Company Update:
Bank Negara Indonesia (BBNI IJ, BUY, TP: IDR7,700)
Gaining Momentum
Bank Negara Indonesia (BBNI IJ, BUY, TP: IDR7,700)
Gaining Momentum
We
reiterate our BUY call on BNI with a new GGM-derived IDR7,700 TP (from
IDR6,800, 14% upside) as we rollover our valuation to 2018. We maintain our
positive view. This is due to lower credit cost for 2018 on higher
contributions from government-related and payroll-based loans. Meanwhile, CASA
deposits ought to reach 66.4% of customer deposits by end-2018. This is based
on our model and comes from both institutional and individual accounts. By
doing so, blended CoF would be lower and provide ample cushion against further
declines in asset yields.
¨
Manageable
asset quality.
Bank Negara Indonesia’s (BNI) lower credit cost of 153bps in 1Q17 should be an
indication that asset quality is starting to improve. This is aside from strong
YoY loans growth. Management continues to implement more stringent credit risk
management practices, such as periodic review from the loans centre level right
up to head office. Though the improvements would be gradual, in our view, we
expect a 2.7% NPL ratio by end-2018 with a higher LLC ratio of 144.9%.
¨
Higher
loan contribution to earning assets mixture. Loans would continue to be the
dominant contributor in its earning assets mixture, supported by BNI’s strong
commitment on government infrastructure projects along with other state-owned
enterprise (SOE) banks, eg Bank Mandiri (BMRI IJ, BUY, TP: IDR13,300). As such,
we assume a higher loans portion, ie 72.3% of earnings assets mixture by the
end of next year.
¨
Cross-selling
products for a more sustainable model. Despite bigger contributions from loans to
earning assets, we project NIM compression by c.7bps next year to 5.5%. This is
mainly on a c.19bps reduction in loan yields post the Government’s request for
a more affordable lending rate, particularly for infrastructure-related
projects. To offset the lower lending rate, BNI requires institutional clients
to utilise current accounts for their cash management services. In addition,
BNI also requires wholesale customers to undertake payroll payments through the
bank. This would then be supportive of decent savings and thus bring down its
FY18F blended cost of funds (CoF) to 2.9%.
¨
Maintain
BUY with a new TP of IDR7,700 (from IDR6,800). We maintain our BUY
call on BNI and upgrade our GGM-based TP. This implies 1.32x 2018F P/BV as we
rollover our valuation to 2018, assuming cost of equity (CoE) of 10.6%,
sustainable ROAE of 13% and long-term growth of 3%.
Such P/BV multiple is reasonable, in our
view, given that it is below its forward-10years mean of 1.4x. We assume lower
credit costs for FY17-18 to 202bps and 190bps respectively, from 239bps (FY17)
and 228bps (FY18) previously. This is while all other assumptions remain the
same. We project lower credit costs due to BNI’s higher exposure to
government-related infrastructure projects in its loans book – these should
have lower risk, in our view.
¨ Risks to our call are slower-than-expected GDP growth (which may dampen its asset quality), tight liquidity situation within system that would result in a higher blended CoF, and faster-than-expected slippage in asset yields.
Kindly click the following link for the full report: Bank Negara Indonesia : Gaining Momentum
Best regards,
¨ Risks to our call are slower-than-expected GDP growth (which may dampen its asset quality), tight liquidity situation within system that would result in a higher blended CoF, and faster-than-expected slippage in asset yields.
Kindly click the following link for the full report: Bank Negara Indonesia : Gaining Momentum
Best regards,
Eka Savitri
Vice President
Research Analyst - Banking
PT RHB Sekuritas
Indonesia
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