BBCA released its bank-only YTD Oct-24 results with headline profit of IDR46.2tn (+15% y-y), accounting for ~88% of our FY24F projection. We attribute the healthy profit growth to better NIM, driven by stable asset yields, 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 would remain elevated for BBCA at ~6%. Lending rate repricing may be muted despite recent BI rate cuts. This is because during BI rate upcycle, banks (BBCA included) have not been able to “pass on” higher rates to their respective lending rates. In addition, at present, we believe that BBCA’s lending rates were among most competitive in the banking sector – suggesting muted risks of downward lending rate repricing.

At the operating level, BBCA booked YTD Oct-24 NII of IDR63.4tr (+9% y-y). This implies YTD NIM of 5.8% (+20bps y-y) largely driven by healthy asset yields (as risk-free asset yields have been on the rise, while lending rates have been steady). Meanwhile, YTD Oct-24 PPOP reached IDR58.3tr (+13% y-y) – accounting for 86% 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 -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 with increasing use of technology (thus limited hiring).

BBCA delivered bank-only loan growth of 14% y-y (+9% YTD) 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 have 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, BBCA noticed the textile sector remained the weakest among corporates mainly due to competition from cheaper foreign textiles (read: illegal imports). For consumer loans, growth is driven by primarily by mortgages and auto loans. For the mass-market consumer segment, BBCA saw this as the weakest segment in the consumer space, which reaffirms our thesis. Soft purchasing powers in the mass market can be attributed to muted minimum wage increases (and below real inflation, resulting in weak purchasing power). The bank also noted that the mass-market segment has seen declining purchasing power due to reductions in cashbacks by e-commerce players as well as tighter regulations on P2P lending. Meanwhile, in the commercial/SME segments, BBCA has also reported superior loan growth as the bank is focusing more on existing customers who already have their transactional accounts with BBCA. Thus, broadly, this has resulted in a gradual upward trend in combined loan utilization to ~70% (from ~67% in 1H24 and ~63% in 1Q24). We think this superior loan growth will persist into 2025.

On deposits, the bank has managed to record +2% y-y of which CASA rose +4% y-y. This has resulted in a higher CASA ratio of ~82% – the highest within Indonesia’s banking sector. Specifically, the cheapest funding, savings accounts, rose by +5% y-y. These have kept overall funding costs muted at 1.06% – largely flat in the past 12 months.

Refer table and charts below for more details.

Post results, we maintain our Buy rating and TP of IDR13,200. Furthermore, 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.

Fig. 2: BBCA - 12MMA Loan vs NII growth %

Fig. 3: BBCA - CoC vs Est WO %

Fig. 4: BBCA - 12MMA CoC vs 12MMA WO %

Fig. 5: BBCA - LLR vs 12MMA WO %

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)