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Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Banks NS EW 590 29th Aug, 2024

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Steady growth, reiterate Buy, new TP: IDR13,200

We roll forward our valuation to 2025F; TP raised to IDR13,200

Among major banks, BBCA is currently trading at the highest valuation multiples (using FY25F books as reference, BBCA is at 4.2x vs major banks’ average at 2.4x). However, following solid 1H24 results and expectations that 2024F will be another solid year for the bank, as the macroeconomic outlook continues to be positive, in our view (i.e., potential rate cut), combined with potentially better asset quality trends than in 2023 and better loan pricing, we raise our target price by 15% (from IDR11,500 previously).

Raise TP by 14% due to rolling forward valuation to 2025F

1H24 results showed headline profit of IDR26.9tn (+11% y-y), accounting for ~51% of our FY24F projection. We attribute the healthy profit growth to better NIM, driven by BBCA’s strong transactional franchise (which resulted in its lowest funding cost increase compared to other major Indonesian banks) and improved asset quality (leading to lower credit costs). In addition, we have seen further operational improvements and cost efficiencies for BBCA. The bank has implemented cost controls (as non-provision costs were only +1% y-y), which were particularly related to limited hiring. BBCA delivered loan growth of 16% y-y, ahead of banking sector growth (~11-12% y-y). Most notably, in the corporate and consumer segments, BBCA reported loan growth of 19% y-y (+5% YTD) and 14% y-y (+6% YTD), respectively – well ahead of the industry’s loan growth. In the corporate segment, the mining sector contributed to this strong corporate loan growth, particularly in investment loans for smelters. For consumer loans, BBCA saw a pickup in spending for hotels (both for tourists & non-tourists) and airline tickets. Meanwhile, in the commercial/SME segments, BBCA also reported superior loan growth of ~11% y-y (+3% YTD) – well ahead of the industry SME growth of ~5% y-y. SME loans are driven by F&B business loans, which are booming. Thus, broadly, these resulted in a rise in combined loan utilization to ~67% in 1H24 (from 63% in 1Q24). 

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 (from current price valuation of 4.2x) and 26.9x FY25F P/E (from current price valuation of 21.0x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

Fig. 1: BBCA valuation

 BCA - Fair Valuation  New  OLD  Remarks   
 Risk free rate %             6.50            6.50
 Equity risk premium %             7.80            7.80
 Beta (x)             0.80            0.80
 Cost of capital %           12.70          12.70
 Growth rate (2-yr Cagr) %           10.00          10.00
 CAR-adj ROAE %          24.50         25.00
 12m fwd BVPS (IDR)          2,468         2,055 FY25F book as reference from FY24F 
 Target PB  x               5.4              5.6
 Implied PER x             31.1            30.8
 Implied share price (IDR)        13,249       11,411Rounded to IDR13,200
Source: Company data, Verdhana estimates

Forecast Table

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (bn)62,44367,86767,86778,92078,92086,55386,553
Reported net profit (bn)48,63952,49752,49760,82660,82666,69866,698
Normalised net profit (bn)48,63952,49752,49760,82660,82666,69866,698
FD normalised EPS394.56425.86425.86493.42493.42541.05541.05
FD norm. EPS growth (%)19.47.97.915.915.99.79.7
FD normalised P/E (x)26.2–24.3–21.0–19.1
Price/adj. book (x)5.3–4.8–4.2–3.7
Price/book (x)5.3–4.8–4.2–3.7
Dividend yield (%)2.1–2.5–2.1–2.4
ROE (%)21.020.620.621.221.220.620.6
ROA (%)3.63.63.63.73.73.73.7
Source: Company data, Verdhana estimates

