Bank Central Asia (BBCA IJ) (Buy) - Solid YTD Nov-24 results

Solid YTD Nov-24 results

BBCA released its bank-only YTD Nov-24 results with headline profit of IDR50.5tn (+14% y-y), accounting for ~96% of our FY24F projection. We attribute the healthy profit growth to better NIM, driven by stable asset yields, strong transactional franchise (which resulted into the lowest funding cost increase for BBCA compared to other major Indonesian 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 likely continuing into 2025F), the bank demonstrated its franchise strength whereby its overall funding costs dipped 5bp to 1.05% for YTD Nov-24. There were several reasons for this, but most importantly it showed the bank’s transactional franchises.

Further out, we think NIMs would remain elevated for BBCA at ~6.0%. Lending rates repricing may be muted despite the recent BI rate cut. This is because during the BI rate upcycle, banks (BBCA included) have not been able to “pass on” higher rates to their respective lending rates. In addition, we believe BBCA has one of the most competitive lending rates in the banking sector – suggesting muted risks of downward lending rate repricing. Still, despite BBCA’s lower loan growth guidance of 6-8% for 2025 (compared to YTD Nov-24 of 15% y-y), we believe the bank can maintain its elevated margin. This is because we think risk-free yields may potentially inch higher into 2025F. This could further benefit the bank due to its near-zero credit costs for risk-free assets. For this reason, we see muted earnings risks for BBCA in 2025F.

At the operating level, BBCA booked YTD Nov-24 NII of IDR70.2tr (+9% y-y). This implies YTD NIM of 5.8% (+20bp y-y), largely driven by healthy asset yields (as risk-free asset yields have been on the rise, while lending rates have been steady) and a slight decline in cost of funds. Meanwhile, YTD Nov-24 PPOP reached IDR64.1tr (+14% y-y), accounting for 94% of our FY24F projections. This would represent the highest PPOP growth amongst major banks. We attribute this to the bank’s cost efficiency. Indeed, the bank has implemented cost controls (as non-provision costs were -1% y-y YTD Nov-24), which has resulted in one of the lowest CIR (within the Indonesia banking sector). In particular, the bank has managed to keep personnel expenses low with increased use of technology (thus limited hiring).

BBCA delivered bank-only loan growth of 15% y-y (+11% YTD Nov-24) ahead of banking sector growth (~11-12% y-y). Most notably, BBCA loan growth came from the corporate and consumer segments. In the corporate segment, resources sectors contributed to this strong corporate loan growth YTD Nov-24. Specifically, resources-related sector loan growth was part of the government’s efforts to promote mineral down-streaming. Meanwhile, BBCA noted the textile sector remained the weakest among corporates mainly due to competition from cheaper foreign textiles (i.e, illegal imports). For consumer loans, growth was driven by primarily by mortgages and auto loans. For the mass market consumer segment, this was the weakest segment in the consumer space, according to BBCA, which reaffirms our view. We attribute the soft purchasing powers in the mass market to muted minimum wage increases (and below real inflation, resulting into weak purchasing powers). The bank also noted that the mass market segment saw declining purchasing powers due to reductions in cash backs by e-commerce players as well as tighter regulations on P2P lending. Meanwhile in the commercial/SME segments, BBCA also reported superior loan growth YTD Nov-24 as the bank focused more on existing customers with transactional accounts with BBCA. The growth opportunities in these segments remain substantial as we estimate that so far no more than 10% of transacting customers have borrowed from BBCA. Combined, broadly, this resulted in a gradual upward trend in combined loan utilization to ~70% YTD Nov-24 (from ~67% in 1H24 and ~63% in 1Q24). We think this superior loan growth will persist in 2025F, although the bank maintains conservative guidance of 6-8%.

On deposits, the bank managed to record growth of +3% y-y YTD Nov-24, during which CASA rose +6% y-y. This resulted in a higher CASA ratio of ~82%, the highest in the banking sector. Specifically, current account rose YTD Nov-24 by a punchy +9% y-y followed by savings accounts by +4% y-y. These kept overall funding costs muted at 1.05%, a slight decline from 1.10% a year ago.

Refer table and charts below for more details.

Post results, we reiterate our Buy rating on the stock with an unchanged TP of IDR13,200. Further out, we retain 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 likely 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.