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Bank Central Asia (BBCA IJ) (Buy) - Steady trend

Bank Central Asia (BBCA IJ) (Buy) - Steady trend

Banks EW 372 30th Jan, 2025

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Steady trend

TP of IDR12,600 (down from IDR13,200)

We have updated our earnings projections for BBCA for FY25-26F as well as adding a new forecast year FY26F. Overall, our revised earnings forecasts are slightly lower by 0.5–2.0% than previous projections. Another key adjustment reflects the higher payout ratio in 2024 (actual) and subsequent forecast years (2025-27F) to ~60.0% (up from 50.0% in our previous projections). These have resulted in lower equity (and book value per share), which in turn affects our TP. In our opinion, there are several plausible reasons for BCA’s higher payout trends. First, BCA already has an excess CAR of ~29%, of which Tier I stood at ~28% – well above the required minimum CAR. Second, we expect slower loan growth given the fact that more and more loan growth was directed toward capital-intensive sectors as opposed to labor-intensive sectors. Thus, implied retained earnings would be more than enough to accommodate capital usage from such loan growth. In other words, if we were to assume a payout ratio of 50.0% and a loan growth assumption of no more than 10%, the implied CAR would continue to go up. Thus, we think higher payouts would make sense. Refer to the tables and charts below for more details on our earnings changes. Going into 2025F, we retain BBCA as one of our top picks in the banking sector. Overall liquidity in the banking sector will remain tight, and thus we expect interest rate structures to remain elevated. Recent BI rate cuts may have little impact on funding costs, particularly when we see slight upticks in retail bond yields. These could result in more deposits shifting towards government-issued retail bonds. For instance, upcoming retail bond issuances would have a yield of 6.65% for the three-year tenor, a slight uptick from 6.40% at the end of the year. This could mean potentially higher overall asset yields, including room for loan repricing. During its recent results call, BBCA guided upward loan repricing. Also, among Indonesian banks, BCA has historically had the least funding cost increases in times of tight liquidity. Consequently, we think BBCA will likely maintain a superior earnings trend in the near-to-medium term.

Valuation and risks

We derive our TP of IDR12,600 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% (all unchanged). Our TP implies 5.4x FY25F P/B (vs current price valuation of 4.0x) and 26.0x FY25F P/E (vs current price valuation of 19.3x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

Year-end 31 DecFY24FY25FFY26FFY27F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (bn)70,25278,92078,61086,55387,739099,462
Reported net profit (bn)54,83660,82659,87366,69866,510075,072
Normalised net profit (bn)54,83660,82659,87366,69866,510075,072
FD normalised EPS444.83493.42485.69541.05539.53608.98
FD norm. EPS growth (%)12.715.99.29.711.112.9
FD normalised P/E (x)21.0–19.3–17.3–15.4
Price/adj. book (x)4.4–4.0–3.5–3.2
Price/book (x)4.4–4.0–3.5–3.2
Dividend yield (%)3.0–2.9–3.1–3.5
ROE (%)21.721.221.720.621.621.7
ROA (%)3.83.74.03.74.04.0
Source: Company data, Verdhana estimates

