RHB Indonesia - Bank Rakyat Indonesia - Growing Bigger Through Micro Lending (Bank Rakyat Indonesia, Mitra Adiperkasa, Bumi Serpong Damai) Unknown Rabu, 24 Mei 2017




Good morning,

Bank Rakyat Indonesia – Growing Bigger Through Micro Lending
We maintain our BUY call on BRI with a new GGM-derived IDR16,500 TP (from IDR14,500, 14% upside) as we rollover our valuation to 2018. Micro lending would continue to be its core business despite the uncertainties over the KUR programme – this is as the Government reviews the interest rate subsidy scheme and budget annually. BRI’s asset quality would remain manageable due to its significant exposure to the micro, salary-based and SOE lending segments. The bank is now Top Pick in our domestic big-cap banks universe.


¨ Maintaining its micro lending focus. Bank Rakyat Indonesia (BRI) is likely to continue its micro lending bread and butter business. Despite the Government annually reviewing the People’s Business Credit (KUR) scheme and budget annually, BRI still has the flexibility to shift the programme into a commercial micro lending offering. This is a rural small credit programme called KUPEDES, which has a higher lending rate of c.18% (vs KUR micro lending’s c.9% and a government subsidy of 9.55%). As such, we assume a modest 16% growth next year in the micro lending segment, which would result in a higher contribution of 34.1% of total loans book by end-2018.
¨ Ample room to grow the fee-income segment. Given its core businesses are in the micro and salary-based lending segments, particularly national civil servants, BRI’s customer base is skewed more towards retail or individual accounts. This would support the sustainability of its deposit and loan administration fees, and e-banking fee income. In addition, the bank’s fee income to total operating income is still low (1Q17: 11.6%) when compared to other big banks like Bank Mandiri (Mandiri) (BMRI IJ, BUY, TP: IDR13,300) and Bank Negara Indonesia (BNI) (BBNI IJ, BUY, TP: IDR6,800). That said, we expect 19.9% YoY growth in fee income for next year.
¨ Minimal impact from Standard & Poor’s (S&P) upgrade on blended cost of funds (CoF). The recent upgrade by S&P on Indonesia should help BRI’s coupon rate on its bonds issuance plan going forward. The bank already has decent ratings from several rating agencies. However, such upgrades ought to lower its coupon rate by c.25bps from the latest bonds issuance of IDR5.1trn – this is at a blended coupon rate of 8.1%. Yet, given the minor contributions from bonds issuances (c.2.9% of total funding mixture by the end-2018), blended CoF would only dip to 3.6% next year (FY17F: 3.7%).
¨ Credit costs remain manageable. BRI’s 1Q17’s credit cost of 317bps (with fairly stable gross NPL ratio of 2.3%) should indicate that it is still in good shape vis-à-vis other banks’ asset quality challenges. This is due to BRI’s loans portfolio, which is dominated by micro, salary-based and corporate state-owned enterprise (SOE) loans, in our view. Moreover our projections also suggest more upside risks. This is because we forecast a gross NPL ratio of 2.2% by the end of next year, with 223bps credit costs.
¨ Maintain BUY, new a IDR16,500 TP (from IDR14,500). We maintain our BUY call with a new GGM-derived TP as we rollover our valuation to 2018. We assume cost of equity (CoE) of 9.9%, 18.1% sustainable ROAE and 3% long-term growth. BRI is also Top Pick for our Indonesia big-cap banks universe. Risks include higher-than-expected exposure to the KUR programme. (Eka Savitri)

Link to report: Bank Rakyat Indonesia : Growing Bigger Through Micro Lending
Link to daily report:  Indonesia Morning Cuppa 240517



Company Update:

Mitra Adiperkasa (MAPI IJ, BUY, TP: IDR7,400), Going For Full Earnings Potential

We keep Mitra as one of our Top Picks, and upgrade our earnings estimates and TP. Mitra has been showing good progress and we expect it to continue to do so, supported by better inventory control and macro-economic tailwinds. Valuations appear expensive as it is still in a turnaround stage and has yet to show its full earnings potential. We model an 85%/47% jump in earnings in 2017F/2018F, driven by a recovery in profitability as inventory issues have largely abated. Maintain BUY with new DCF-derived TP of IDR7,400 (from IDR6,675, 25% upside), implying 2017F/2018F P/Es of 32x/22x – justified by high earnings growth potential.

