RHB Indonesia - Bank Tabungan Pensiunan Nasional - Promising Yet Challenging (Bank Tabungan Pensiunan Nasional, AKR Corporindo, Plantation) Unknown Rabu, 26 Juli 2017




Good morning,

Bank Tabungan Pensiunan Nasional – Promising Yet Challenging

BTPN is to continue focusing on the high-yield loans segment. This is despite lower contributions from the matured pension loans market. SME and TUR lending are two segments that ought to support its loans expansion going forward, in our view. With a higher SME lending portion in its loans book, yields on earning assets ought to dip to 17.5% next year. We also expect investments in the BTPN Wow! and Jenius initiatives to likely lead to higher CASA deposits in 2018. All in, we opine that NIMs are likely to stabilise at 11.6% in FY18. We maintain our BUY call and GGM-derived IDR3,400 TP (35% upside) on BTPN.


¨ High-yield segment oriented. Bank Tabungan Pensiunan Nasional’s (BTPN) strategy to explore new high-yield lending segments remains solid. This is despite close competition from its micro lending wing’s credit for business programme (KUR). As such, we opine that its small and medium enterprise (SME) and productive poor (TUR) loans segments are likely to be BTPN’s key growth engines for the next two years. This is amid a matured pension loans market.
In addition, BTPN Wow! – one of its fintech initiatives – ought to pave the way for the bank’s business expansion going forward. Thus, we expect 23% and 25.8% growth for SME and TUR loans in 2018.
¨ NIMs still at a premium. Given the rebalanced loans mixture more towards SME lending (IDR4bn average ticket size) – with a smaller portion from pension loans – yields on earning assets would gradually fall, in our view. That said, NIMs can only be maintained through better interest-bearing liabilities composition.
Yet, we opine that there is room for lower blended cost of funds (CoF) to be limited this year. This is as the impact from last year’s aggressive policy rate cuts on its time deposit (TD) rates has gone. As such, BTPN’s initiatives on BTPN Wow! and Jenius would need to be materialise from next year. This is because the bank has already spent a substantial amount investing in these two new businesses.
We are confident on management’s capability in executing the two initiatives in a timely manner. This is due to BTPN’s proven track record on a new business line a few years ago. All in, we assume yields on earning assets to dip to 17.5% in 2018, with a c.50bps reduction in blended CoF. This would then result in NIMs of 11.6%.
¨ Maintain BUY and IDR3,400 TP. We maintain our BUY call on BTPN with an unchanged GGM-derived IDR3,400 TP. This implies 1.18x 2017F P/BV. The main drawback for the bank would be the low trading liquidity of its shares, in our view.
¨ Key risks to our call include BTPN’s micro lending unit being in direct competition with the Government’s KUR programme and tight liquidity within the system, which may lead to higher blended CoF. (Eka Savitri)

Link to report: Bank Tabungan Pensiunan Nasional : Promising Yet Challenging
Link to daily report: Indonesia Morning Cuppa 260717

Results Review:

AKR Corporindo (AKRA IJ, BUY, TP: IDR7,500), Petroleum And Industrial Estate Sales Boost Growth
AKR’s 2Q17 results showed strong sequential growth – revenue, gross profit and net profit rose 12.4%, 33.1% and 24.7% QoQ respectively. Its volume of petroleum sales grew after a soft 1Q17, while revenue recognition from its industrial estates surged. Thus, we maintain BUY, with an unchanged SOP-based TP of IDR7,500 (16% upside), due to a pick-up in its petroleum sales volume and the increased contribution from industrial land sales. Its outlook is also buoyed by contributions from the utilities businesses on JIIPE industrial land from 4Q17F onwards.

