RHB Indonesia Morning Cuppa - 14 October 2016- (Bank Negara Indonesia)

Good morning,

Bank Negara Indonesia: Better days ahead

Yesterday, BNI had analyst meeting presentation on its 9M16 performance. BNI currently trades at 1.07x P/BV multiple for 2017 (-0.9SD of its historical mean). Maintain BNI as one of our top pick in the sector.

Key highlights:

9M16 performance

¨ Net interest income represents 76.5%/77.9% of our/consensus forecast on the back of strong 21.1% YoY loan growth.

¨ Net interest margin (NIM) dropped to 6.2% due to lower asset yield of 9.5% while blended cost of funds (CoF) were relatively flat at 3.2% based on our calculation.

¨ Cost to income ratio (CIR) fell to 45.3% as BNI’s management continue to cut unnecessary operating expenses, ie reduce the frequency related to money replenishment on ATM.

¨ Stabilised credit cost of 252bps as the NPL pressure gradually lift-off.

¨ Net profit accounted for 76.7%/74.2% of our/consensus forecast.

3Q16 performance

¨ NIM expanded to 6.3% compared to previous quarter on the back of higher asset yield by 32bps to 9.8%

¨ BNI continue to support infrastructure-related projects reflected through +8.8% QoQ growth in construction sector. Moreover, BNI provides mostly to SOE contractors, ie Waskita Karya (WSKT IJ, Buy, TP IDR3,675).

¨ Yet blended cost of funds (CoF) fairly stable at 3.2% with lower CASA deposits to total customer deposits of 59.7% (Jun: 60.4%) to support strong loan growth.

¨ Restructured loan already down by c.IDR2trn to IDR27.8trn (7.5% of total loan book, Jun: 8.4%) from previous quarter due to some of borrowers paid off and some has upgraded to normal scheme.

¨ With provisions down by 42.3% QoQ resulting to +193% QoQ growth in net profit.

What to expect:

¨ Loan growth would normalise at maximum 20% by end of year yet we conservatively assume 18% as some of SOE loans are for bridging loan. Thus SOE borrowers would fully repay the loan by end of year.

¨ Asset yield would continue to fall on the back of aggressive business expansion tapping more into SOE and infrastructure-related projects. We expect asset yield of 7.9%/7.6% for 2016/17, respectively.

¨ With sharp declined in asset yield, NIMs hence would also continue to fall yet with more gradual way backed by lower blended CoF.

¨ BNI’s management guided for one SOE borrowers from shipping company in that might downgraded to NPL category in 4Q16 (loan size of IDR750bn). BNI already required additional collateral from this borrower to lower the risk.

¨ We project 242bps credit cost in FY16 then slightly drop to 239bps in FY17 as we assume 2.8%/2.5% gross NPL with LLC ratio of 141.4%/145.7% for end of 2016/2017, respectively. (Eka Savitri)

Link to Daily report: Indonesia Morning Cuppa - 14102016

Sector Updates:

Auto producers manage inventory in dealers level

Gaikindo reported that September cars wholesales declined to 93,000 units (-3.3% MoM). However, YTD base, 9M16 cars wholesales still increased to 784,000 units (+2.5% YoY). We see that auto producers manage cars inventory at dealers level, by lowering September wholesales, after it jumped by 54% MoM (to 96,000 units) in August. So far, in our calculation, cars inventory at dealers level is around 5,600 units, equivalent to two days of national cars sales which is in a healthy level.

Astra has not announced its September vehicles sales number. (Andrey Wijaya)

Media Highlights:

Corporates

Catur Sentosa Adiprana shut downs its subsidiary

J Resources prepares some business expansion until end of 2016

Fitch assigns Bumi Serpong’s Notes BB-

Government has built 420k low cost housings

Indonesia likely to keep ban on nickel ore and bauxite exports

Our Recent Publication:

Company Update: Hexindo Adiperkasa: Refurbishment Cycle To Boost Spare Parts Revenue

Link to report: Hexindo Adiperkasa : Refurbishment Cycle To Boost Spare Parts Revenue

Corporate news flash: Semen Indonesia: Working To Sort Out Rembang Plant Quagmire