¨ 2017F-2018F earnings upgraded by 15-10% on strong progress. Our earnings upgrade factored in slightly higher revenue and slightly lower opex assumptions, leading to our 2017F-2018F net margin estimates rising to 2.4-3.1% from 2-2.8%. We are encouraged by Mitra Adiperkasa’s (Mitra) good financial results and remain optimistic about its nine strategic initiatives. Some upside potential remain as the realignment of its businesses continues – this time the focus would be on improving the department store segment’s performance, which in 2016 accounted for 19% of revenue and 3% of EBIT.
¨ Continuing business realignment at the department store segment. The specialty store segment has yet to fully recover to its peak performance, but we understand that the segment is already in a stronger position. The business turnaround would now focus on the department store segment, which delivered 1.1% EBIT margin in 2016, from 7% in 2011-12. Mitra operates five department store formats, of which only two formats performed well.
In 1Q17, the department store segment’s revenue declined by 5% YoY, but at the same time EBIT almost tripled to IDR2.7bn. The department store segment posted IDR91bn and IDR20bn losses before tax in 2016 and 1Q17 respectively, 44% and 34% of Mitra’s consolidated PBT respectively. Closing down some of the unprofitable formats would likely lower revenue but improve bottomline.
¨ Stronger financial position, distributing dividends again after two years. Mitra continued to maintain a solid inventory position, at 138 days in 1Q17 – the lowest over the last eight years – continuously improving from 2013’s 185 days. With a stronger financial position, it can now afford to distribute dividends. Mitra declared a 20% dividend payout (IDR25 DPS), suggesting a 0.4% yield.
¨ On the right track, raising TP to IDR7,400. We upgrade our TP to IDR7,400, derived from 10-year DCF (WACC of 11.4%; terminal growth of 3%). Our TP implies 2017F/2018F P/Es of 32/22x, which we believe are justified given the company’s strong earnings recovery potential – we are projecting profit growth of 85%/47% in 2017F/2018F. Mitra is one of our key picks in the sector, as we like the company’s various internal turnaround efforts, and the potential macro-economic tailwinds from an overall acceleration in the economy. Key risks are mostly external factors in our view; such as sharp currency fluctuations, and a material economic slowdown. (Stifanus Sulistyo)

Bumi Serpong Damai (BSDE IJ, BUY, TP: IDR2,650), Maintains a Solid Performance

We have mentioned in the past about our belief that 2017 is the year to be positive on the real estate sector. As the Top Pick in the sector, BSD posted strong 1Q17 results and marketing sales; we believe the company will be able to maintain its solid performance in the coming quarters. Maintain BUY with TP of IDR2,650 (47% upside), which implies a 50% discount to RNAV.

¨ Strong 1Q17 results since Bumi Serpong Damai (BSD) posted a 59% YoY increase in revenue to IDR1,754bn as the company was able to recognize a higher residential and commercial marketing sales backlog into accounting revenue. The 1Q17 revenue accounted for 25%/23% from our/consensus estimates, in-line with its average seasonal trend (Figure 3). This revenue growth combined with non-operating income resulted in a significant 183% YoY growth in net profit, which was equivalent to 29%/29% from our/consensus full year estimates and above its average seasonal trend of 25% (Figure 4).
During 1Q17, residential sales increased by 203% YoY to IDR1.1trn and contributed 63% of total revenue. However in terms of gross margin, 1Q17 land sales booked the largest contribution at 71% while residential margin was 64% and commercial at 53%. Overall, gross margin was down by 762bps due to higher cost of goods sold (COGS) on houses and strata title buildings.
¨ Balance sheet remains healthy. In 1Q17 BSD’s cash balance increased to IDR4.5trn as a result of additional debt where mostly would be used for working capital. Nonetheless, the company managed to maintain a healthy balance sheet where he 1Q17 debt to equity ratio was booked at 30%, ie well below the bond covenant of 200%. On 17 May, BSD issued a 5.50% USD70m senior notes that would be due in 2023 and the proceeds are to be used for working capital and funding investment properties. Post the notes issuance, we estimate the company would still be able to maintain a healthy book with interest coverage ratio at above 5x.
¨ Confidence still intact. We maintain our view that 2017 would be a more positive year for the sector as well as for BSD. Our view is supported by BSD’s strong 1Q17 results and marketing sales that were booked at IDR1,595bn (+33% YoY) achieving 22% from this year’s target of IDR7,225bn. Improvements on the company’s financials can also be seen on the yearly growth on revenue and net profit since 1Q16 (as seen on Figure 2). On 11 June 2017, the company plans to launch a new landed house sub-cluster called “Avezza” as part of Mozia cluster. The houses will have an area size ranging from 60-105sqm/unit with ASP ranges from IDR1.34 - 2.2bn per unit or IDR18.3 - 21mn per sqm.
¨ We maintain our BUY call on the back of a 25% CAGR net profit growth forecast from FY16-19F as well as expectationS on sector improvements starting from this year. Currently, the counter is trading at 13x 2017F P/E and a 66% discount to RNAV. (Yualdo Tirtakencana)




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Best regards,

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


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