¨ Petroleum sales to mining sector grew. The main highlight of AKR Corporindo’s (AKR) 2Q17 results was a 16% QoQ hike in its petroleum sales volume to 550,000 kilolitres, driven by higher offtake from the mining sector.
In 1Q17, the volume of its sales to the coal-mining sector was soft due to the rainy season, as well as disruption of copper production in Freeport-McMoRan’s mine, due to export permit issues. The mine, which accounts for c.10% of AKR’s total sales volume, resumed production in April after the permit was extended to Jan 2018.
AKR has guided for a similar run rate per quarter for 2H17. This would bring its projected petroleum sales volume for FY17F to 2.2m kilolitres (+6% YoY). It also expects 1H17’s distribution margin to be similar to that of 2Q17.
¨ Industrial land unit doubles contribution to gross profit. Revenue from AKR’s industrial estates also quadrupled QoQ due to the lumpy recognition of land sales. It expects to recognise the sale of 30 ha of land for FY17F (1H17: 19 ha). The remaining 11 ha are worth approximately IDR200bn in revenue. Marketing sales were in line with guidance, with 30 ha sold vs its 40ha target.
Its industrial land segment now accounts for 20% of gross profit (1H16: 9%) The quicker revenue recognition for this segment is highly ROE-accretive due to its high gross margin of >50%.
¨ Recurring income from Jakarta Integrated Industrial and Port Estate (JIIPE) to kick in from 4Q17. AKR’s first project, a 23MW power plant, would be commissioned on 1 Aug. Also, the deep seaport is now fully operational. AKR expects these businesses to lift its earnings by 5% from 4Q17 onwards.
¨ Earnings growth to resume from 2H17F; reiterate BUY. After a soft 3Q16-1Q17 period, we expect AKR to close the year strongly, with growth in its petroleum sales volume and land sales. It also hinted at a potential one-off gain of USD15-20m ahead, from divesting assets in China. It expects to close the deal for this as soon as 4Q17.
As per its latest guidance of FY17F earnings of IDR1.15-1.25trn, we cut our FY17F-18F earnings by 7-6%. Our SOP-based IDR7,500 TP is unchanged after we roll over our valuation base to FY18. Our TP also implies 21x FY18 P/E. (Norman Choong, CFA)
Sector Update:

Plantation – Interesting Takeaways From Site Visits In Indonesia
We spent four days in Indonesia meeting with companies and associations as well as visiting a palm oil refinery and sugarcane plantation estate in Lampung. We gather that production output for FFB is still expected to be strong in 2017, with most companies guiding for strong double-digit recoveries. However, demand from the biodiesel mandate in Indonesia is waning, as consumers have been switching out of subsidised biodiesel to non-subsidised diesel of late. The sugar industry in Indonesia is a lucrative one, with profit margins akin to that of palm oil operations of 40-50%.

¨ Interesting meetings with Indonesian companies and associations. We spent four days in Indonesia with clients last week, meeting with some associations like the Indonesian Palm Oil Association (GAPKI) and Indonesia state oil company Pertamina as well as some companies including Astra Agro Lestari, Sampoerna Agro (SGRO IJ, NR) and Tunas Baru Lampung (TBLA) (TBLA IJ, NR) as well as a site visit to Lampung, where we visited Golden Agri-Resources’ (Golden Agri) palm oil refinery and jetty and TBLA’s sugarcane estates, sugar mill, sugar as well as palm oil refineries and biodiesel plant.
¨ Biodiesel demand in Indonesia is waning. One of the most noteworthy meetings was with Pertamina, where we learned that demand from the Indonesian domestic market for biodiesel is waning, due to the fact that retail consumers still have a choice of whether to pump biodiesel or normal diesel at petrol stations. Due to the narrowing price gap between biodiesel and diesel, consumers have been switching back to diesel due to fears that biodiesel quality is not comparable to diesel and that using biodiesel could damage their car engines.
¨ Sweeteners for sugar players in Indonesia. The other meeting of interest we had was with TBLA, where we learned the reason for its conversion of its old palm oil trees to sugar cane estates is due to the lucrativeness of the domestic sugar market in Indonesia, where domestic selling prices are currently 260% above the cost of production.
¨ Sugar rush in Lampung. Our site visits in Lampung were also informative, particularly to TBLA’s sugar cane estates, where clients got to see first-hand how sugar cane is harvested and milled into white sugar and then further refined into refined sugar products. In Lampung, given the coastal location, many companies (including Golden Agri and TBLA) have their own private jetties, which reduces overall transport and logistics costs.
¨ Strong FFB growth projected by Indonesian planters. While we did not see any palm oil estates nearby, we noted that all the planters we met are expecting strong double digit recoveries in their respective FFB output in 2017, ranging from +12% (Astra Agro), +20% (Sampoerna Agro), +15-20% (Golden Agri) and +10% (TBLA).
¨ UNDERWEIGHT rating is maintained on the sector, given the strong oversupply of CPO that we are seeing in the market, as well as a continued lacklustre in global demand. (Hoe Lee Leng)
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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia


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