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BBRI - FY19 Update

EARNINGS UPDATE
PT BANK RAKYAT INDONESIA (Persero), Tbk. (BBRI)
February 2020
 
ALL ABOUT MICRO
Total loans (gross) grew 8.26% (Y/Y) in FY19, much slower than 14.23% (Y/Y) seen in prior year, mostly driven by micro loans. At the same time, asset quality deteriorated as total NPL jumped to 2.62% from 2.16% seen in FY18 on the back of higher corporate and SOE NPLs.  Deposits from customers also grew at slower pace of 8.15% (Y/Y), down from 12.19% (Y/Y) recorded in FY18. Consequently, LDR (bank only) ticked lower to 88.6% vs. 89.0% as well as CASA ratio which slipped to 59% from 61.8%. Net Interest Margin (NIM) has held steady at 7%, but still lower than 7.5% seen in FY18 while cost of funds (CoF) ticked slightly higher to 3.6% from 3.5%. Fee-based income however, remained robust as it grew 21.4% (Y/Y). At the bottom line, net income increased by 6.15% (Y/Y) which was much slower than 11.61% (Y/Y) growth seen in FY18.
 
FOCUS ON THE MICRO
BBRI continued to push its micro segment with the aim of reaching 40% of total loans by 2022. By 2019, total micro loans grew by 12.2% (Y/Y) to Rp307.7T (Fig.A-2), representing 35.8% of total loans outstanding (Fig.A-3). Small commercial loans held the second biggest chunk of 23.1% and grew 8.6% (Y/Y) in FY19 to Rp198.7T. Medium loans however, grew the fastest by 17.5% (Y/Y) to Rp21.5T. Overall loans however, grew at a slower pace of 8.26% (Y/Y) in FY19 vs. 14.23% (Y/Y) in FY18 (Fig.A1). Assets quality turned lower as corporate NPL jumped to 8.75% from 5.49% (Fig.A-8), pushing total gross NPL to 2.62% from 2.16%. Special mention loans were also up to 3.93% from 3.65% as SoE’s SML jumped to 4.29% from 0.86% even as corporate loans’ SML fell from 7.73% to 5.82% (Fig.A-9).
 
CASA, LDR LOWER, CAR HIGHER
TPF growth moderated to 8.15% (Y/Y) in FY19 vs. 12.19% (Y/Y) in FY18, mainly due to 3.18% (Y/Y) decline in current accounts (CA). Saving accounts however, continued to grow by 7.01% (Y/Y) albeit slower than 10.8% (Y/Y) increase in FY18 (Fig.A-6). As a result, CASA ratio dipped to 59.0% from 61.8% (Bank only data) (Fig.A-7). Conversely, cost of funds (CoF) ticked higher to 3.6% from 3.5% and loan-to-deposit ratio (LDR) was marginally lower at 88.6% vs. 89.0%. For FY19 the Bank had added 20.7% (Y/Y) of provision, providing more cushion to its operations and led to an increase of its total capital adequacy ratio (CAR) to 22.6% from 21.2%.
 
NIM UNDER PRESSURE, BUT FBI SUPPORTED
Despite the aggressive rate cuts seen last year, CoF has been stubbornly sticky, leading to prolonged pressure on the Bank’s NIM. NIM fell to 7.0% in FY19 from 7.5% seen in FY18 (Fig.A-7). Pre-Provision Operating Profit (PPOP) continued its double-digit growth of 10.23% (Y/Y) in FY19, although it was slower than 11.07% (Y/Y) registered in FY18 (Fig.A-13). Robust PPOP growth owed itself to strong growth of other operating income which mainly came from fees and commission income which grew by 20.1% (Y/Y). Deposit and Loan Administration Fees continued to hold a joint lion’s share of the Bank’s FBI. At the bottom line, net income gained 6.15% (Y/Y) to Rp34.41T which translated to EPS of Rp280.96 per share.
 
UPDATED GUIDANCE
BBRI has updated its performance guidance for FY20. Loan growth is expected to be around 10%-11% (Y/Y), with gross NPL at around 2.5% and coverage ratio of more than 170%. LDR is expected around 90% ±2% and NIM around 7%. Growth of fee-based income is expected around 12%-14% while OPEX growth is forecast around 8%-10%. Credit cost is expected to be around 2%, leading to net profit growth of 10%-12% (Y/Y).
 
TP REVISED HIGHER
Trading at Rp4,550 per share, BBRI shares were trading at 2.40x PBV20F and 2.14x PBV21F. We continue to be optimistic on the Bank’s performance in FY20, given that upside pressure on rates is likely to be absent this year while the Bank’s focus on micro loans will continue alongside further digitization of the Bank’s services – bringing better efficiency and market coverage. Our target price is revised higher to Rp4,775 per share from Rp4,670 per share, implying 2.52x PBV20F and 2.25x PBV21F. Risks associated with our forecasts come from global growth prospects, particularly the impact of the coronavirus on the economy as well as lingering risks of renewed trade tension between US & China.
 
MAINTAIN BUY
At the current price of Rp7,250 per share, the shares are being traded at 1.08x PBV and 0.99x PBV20F. We maintain our BUY call on BBNI with target price set at Rp9,050 per share. Our target price implied PBV20F of 1.2x and represents almost 25% upside potential from the current price.
 
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Mon February 10Th, 2020

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