Bank Central Asia (BBCA IJ) (Buy) - Solid (and in line) FY24 results

Solid (and in line) FY24 results

BBCA released its FY24 results with headline profit at IDR54.8tn (+13% y-y), accounting for ~105% of our FY24F projection. We attribute the healthy profit growth to better NIM, driven by stable asset yields, strong transactional franchise (which resulted in BBCA’s lowest funding cost increase among major Indonesia banks) and improved asset quality (leading to lower credit costs). Specifically on funding costs, despite the overall tight liquidity in the banking system throughout 2024 (and we believe will continue in 2025F), the bank demonstrated its franchise strength given that its overall funding costs stayed flat at 1.1% throughout 2024. There were several reasons for this, but most importantly it showed the bank’s transactional franchises.

For 2025F, we think NIMs would remain elevated for BBCA at ~6.0%. The stubbornly tight liquidity in the banking system suggests potential continued intense competition for CASA (particularly for current accounts as some banks have offered special rates). However, these could provide room for BBCA to raise lending rates despite the recent BI rate cut. An analysis on BBCA’s 4Q24 blended loan yield, which stood at an average 8.57% (+30bp above the average 12MMA yield of 8.27%), suggests potentially better broad yields in 2025F. If BBCA successful raises its lending rates, it would result in higher NIMs for the bank and, thus would further limit downside risks to its earnings.

At the operating level, BBCA booked FY24 NII of IDR82.5tr (+10% y-y). This implies NIM of ~6.0% (+20bp y-y) largely driven by healthy asset yields (as risk-free asset yields rose while lending rates stayed steady) and a slight decline in cost of funds. Meanwhile, FY24 PPOP reached IDR70.4tr (+12% y-y), accounting for 104% of our FY24F projections. This represents the highest PPOP growth among major banks in our coverage. We attribute this to the bank’s cost efficiency. Indeed, the bank has implemented cost controls (as non-provision costs were merely +2% y-y), which has resulted in one of the lowest CIRs within the Indonesia banking sector. In particular, the bank has managed to keep personnel expenses low by increasingly using technology (thus limited hiring).

On balance sheet, BBCA delivered loan growth of 14% y-y, ahead of the banking sector’s ~11-12% y-y. Most notably, BBCA loan growth came from corporates (+16% y-y) and consumer (+13% y-y) segments. In the corporate segment, resources sectors contributed to this strong corporate loan growth. Note that resource-related sector loan is part of the government’s efforts to promote mineral down-streaming and/or CPO plantations. Meanwhile, BBCA noted the textile sector remained the weakest among corporates mainly due to competition from cheaper foreign textiles (read: illegal imports). For consumer loans, growth was primarily driven by mortgages (+11% y-y) and autos (+15% y-y). Meanwhile in the commercial/SME segments, BBCA reported superior loan growth of +12% y-y (compared to sector wide growth of ~6%) as the bank focused more on existing customers who already had transactional accounts with BBCA. The growth opportunity in these segments remains substantial, in our view, as we estimate that so far no more than 10% of transacting customers have borrowed from BBCA.

On deposits, the bank managed to record deposit growth of +3% y-y in 4Q24 during which CASA rose by +4% y-y. This drove the CASA ratio higher to ~82% , the highest within the Indonesia banking sector. Specifically, thanks to the cheap funding, BBCA’s current account rose +4% y-y followed by savings accounts at +5% y-y. These kept its overall funding cost growth muted at 1.1%, a slight decline from 1.20% in 4Q23.

Post results, we reiterate our Buy rating on the stock with an unchanged TP of IDR13,200. We maintain BBCA as one of our top picks in the banking sector. We argue that its main customer bases (both loans and deposits) are likely to see superior growth. Consequently, we think BBCA will maintain superior earnings trends in the near to medium term.

Valuation and risks

We derive our TP of IDR13,200 using 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 price valuation of 4.2x) and 26.9x FY25F P/E (vs current price valuation of 21.0x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.