Company Update:
Bank Rakyat Indonesia (BBRI IJ, BUY, TP: IDR14,500),
Reaching a New Balance
Bank Rakyat Indonesia (BBRI IJ, BUY, TP: IDR14,500),
Reaching a New Balance
We
continue to like BBRI due to its resilient business model in micro lending,
which is not easily duplicated by peers. Although we anticipate asset yield to
fall due to higher contribution of the KUR program to total micro lending, NPLs
are likely to improve to 2.2% by end-2017 (FY16: 2.3%).We reiterate our BUY
call with a new TP IDR14,500 (from IDR12,900, 19% upside), as we rollover our
valuation to 2017.
¨
3Q16
preview: Likely to be inline. 3Q16 results should be announced next week.
We expect net interest margins (NIM) to be fairly stable on a QoQ basis, due to
higher utilisation of its funding. That should be reflected in a higher
loan-to-deposit ratio (LDR). Meanwhile provisions are expected to remain high
in order to maintain its loan loss coverage (LLC) ratio at a minimum level of
150%, as we have assumed an uptick in gross NPL ratio to 2.4% by September.
¨
Continued
focus on micro lending. We view the Government’s micro lending program, called
Kredit Usaha Rakyat (KUR), as a drag on Bank Rakyat Indonesia’s (BBRI) loan
yield. This is as KUR attracts lower yield as compared to commercial micro
lending of Kupedes (19% vs c.21%). Under this year’s scheme, the Government is
providing a 10% subsidy on KUR micro for banks while the borrower pays only 9%
interest on the loan. All in, we project a higher contribution from micro
lending to its total loan book of 32.5% and 33.1% by end-2016/2017,
respectively (end-2015: 31.7%).
¨
Expect
slight uptick in NPL, before inching down by end-2017. BBRI’s lower asset
quality is mainly attributed to its corporate non-state owned enterprise (SOE)
lending, with non-performing loans (NPLs) of 4.7% as at June. Management
emphasised that it would remain cautious due to its exposure to specific
borrowers– including a private biodiesel producer and a sugar manufacturer.
Having said that, gross NPL is likely to reach 2.3% by year-end before inching
down to 2.2% by end-2017.
¨
Gaining
market share in deposits. BBRI has aggressively gained market share in customer
deposits, particularly in savings accounts (June: 18.6% vs Jun 2011: 16.6%),
thanks to its huge customer deposit base of c.50m accounts. In addition, it has
a strong presence with 10,628 outlets throughout Indonesia. As such, BBRI is
expected to continue to tap more customers for deposit-based accounts, which
should underpin a stable market share. We expect it would focus more on
increasing its CASA portion on deposits to 59.1% and 59.7% by end-2016/2017
(end-2015: 58.7%).
¨ Maintain BUY, new IDR14,500 TP. We maintain our BUY call on BBRI with a new IDR14,500 TP as we rollover our valuation to 2017. We derive our GGM-based TP (implies2017 P/BV of 2.15x) by assuming a 17% sustainable ROE, 9.5% cost of equity and 3% long-term growth. Risks to our call include higher-than-expected gross NPLs, lower Government subsidy on the KUR program which would result in further yield decline, and Government intervention risk due to its status as an SOE ban
¨ Maintain BUY, new IDR14,500 TP. We maintain our BUY call on BBRI with a new IDR14,500 TP as we rollover our valuation to 2017. We derive our GGM-based TP (implies2017 P/BV of 2.15x) by assuming a 17% sustainable ROE, 9.5% cost of equity and 3% long-term growth. Risks to our call include higher-than-expected gross NPLs, lower Government subsidy on the KUR program which would result in further yield decline, and Government intervention risk due to its status as an SOE ban
Kindly click the following link for the full report: Bank Rakyat Indonesia : Reaching a New Balance
Best regards,
Eka Savitri
Vice President
Research Analyst - Banking
PT. RHB Securities
Indonesia
