RHB Indonesia Morning Cuppa - 17 November 2016 - (BBNI, ISAT) Unknown Kamis, 17 November 2016




Good morning,

Bank Negara Indonesia: Attractive Valuations With Strong Fundamentals

Bank Negara Indonesia’s (BBNI) current 2017F valuation of 1x P/B and reasonable ROAE of 12.8% looks more appealing (vs BMRI’s 2017F 1.4x P/B, 12.1% ROAE) as we believe its fundamental value remains intact. Its USD exposure should be manageable, given that they are mostly dominated in long-term funding instruments. Infrastructure projects would be the key catalyst for loan growth, at the same time limiting BBNI’s exposure to the mining sector, given the volatility in commodity prices. BUY and IDR6,800 TP maintained (30% upside).

¨ USD exposure risk should be manageable, as the loan-to-funding ratio (LFR) in USD was 75.2% as at September, due to BBNI’s policy of providing USD-loan exposure only for export-oriented borrowers. Meanwhile its USD denominated long-term funding should also remain under control as BBNI secures long-term funding instruments to match its long-term loans, particularly for infrastructure projects.
¨ Solid commitment on infrastructure projects. Management shared that BBNI would continue to provide a substantial amount of financing to infrastructure projects, given that Indonesia still lacks proper infrastructure. Construction, toll road, power plant, and port-related sectors would be BBNI’s main focus to support its loans growth. In 2017, we expect the contribution from infrastructure projects to total loan book to reach 21% (end-2016: 20.5%).
¨ Limited mining sector exposure. At 3.1% of total loan book (IDR11.5trn) with a 91.8% LLC ratio, BBNI has limited exposure to the mining sector. We believe BBNI should not need to set aside significant additional coverage. Despite the recent pick-up in commodity prices, BBNI management has no plans as yet to write back provisions. They are expected to do so only when there are more visibility of a sustainable global commodities environment ahead.
¨ 3Q16 results in-line. As NIM expanded by 39bps to 6.1% QoQ, coming from a combination of wider asset yield and lower blended cost of funds (CoF). Its 196bps credit cost, with a slight uptick in LLC ratio of 140.5% reflected BBNI’s consistency in keeping LLC ratio stable. Our assessment is for limited risk from higher corporate NPLs – BBNI has guided for only one corporate borrower as a potential addition to NPLs, and has already asked for additional collateral to cover the loan of IDR750bn.
¨ Maintain BUY and GGM-derived IDR6,800TP, assuming CoE of 10.1%, sustainable ROAE of 12.6% and long-term growth of 3%. Our TP implies 1.3x 2017F P/BV (-0.25SD of historical mean).
¨ Risks to the downside are include:
i. Slower-than-expected GDP growth that may prolong its NPL improvement;
ii. Tight liquidity, which may result in a higher blended CoF and NIM compression. (Eka Savitri)


Link to report: Bank Negara Indonesia : Attractive Valuations With Strong Fundamentals
Link to Daily report: Indonesia Morning Cuppa - 171116



Results Review:

