BBCA released its 9M24 results with headline profit at IDR41.1tn (+13% y-y) accounting for ~78% of our FY24F projection. We attribute the bank’s healthy profit growth to better NIM, driven by its strong transactional franchise (which resulted in the lowest funding cost increase for BBCA compared to other major Indonesia banks) and improved asset quality (leading to lower credit costs). Furthermore, we think NIMs could remain elevated for BBCA. Repricing of lending rates may be muted despite BI’s recent rate cuts, because during the central bank’s recent rate upcycle, banks (including BBCA) have not been able to “pass on” the higher rates to their respective lending rates. At present, we deem BBCA’s lending rates among the most competitive in the banking sector. On costs, the bank has implemented cost controls (as non-provision costs were only +4% y-y), which has resulted in one of the lowest CIRs (within the Indonesian banking sector) of ~33%. In particular, the bank has managed to keep personnel expenses low with increasing use of technology (thus limited hiring)

BBCA delivered loan growth of 15% y-y (+7% YTD) in 3Q24, ahead of the banking sector’s (~11-12% y-y). Notably, in the corporate and consumer segments, BBCA reported loan growth of 15% y-y (+7% YTD) and 14% y-y (+9% YTD), respectively – well ahead of the industry loan growth. In the corporate segment, resources sectors contributed to this strong corporate loan growth. Specifically, resources related sector loan growth is part of the government’s efforts to promote mineral downstreaming. Meanwhile, according to BBCA, the textile sector remained the weakest among corporates, mainly due to competition from cheaper foreign textiles (read: illegal imports). For consumer loans, growth was driven primarily by mortgages and auto loans. BBCA sees the mass-market consumer segment as the weakest segment in the consumer space, which underscores our view. The soft purchasing power in the mass market can be attributed to muted minimum wage increases (below the rate of real inflation, resulting in weak purchasing power). The bank also notes that the mass-market segment has seen declining purchasing power due to reductions in cashback by e-commerce players as well as tighter regulations on P2P lending. Meanwhile, in the commercial/SME segments, –BBCA also reported superior loan growth of ~13% y-y (+5% YTD) for 3Q24, well ahead of industry SME growth of ~5% y-y. SME loans are driven by F&B business loans, which is a growing segment, in our view. Thus, broadly, this has resulted in a gradual upward trend in combined loan utilization to ~69% in 9M24 (from ~67% in 1H24 and ~63% in 1Q24). We think this superior loan growth will sustain into 2025F.

Post results, the bank has raised its guidance for 2024, which is not a surprise to us. We reiterate our Buy rating on BBCA with an unchanged TP of IDR13,200. Furthermore, we retain BBCA as one of our top picks in the Indonesia banking sector. We believe that its main customer bases (both loans and deposits) are likely to see superior growth. Consequently, we think BBCA will likely maintain superior earnings trends in the near to medium term.

9M24 results summary

• 3Q24 net interest income (NII) reached IDR21.1tn (+5% q-q; +12% y-y), bringing 9M24 NII to IDR61.1tr (+9% y-y), accounting for ~76% of our FY24F projection. This implies 3Q24 NIM of 6.3% (+30bp y-y/q-q), as the bank benefited from stable funding costs while maintaining asset pricing largely unchanged. Going into 2025, we think BBCA would be in a better position to benefit from tight liquidity in the banking system, which would potentially translate into elevated interest rate structures. This implies potentially elevated (i.e., stable) NIMs for BBCA.

• 3Q24 PPOP reached IDR18.7tn (+6% q-q; +21% y-y), bringing 9M24 PPOP to IDR53.2tn (+13% y-y), accounting for ~79% of our FY24F projection. Credit cost (CoC) was at ~46bp (+27bp q-q/-23bp y-y) in 3Q24. The improvement in CoC can be attributed to better overall asset quality, whereby LARs stood at 5.9% (-40bp q-q/-270bp y-y) with implied coverage at 71.6% (the highest among major banks in Indonesia). Headline NPLs stood at 2.1% (largely flat q-q/y-y) with coverage at 2.1x (vs 2.3x a year ago).

• On the balance sheet, BBCA reported loans +3% q-q/+8% YTD and deposits flat q-q/+2% y-y – implying a healthy LDR of ~76% (vs ~68% a year ago). Despite strong TD (time deposits) growth, BBCA maintains one of the highest CASA ratios of ~81%. This should enable it to keep competitive lending rates and cherry-pick quality borrowers, in our view. We believe these would be the main reasons for the bank’s elevated ROAA of 4.0% and ROAE 22.9% despite the already elevated CAR of 29.1%.

Valuation and risks

We maintain our TP of IDR13,200, which is based on DuPont analysis with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x and a CAR-adjusted ROAE of 24.5%. Our TP implies 5.4x FY25F P/B (vs current valuation of 4.2x) and 26.9x FY25F P/E (vs current valuation of 21.0x). Key risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)