YoY reaching to Rp 24.6 trillion (vs Rp 21.8 trillion in 1H18) and Rp 12.9 trillion (vs Rp 11.4 trillion in 1H18), respectively. Meanwhile, the company has a strong liquidity amid a tight liquidity in the banking industry (95.5% LDR in May 2019), in which the LDR was registered at the level of 79.0% in 1H19 thanks to  the company’s strategy to focuses on transaction payment system since 1990 and solid transaction in digitalization banking platform. Recently, BBCA’s share price has rallied by 18% YTD 2019 and traded slightly below its 5 years average forward PBV +2 stdev of 4.13x. Neutral rating.

Booked a good result in 1H19

BBCA managed to book a good result in 1H19 where the company’s net interest income grew by 13.1% YoY reaching to Rp 24.6 trillion (vs Rp 21.8 trillion in 1H18) triggered by 11.5% loan’s growth (slightly above banking industry’s growth of 11.1% YoY in May 19) and 60 bps increases in its earning assets yield. Meanwhile, the net profit during the same period increased by 12.6% YoY from Rp 11.4 trillion to Rp 12.9 trillion thanks to its strong fee based income growth of 24.5% YoY which was able to compensate a 3-fold surge in provision cost due to the implementation of PSAK 71 (refers to IFRS 9, will be officially implemented in 1 January 2020). This PSAK will manage the calculation of loan loss reserves based on the characteristics of contractual cash flows, expected credit loss impairment and financial forecast.

Strong liquidity within industry

We highlight that the company’s LDR was at the level of 79.0% in 1H19 (vs 77.0% in 1H18) which translates into a strong liquidity amid tight liquidity in the banking industry (LDR industry was registered at 95.5% in May 19), hence, we foresee that the company has a more space to further expand its loan aggressively. This was supported by the company’s strategy to focuses on transaction payment system since 1990 and solid transaction in digitalization banking platform (mainly in M-banking and Internet banking). Note that, the company’s customer deposit grew by 8.6% YoY reached to Rp 673.9 trillion (vs Rp 620.4 trillion in 1H18), dominated by current and saving accounts (CASA) with a portion of 76%, while its loan increased by 11.1% YoY to Rp 560.3 trillion (vs Rp 502.4 trillion in 1H18).

NPL maintained at low level

On asset quality side, BBCA managed to maintain its NPL at low level of 1.4% in 2Q19 which was far below from NPL’s banking industry at 2.6% as of May 2019, thanks to a write-off of Rp 1.3 trillion and Rp 8.1 trillion in restructured loan as well as NPL improvement from corporate segment to the level of 0.9% (vs 1.0% in 2Q18 and 1.1% in 1Q19). Meanwhile, the NPL from commercial & SME and consumer segments slightly deteriorated to the level of 2.0% (vs 1.9% in 2Q18 and 1.9% in 1Q19) and 1.5% (vs 1.4% in 2Q18 and 1.4% in 1Q19) due to the Eid holiday seasonal.

Neutral rating  – new fair value Rp 30,150per share

We cut 2019 net profit forecast by 2.5% to Rp 27.6 trillion (previously Rp 28.3 trillion) due to higher provision cost projection since the company started to implement PSAK 71. We also revise our Risk free rate assumption to 7.00% following the recent decline in 10 years government bond and BI 7-days RRR cut by 25 bps. Hence, we obtain new fair value at Rp 30,150 per share (previously at Rp 28,650 per share) implying with 3.86x PBV 2020F target. Recently, BBCA’s share price has rallied by 18% YTD 2019 and tradedslightly below its 5 years average forward PBV +2 stdevof 4.13x, hence, we recommend Neutral rating since our fair value offer 3%downside potential.