Indosat (ISAT IJ, Neutral, TP: IDR6,500), Taking The Lead In Data Monetisation
Indosat’s (ISAT) intention to spearhead the industry’s data monetisation efforts by reining in on data quotas is viewed positively but there are inherent risks in that its rivals may not reciprocate. The network sharing pact with XL and the streamlining of power/fuel costs should contribute towards opex savings in the longer-term. We keep our NEUTRAL rating with a DCF-based TP (WACC: 10.7%, TG: 1%) adjusted to IDR6,500 (from IDR6,700, 5% upside). For exposure, we prefer Telekomunikasi Indonesia (TLKM IJ, BUY, TP: IDR5,200).
¨ Re-pricing data. ISAT said it would take the lead to cut data quotas from 4Q16 in hope that its two other rivals are likely to follow suit. We laud management’s attempt to better monetise burgeoning data traffic given the extremely low data yields in the market (under USD2/GB) but caution that the initiative could well backfire (execution risk). ISAT’s data yield fell a sharp 36% QoQ to IDR18/MB.
¨ Dividends to make a comeback. Management indicated that it would consider reinstating its dividend guidance in FY17 on the back of the improvement in operational cashflows and the reduction in USD debt. We note that its USD debt exposure has fallen to 12% from 22% in 4Q15. ISAT targets to reduce USD debt to below 5% by end-FY17.
¨ Forecast. Our FY16-18 core earnings forecasts have been adjusted by between -9% to 6%, following some house-keeping amendments and factoring in higher network cost-savings as ISAT looks to outsource its network fuel/power management to its equipment vendors.
3Q/9M16 earnings – results are in line
(SGDm)
3Q15
2Q16
QoQ (%)
3Q16
YoY (%)
Comments
Revenue
6,961.5
7,129.2
6.4
7,583
8.9
In line. Lebaran seasonality
EBITDA
3,205.3
3,079.7
11.2
3,425.3
6.9
76% of RHB estimate/75% of consensus
Core earnings
431.5
156.7
143.1
380.9
(11.7)

Source: Company data
¨ Tracking in line. 3Q16 core EBITDA grew 11.2% QoQ on further cost efficiencies which drove EBITDA margin to a two year high of 45.2% (9M16: 44%). Mobile revenue growth however, slowed to 9.2% YoY in 3Q16 after five consecutive quarter of double-digit expansion on lower ARPU subscribers added in 3Q16 and pressure on data yields. This is behind Telkomsel’s 3Q16 revenue growth (11.4% YoY) but ahead of XL Axiata (XL)(EXCL IJ, BUY, TP: IDR3,832) (XL) (-10% YoY). Mobile internet revenue was flat QoQ as the strong data traffic (+56% QoQ) was offset by lower data yields from bonus data offers. Voice revenue slipped 1.2% QoQ despite higher MOU while SMS revenue grew 8% QoQ, helped by the 21% QoQ increase in SMS yield. (Jeffrey Tan)

Media Highlights:

Corporates

Indocement launched its second-tier brand
Indocement launched its second brand Semen Rajawali which targets second-tier market segment. Rajawali cement price will be lower than that of Tiga Roda. Rajawali first launched was on 10-October in Karawang, West Java. Indocement will also introduce this second-tier brand in several other cities.

We see that the new brand Rajawali is to compete with cement produced by new cement makers which selling at huge discount. Indocement aims to increase its market shares, on the expense of narrower EBIT margin. Notably, Indocement national market shares declined to 26.1% in 10M16 (from 27.4% in 10M15).

Our long-term outlook is Neutral on the counter. However, Indocement share price declined 10% in the last five days. Sharp correction on share price is good opportunity to accumulate and trading the stocks. Our DCF-derived TP of IDR17,900 (23% upside), implying 14x FY17F P/E. (Andrey Wijaya)

AKR Corporindo to partner up with BP Global to aim retail fuel market
Lippo Karawaci to launch 1,000 new homes units
Sumber Alfaria Trijaya injects IDR89.45bn to subsidiary to strengthen online business
Wika Beton and Wika Gedung to form new precast company
Wijaya Karya aim TOD business for Serang-Panimbang toll route
Pakuwon Jati to launch 2 new malls in 2017
MRT construction reached 58%

Our Recent Publication:
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Company Update: Summarecon Agung: Lower Gearing Is The Key
Economic Highlights: Current Account Deficit Improves In 3Q, And Surplus In Balance of Payments Continues
Strategy: Currency Woes Dampen Sentiment
Sector Update: Regional Plantation: Disappointing Output Supports Bullish CPO Price Signal
Company Update: Nippon Indosari Corpindo : New SKU Launches, More Sales Force
Company Update: Pembangunan Perumahan Persero: Paving The Way For Stronger Growth
Economic Highlights: Growth Moderated in 3Q 2016, But Will Likely Bounce Back
Company Update: Wijaya Karya Persero: Taking The Weight Off Its Shoulders


Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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