RHB Indonesia - Bank Rakyat Indonesia: The biggest micro lending story continues - (Bank Rakyat Indonesia, Money Supply, Summarecon Agung) Unknown Rabu, 01 Februari 2017




Good morning,

Bank Rakyat Indonesia: The biggest micro lending story continues
We expect modest earnings growth for BRI on the back of supportive loans growth coming from micro lending, both for the KUR programme and commercial micro lending. Aside from that, fee-income would also bring additional income to BRI going forward coming from the BRILink agent as well as electronic-banking features (ATMs, mobile and internet banking). Maintain BUY with an unchanged GGM-derived TP of IDR14,500 (24% upside). A short term risk is the slow progress in non-SOE corporate borrowers’ NPL status.

¨ Sustainable earnings growth. Post its inline FY16 results, we maintain our earnings growth projection of 7.8% in 2017 for Bank Rakyat Indonesia (BRI) with a slight fall in its net interest margin (NIM) to 8.0% (FY16: 8.1%) as we expect a lower asset yield of 11.1%. Moreover, we also assume stable credit cost of 228bps to maintain its loan loss coverage (LLC) ratio at the minimum level of 150%.
¨ Biggest micro lender as this is BRI’s bread and butter activity since many decades ago. The Government’s Kredit Usaha Rakyat (KUR) micro lending program would still continue to be one of BRI’s main growth engines with an IDR71.2trn target while maintaining the same interest rate subsidy scheme. All in, micro lending contribution could reach approximately 33.1% of loans booked by year-end (end FY16: 31.9%).
¨ Manageable asset quality due to its significant exposure on micro lending. We expect NPLs from non-SOE corporate borrowers to be lower given that some SOEs are already in the process of liquidation, with several potential buyers lined up. Therefore, we expect a 2.2% NPLs ratio by year-end.
¨ Maintain BUY. We maintain our BUY call on BRI, supported by its strong loans growth from micro lending, superior NIMs and potentially higher fee-income from c.50m customer accounts. Our GGM-derived TP of IDR14,500implies FY17F P/BV of 2.15x (-0.75SD of its historical mean) and a P/E of 13x. (Eka Savitri)
Link to report: Bank Rakyat Indonesia : The Biggest Micro Lender Story Continues
Link to Daily report: Indonesia Morning Cuppa - 010217

Economic Updates:

Money Supply Rises, Loan Growth Curbs At End 2016
Indonesia’s money supply (M2) growth edged up to 10% YoY in Dec 2016, from +9.3% in Nov 2016 and +7.5% in Oct 2016. This was due to a pick-up in net domestic operations but partly offset by a moderation in net foreign operations. Likewise, the supply of narrow money (M1) surged. Going forward, we expect broad money to grow faster at 11% in 2017, underpinned by stronger projected economic growth.
¨ Private credit moderated. Total loans growth decreased in Dec 2016, on account of slower growth in loans extended for working capital and investment, while consumer credit exhibited stronger growth. Going forward, we expect demand for private credit to pick up, aided by monetary policy easing and stronger projected economic growth.
¨ Deposit growth, meanwhile, surged. Demand deposits recorded stronger performances during Dec 2016 but was partly offset by a moderation in savings and time deposits.
¨ Key policy rate likely to be cut by 25bps. We expect Bank Indonesia (BI) to cut its key policy rate by another 25bps in 2017(to 4.5%) to support economic growth under stable IDR circumstances.
¨ IDR continued to appreciate against USD. IDR appreciated by 1% against USD in Jan 2017, after a slight strengthening in December, as capital inflows started to return. Nevertheless, we expect IDR to stay weak and trade toward 13,600 by end-2017. (Rizki Fajar)

Link to report: to be sent out later
Visit Notes:

Summarecon Agung (SMRA IJ, Neutral, TP: IDR1,420), Company Visit Notes
¨ Summarecon’s management mentioned that the company slashed its target marketing sales twice from initially IDR4.5trn to IDR3trn in early 4Q16. The reduction in target was mainly due to slow down in sales in 1H16, prior to the Tax Amnesty period. In 4Q16, Summarecon booked IDR800bn of marketing sales that enabled the company to reach its full year target, however the achievement was still 13% below our estimate.
¨ This year, management has a more positive/aggressive tone on the back of several reasons such as LTV relaxation and several initiatives from the Government along with lower interest rates, as such marketing sales was targeted to reach IDR4.5trn (21% above our estimate) with contribution expected from Serpong, bandung, and Karawang. We remain cautious on the company’s high gearing level and its aggressive target for the year. Remain Neutral with TP: IDR:1,420. (Yualdo Tirtakencana Yudoprawiro)
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Best regards,

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



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