Key data on Bank Central Asia

Profit and loss (IDRbn)
Year-end 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Interest income
87,398
94,796
101,775
111,752
123,732
Interest expense
-12,269
-12,532
-12,135
-13,352
-14,687
Net interest income
75,129
82,264
89,640
98,400
109,045
Net fees and commissions
16,653
17,980
19,847
21,545
23,699
Trading related profits
1,888
2,855
3,105
3,250
3,500
Other operating revenue
6,276
5,208
5,458
5,500
5,750
Non-interest income
24,817
26,042
28,410
30,295
32,949
Operating income
99,945
108,307
118,050
128,694
141,994
Depreciation
-3,126
-2,017
-2,104
-2,212
-2,319
Amortisation
0
0
0
0
0
Operating expenses
-18,178
-18,593
-19,019
-19,512
-20,019
Employee share expense
-16,198
-17,444
-18,316
-19,232
-20,194
Pre-provision op profit
62,443
70,252
78,610
87,739
99,462
Provisions for bad debt
-2,263
-2,034
-3,747
-4,576
-5,593
Other provision charges
0
0
0
0
0
Operating profit
60,180
68,218
74,863
83,162
93,869
Other non-op income
0
0
0
0
0
Associates & JCEs
0
0
0
0
0
Pre-tax profit
60,180
68,218
74,863
83,162
93,869
Income tax
-11,522
-13,367
-14,973
-16,632
-18,774
Net profit after tax
48,658
54,851
59,890
66,530
75,095
Minority interests
-19
-15
-17
-20
-23
Other items
0
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
48,639
54,836
59,873
66,510
75,072
Extraordinary items
0
0
0
0
0
Reported NPAT
48,639
54,836
59,873
66,510
75,072
Dividends
-26,196
-34,209
-32,902
-35,924
-39,906
Transfer to reserves
22,443
20,627
26,971
30,586
35,166
Growth (%)
Net interest income
17.4
9.5
9.0
9.8
10.8
Non-interest income
5.7
4.9
9.1
6.6
8.8
Non-interest expenses
10.5
2.3
2.3
2.6
2.6
Pre-provision earnings
13.5
12.5
11.9
11.6
13.4
Net profit
19.4
12.7
9.2
11.1
12.9
Normalised EPS
19.4
12.7
9.2
11.1
12.9
Normalised FDEPS
19.4
12.7
9.2
11.1
12.9
Loan growth
14.7
13.7
7.1
10.2
10.1
Interest earning assets
6.2
3.1
8.7
14.5
10.6
Interest bearing liabilities
6.1
4.2
10.1
10.0
10.0
Asset growth
7.1
2.9
8.3
13.9
10.3
Deposit growth
5.9
4.8
10.0
10.0
10.0
Source: Company data, Verdhana estimates
Balance sheet (IDRbn)
As at 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Cash and equivalents
21,702
29,316
34,031
37,395
41,138
Inter-bank lending
0
0
0
0
0
Deposits with central bank
92,618
36,408
42,264
46,441
51,090
Total securities
420,208
395,576
439,330
539,520
601,715
Other int earning assets
10,816
19,812
21,292
31,515
35,567
Gross loans
801,049
905,337
968,495
1,065,345
1,171,879
Less provisions
-33,309
-32,625
-34,026
-35,603
-38,196
Net loans
767,740
872,713
934,469
1,029,742
1,133,684
Long-term investments
0
0
0
0
0
Fixed assets
26,825
28,251
28,146
27,935
27,616
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other non IEAs
68,198
67,226
70,000
75,000
80,000
Total assets
1,408,107
1,449,301
1,569,532
1,787,547
1,970,810
Customer deposits
1,093,969
1,146,170
1,260,787
1,386,866
1,525,552
Bank deposits, CDs, debentures
11,126
4,987
5,486
6,035
6,638
Other int bearing liabilities
2,130
2,743
3,652
3,967
4,314
Total int bearing liabilities
1,107,224
1,153,900
1,269,925
1,396,867
1,536,504
Non-int bearing liabilities
58,345
32,567
9,784
63,167
69,484
Total liabilities
1,165,569
1,186,466
1,279,708
1,460,034