Key data on Bank Central Asia

Profit and loss (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Interest income
72,241
87,398
92,709
104,376
112,637
Interest expense
-8,252
-12,269
-12,100
-13,316
-14,647
Net interest income
63,990
75,129
80,609
91,060
97,990
Net fees and commissions
16,584
16,653
17,468
19,215
21,136
Trading related profits
1,287
1,888
2,138
2,388
2,638
Other operating revenue
5,616
6,276
6,526
6,776
7,026
Non-interest income
23,487
24,817
26,132
28,379
30,800
Operating income
87,476
99,945
106,741
119,439
128,790
Depreciation
-2,377
-3,126
-2,984
-3,044
-3,104
Amortisation
0
0
0
0
0
Operating expenses
-16,454
-18,178
-18,883
-19,617
-20,383
Employee share expense
-13,651
-16,198
-17,008
-17,858
-18,751
Pre-provision op profit
54,994
62,443
67,867
78,920
86,553
Provisions for bad debt
-4,527
-2,263
-2,911
-3,660
-4,026
Other provision charges
0
0
0
0
0
Operating profit
50,467
60,180
64,955
75,260
82,527
Other non-op income
0
0
0
0
0
Associates & JCEs
0
0
0
0
0
Pre-tax profit
50,467
60,180
64,955
75,260
82,527
Income tax
-9,711
-11,522
-12,436
-14,409
-15,800
Net profit after tax
40,756
48,658
52,519
60,851
66,727
Minority interests
-20
-19
-22
-25
-29
Other items
0
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
40,736
48,639
52,497
60,826
66,698
Extraordinary items
0
0
0
0
0
Reported NPAT
40,736
48,639
52,497
60,826
66,698
Dividends
-19,108
-26,196
-31,278
-26,249
-30,413
Transfer to reserves
21,628
22,443
21,219
34,577
36,285
Growth (%)
Net interest income
14.0
17.4
7.3
13.0
7.6
Non-interest income
5.1
5.7
5.3
8.6
8.5
Non-interest expenses
12.1
10.5
3.9
3.9
3.9
Pre-provision earnings
14.2
13.5
8.7
16.3
9.7
Net profit
29.6
19.4
7.9
15.9
9.7
Normalised EPS
29.6
19.4
7.9
15.9
9.7
Normalised FDEPS
29.6
19.4
7.9
15.9
9.7
Loan growth
12.0
14.7
9.2
10.3
10.3
Interest earning assets
6.6
6.2
10.8
10.9
10.7
Interest bearing liabilities
6.2
6.1
10.1
10.0
10.0
Asset growth
7.0
7.1
9.6
10.6
10.4
Deposit growth
6.5
5.9
10.0
10.0
10.0
Source: Company data, Verdhana estimates
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash and equivalents
21,360
21,702
28,671
31,551
34,719
Inter-bank lending
0
0
0
0
0
Deposits with central bank
104,110
92,618
74,394
81,867
90,087
Total securities
405,093
420,208
484,064
543,747
607,631
Other int earning assets
36,129
10,816
30,015
32,837
35,956
Gross loans
703,274
801,049
871,416
958,558
1,054,414
Less provisions
-33,948
-33,309
-33,220
-33,880
-34,906
Net loans
669,326
767,740
838,196
924,678
1,019,508
Long-term investments
0
0
0
0
0
Fixed assets
24,709
26,825
24,591
22,297
19,943
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other non IEAs
54,004
68,198
63,758
70,132
77,142
Total assets
1,314,732
1,408,107
1,543,689
1,707,108
1,884,985
Customer deposits
1,033,278
1,093,969
1,203,366
1,323,702
1,456,072
Bank deposits, CDs, debentures
8,192
11,126
12,238
13,462
14,808
Other int bearing liabilities
1,817
2,130
3,508
3,809
4,140
Total int bearing liabilities
1,043,287
1,107,224
1,219,112
1,340,973
1,475,021
Non-int bearing liabilities
50,263
58,345
56,052
61,657
67,823
Total liabilities
1,093,550
1,165,569
1,275,164
1,402,631
1,542,844
Minority interest
163
181
203
228
257
Common stock
7,090
7,090
7,090
7,090
7,090
Preferred stock
0
0
0
0
0
Retained earnings
200,959
222,957
248,922
284,850
322,486
Reserves for credit losses
0
0
0
0
0
Proposed dividends
0
0
0
0
0
Other equity
12,970
12,309
12,309
12,309
12,309
Shareholders' equity
221,019
242,356
268,321
304,249
341,884
Total liabilities and equity
1,314,732
1,408,107
1,543,689
1,707,108
1,884,985
Non-perf assets
11,798
14,198
15,618
17,180
18,898
Balance sheet ratios (%)
Loans to deposits
68.1
73.2
72.4
72.4
72.4
Equity to assets
16.8
17.2
17.4
17.8
18.1
Asset quality & capital
NPAs/gross loans (%)
1.7
1.8
1.8
1.8
1.8
Bad debt charge/gross loans (%)
0.64
0.28
0.33
0.38
0.38
Loss reserves/assets (%)
2.58
2.37
2.15
1.98
1.85
Loss reserves/NPAs (%)
287.7
234.6
212.7
197.2
184.7
Tier 1 capital ratio (%)
26.9
29.4
28.7
29.1
29.3
Total capital ratio (%)
26.9
29.4
28.7
29.1
29.3
Per share
Reported EPS (IDR)
330.45
394.56
425.86
493.42
541.05
Norm EPS (IDR)
330.45
394.56
425.86
493.42
541.05
FD norm EPS (IDR)
330.45
394.56
425.86
493.42
541.05
DPS (IDR)
155.00
212.50
253.73
212.93
246.71
PPOP PS (IDR)
446.11
506.53
550.53
640.20
702.11
BVPS (IDR)
1,792.89
1,965.98
2,176.60
2,468.05
2,773.35
ABVPS (IDR)
1,792.89
1,965.98
2,176.60
2,468.05
2,773.35
NTAPS (IDR)
1,792.89
1,965.98
2,176.60
2,468.05
2,773.35
Valuations and ratios
Reported P/E (x)
31.3
26.2
24.3
21.0
19.1
Normalised P/E (x)
31.3
26.2
24.3
21.0
19.1
FD normalised P/E (x)
31.3
26.2
24.3
21.0
19.1
Dividend yield (%)
1.5
2.1
2.5
2.1
2.4
Price/book (x)
5.8
5.3
4.8
4.2
3.7
Price/adjusted book (x)
5.8
5.3
4.8
4.2
