Company update:
Bank Negara Indonesia (BBNI IJ, BUY, TP: IDR6,800)
Attractive Valuations With Improved Outlook
Bank Negara Indonesia (BBNI IJ, BUY, TP: IDR6,800)
Attractive Valuations With Improved Outlook
We
continue to like BNI for its stabilising credit costs and improving asset
quality. Loan growth is expected to pick up due to its focus on SOE corporate
lending, despite lower asset yield projections. We revise our TP to IDR6,800
(from IDR6,200, 17% upside) as we rollover our valuation to 2017. Our TP
implies 2017F P/BV of 1.35x. Downside risks include slower-than-expected NPL
improvements and cuts in infrastructure spending. BNI is one of our top picks
in the Indonesian banking sector.
♦ Stabilising credit
costs.
Bank Negara Indonesia’s (BNI) credit costs have come down substantially to
277bps in 1H16 (1H15: 424bps), and this has enabled better management of its
asset quality. We believe the challenging situation has bottomed. In addition,
Trikomsel Oke Tbk PT’s (TRIO IJ, NR) loan of IDR1.3trn has been classified as
NPL. As such, credit cost should stabilise to 242bps this year, before falling
further to 239bps next year. NPL should touch 2.8% and 2.5% by end-2016 and
end-2017, respectively.
♦ Pick up in loan
growth.
With indicative proposed budget on infrastructure projects of IDR343trn for
2017, we expect BNI to be one of the main beneficiaries, due to its position as
a state-owned enterprise (SOE) bank. As such, SOE loans will be one of BNI’s main
growth engines. BNI is also eyeing payroll loans as its alternative growth
driver due to the lower risk profile, while tapping into CASA deposits from
employees’ payroll. All in, we expect loan growth of 17.7% and 18.5% in 2016F
and 2017F, respectively.
♦ Better earning assets
mixture.
Amid lower government bonds yields and a rosy macroeconomic outlook, earning
assets mix should be dominated by loans. This is reasonable in our view, due to
higher yields coming from loans compared to marketable securities and interbank
placements. We therefore expect the proportion of loans in the earning assets
portfolio to gradually rise to 69.7% by end-2016, and 72.8% by end-2017.
♦ More sustainable
asset yields.
Higher loan contribution to total earning assets mixture will result in more
sustainable asset yields going forward. Although higher exposure to SOE
corporate lending will result in lower loan yields of 10% this year (FY15:
10.6%), the fixed-rate recap bonds of IDR50.6trn should limit further asset yield
compression. All in, reduction in asset yields should normalise by c.32bps to
7.6% in 2017 (drop in asset yield of 54bps this year).
♦ Maintain BUY, new TP
of IDR6,800.
We continue to like BNI for its stabilising credit costs, better earning assets
portfolio mix, and normalising asset yields. We revise up our TP to IDR6,800,
which is derived from GGM, as we rollover our valuations to 2017. Our TP
implies a 2017F P/BV of 1.35x (below its forward mean of 1.42x P/BV). Downside
risks to our TP include slower-than-expected improvements in asset quality,
Government-related risks with regards to intervention, and budget cuts in
infrastructure spending.
Kindly click the following link for the full report: Bank Negara Indonesia : Attractive Valuations With Improved Outlook
Best regards,
Eka Savitri
Vice President
Research Analyst - Banking
PT. RHB Securities
Indonesia