1,605,988
Minority interest
181
194
212
231
254
Common stock
7,090
7,090
7,090
7,090
7,090
Preferred stock
0
0
0
0
0
Retained earnings
222,957
243,679
270,651
301,237
336,403
Reserves for credit losses
0
0
0
0
0
Proposed dividends
0
0
0
0
0
Other equity
12,309
11,871
11,871
18,955
21,075
Shareholders' equity
242,356
262,641
289,612
327,282
364,568
Total liabilities and equity
1,408,107
1,449,301
1,569,532
1,787,548
1,970,810
Non-perf assets
14,198
15,528
16,686
18,355
Balance sheet ratios (%)
Loans to deposits
73.2
79.0
76.8
76.8
76.8
Equity to assets
17.2
18.1
18.5
18.3
18.5
Asset quality & capital
NPAs/gross loans (%)
1.8
1.7
1.7
1.7
0.0
Bad debt charge/gross loans (%)
0.28
0.22
0.39
0.43
0.48
Loss reserves/assets (%)
2.37
2.25
2.17
1.99
1.94
Loss reserves/NPAs (%)
234.6
210.1
203.9
194.0
–
Tier 1 capital ratio (%)
29.4
28.9
31.1
30.0
30.2
Total capital ratio (%)
29.4
28.9
31.1
30.0
30.2
Per share
Reported EPS (IDR)
394.56
444.83
485.69
539.53
608.98
Norm EPS (IDR)
394.56
444.83
485.69
539.53
608.98
FD norm EPS (IDR)
394.56
444.83
485.69
539.53
608.98
DPS (IDR)
212.50
277.50
266.90
291.41
323.72
PPOP PS (IDR)
506.53
569.88
637.68
711.73
806.83
BVPS (IDR)
1,965.98
2,130.52
2,349.31
2,654.89
2,957.36
ABVPS (IDR)
1,965.98
2,130.52
2,349.31
2,654.89
2,957.36
NTAPS (IDR)
1,965.98
2,130.52
2,349.31
2,654.89
2,957.36
Valuations and ratios
Reported P/E (x)
23.7
21.0
19.3
17.3
15.4
Normalised P/E (x)
23.7
21.0
19.3
17.3
15.4
FD normalised P/E (x)
23.7
21.0
19.3
17.3
15.4
Dividend yield (%)
2.3
3.0
2.9
3.1
3.5
Price/book (x)
4.8
4.4
4.0
3.5
3.2
Price/adjusted book (x)
4.8
4.4
4.0
3.5
3.2
Net interest margin (%)
5.89
6.17
6.35
6.24
6.15
Yield on assets (%)
6.86
7.11
7.20
7.08
6.98
Cost of int bearing liab (%)
1.14
1.11
1.00
1.00
1.00
Net interest spread (%)
5.72
6.00
6.20
6.08
5.97
Non-interest income (%)
24.8
24.0
24.1
23.5
23.2
Cost to income (%)
37.5
35.1
33.4
31.8
30.0
Effective tax rate (%)
19.1
19.6
20.0
20.0
20.0
Dividend payout (%)
53.9
62.4
55.0
54.0
53.2
ROE (%)
21.0
21.7
21.7
21.6
21.7
ROA (%)
3.57
3.84
3.97
3.96
3.99
Operating ROE (%)
26.0
27.0
27.1
27.0
27.1
Operating ROA (%)
4.42
4.77
4.96
4.95
5.00
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 IDR12,600 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
Fig. 1: BBCA FY24 Summary
Fig. 2: BBCA earnings changes & add new forecast year
Fig. 3: BBCA loan assumptions & classifications
Fig. 4: BBCA valuation

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.


This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

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.


RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations. 

Rating Table

Rating
Remains
Buy
Target price
Reduced from IDR 13,200
IDR 12,600
Closing price
24 January 2025
IDR 9,350
Implied upside+34.8%
Market Cap (USD mn)70,568.7
ADT (USD mn)47.0

Relative performance chart


Source: LSEG, Verdhana
M cap (USDmn)
70,568.7
Free float (%)
45.1
3-mth ADT (USDmn)
47.0
(%)
1M
3M
12M
Absolute (IDR)
-4.1
-12.6
-1.8
Absolute (USD)
-4.0
-15.8
-4.7
Rel to Jakarta Stock Exchange Composite Index
-5.5
-5.5
-1.0

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

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