3.7
Net interest margin (%)
5.34
5.89
5.82
5.93
5.76
Yield on assets (%)
6.03
6.86
6.70
6.80
6.62
Cost of int bearing liab (%)
0.81
1.14
1.04
1.04
1.04
Net interest spread (%)
5.22
5.72
5.66
5.76
5.58
Non-interest income (%)
26.8
24.8
24.5
23.8
23.9
Cost to income (%)
37.1
37.5
36.4
33.9
32.8
Effective tax rate (%)
19.2
19.1
19.1
19.1
19.1
Dividend payout (%)
46.9
53.9
59.6
43.2
45.6
ROE (%)
19.2
21.0
20.6
21.2
20.6
ROA (%)
3.20
3.57
3.56
3.74
3.71
Operating ROE (%)
23.8
26.0
25.4
26.3
25.5
Operating ROA (%)
3.97
4.42
4.40
4.63
4.59
Source: Company data, Verdhana estimates
Company profilePT Bank Central Asia Tbk, commonly known as Bank Central Asia (BCA), is an Indonesian bank founded on 21 February 1957. It is considered as the largest privately owned bank in Indonesia.
Valuation MethodologyWe derive our TP of IDR13,200 using DuPont methodology, 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 and 26.9x FY25F P/E. The benchmark for this stock is the JCI.
Risks that may impede the achievement of the target priceRisks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.
ESGBCA's commitment to sustainability is manifested through integrated corporate governance practices in various functions, and also directly involving the Board of Directors. Corporate social responsibility is the shared responsibility of the Board, while the Director of Finance and Planning is responsible for coordinating and overseeing the implementation of the sustainable finance principles. In 2019, BCA established the Environment, Sustainability, and Governance (ESG) Sub-Division that is positioned under the supervision of the Corporate Secretary and Communications Division, which reports to the Director of Finance and Planning. The ESG Unit is responsible for the corporate secretarial duties, the application of good corporate governance (GCG), and the implementation of Sustainable Finance. In practice, the ESG Unit works closely with other units to embed sustainability in a strategic and integrated manner at BCA. BCA is concerned about climate change risks and opportunities and supports the attainment of the Sustainable Development Goals (SDGs). One of the ways to mitigate climate change risks is through the implementation of risk management and three lines of defense. On the other hand, BCA sees climate change opportunities that will result in the changes in types of financing that support climate change mitigation. BCA supports financing for debtors who are concerned about social aspects, including the sustainability of Indonesian culture, as well as the environmental aspects, including preventing water crisis. By considering the environmental, social and governance (ESG) risks involved in each financing, BCA encourages debtors not to cause loss of biodiversity, deforestation, drought, pollution, violations of human rights and workers' rights. Indirectly, the policies in BCA also strive to prevent deforestation (no deforestation). BCA is committed to implementing the principles of good corporate governance (GCG) as a basis for conducting fair and clean business practices and also avoiding fraud. Some aspects that are covered in the context of fair business practices are related to anti corruption, fair business competition, the efforts to encourage the value chain to engage in social and environmental responsibility, and also the intellectual property rights (IPR). BCA continuously develops corporate social responsibility programs. The developments are not only to contribute to the enhancement of communities’ welfare but also to improve the environmental quality and other activities supporting the Sustainable Development Goals (SDGs). The programs, managed under the Bakti BCA, are implemented through three pillars, namely: Smart Solutions for education and financial literacy education, Smart Solution for culture, health, and natural environment areas, Excellent Business Solution for MSME development and community empowerment through fostered village initiatives

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. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Increased from IDR 11,500
IDR 13,200
Closing price
28 August 2024
IDR 10,350
Implied upside+27.5%
Market Cap (USD mn)81,915.6
ADT (USD mn)47.6

Stock Chart Data



Source: LSEG, Verdhana
M cap (USDmn)
81,915.6
Free float (%)
45.1
3-mth ADT (USDmn)
47.6
(%)
1M
3M
12M
Absolute (IDR)
0.2
11.3
12.5
Absolute (USD)
5.9
16.1
11.5
Rel to Jakarta Stock Exchange Composite Index
-4.8
5.7
1.9

Research Analysts

Indonesia Research Team


Nicholas Santoso (nicholas.santoso @verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: Banks, BBCA JK, BBCA IJ, Nicholas Santoso, Erwin Wijaya
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