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Bank Jago (ARTO IJ) (Neutral) - Steady trend – maintain Neutral; raise TP to IDR3,000

Bank Jago (ARTO IJ) (Neutral) - Steady trend – maintain Neutral; raise TP to IDR3,000

Banks NS EW 366 11th Dec, 2024

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Steady trend – maintain Neutral; raise TP to IDR3,000

Adjusting our earnings estimates and TP marginally to reflect signs of improved lending

Going into 2025F, we see continued headwinds for Jago (and other digital banks), particularly against the backdrop of consumers’ softened purchasing power. However, we have seen some signs of improved collaboration between the bank and its loan channelling partners. This has led to strong profit growth for the bank (YTD 9M24 profit +~71% y-y). We also expect that Jago will enter into direct cash lending, which could potentially become its long-term earnings driver. Among the major digital banks in Indonesia, we think Jago’s channelling has exhibited strong risk-adjusted NIM (despite having the least NIM). In addition, we expect greater collaboration with the Goto (GOTO IJ, Buy ) ecosystem, which should be a key earnings driver for the bank. Moreover, we think a gradual reduction in the lending rate cap for fintechs (where they are lending partners for digital banks) could potentially enhance Goto’s competitive positioning. For reference, Indonesia's Financial Services Authority (OJK) has lowered the lending rate caps for fintechs from 0.4% per day in 2023 to 0.3% in 2024, 0.2% in 2025, and 0.1% in 2026. The lending cap could pose a major challenge for the survival of several fintechs, and would tighten future lending underwriting. Ultimately, we think loan growth will be lower for digital banks. However, those with large ecosystems, such as Goto, could remain profitable on potentially lower credit risks.

Raise TP to IDR3,000 (from IDR2,750)

We derive our new TP based on a target PEG ratio of 0.90x (from 0.73x previously). Based on our estimated three-year (2023-26F) earnings CAGR of 117% (from 131% previously), we arrive at our TP of IDR3,000 (from IDR2,750), which may appear expensive but at a target PEG of 0.90x, we think it is at a significant discount compared to the average PEG of 2.29x for the Indonesia banks in our coverage universe. In addition, among the Indonesia banks we cover, Jago is likely to record the highest three-year earnings CAGR of 117% (vs the sector average of ~8%). And among the small- to mid-tier banks, Jago stands out as having the highest EPS CAGR potential (and probably the least earnings risk). Key risks to our view and TP include execution risk, particularly its ability to execute lending collaborations with the Goto’s ecosystem. We also expect that Jago might enter into the cash lending business targeting its existing customer base which could have higher margins relative to other lending products. Thus, its execution of the cash lending business is a key risk, in our view. Of late, we have seen some encouraging developments with respect to loan channelling towards the Goto ecosystem (albeit still in the early days).

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (mn)494,872917,967627,9611,412,2431,088,26901,684,011
Reported net profit (mn)72,362137,380135,204395,945396,0340740,800
Normalised net profit (mn)72,362137,380135,204395,945396,0340740,800
FD normalised EPS5.229.919.7628.5828.5853.46
FD norm. EPS growth (%)354.7103.786.8188.2192.987.1
FD normalised P/E (x)517.0–276.7–94.5–50.5
Price/adj. book (x)4.5–4.4–4.2–3.9
Price/book (x)4.5–4.4–4.2–3.9
Dividend yield (%)–––––––
ROE (%)0.91.61.64.64.68.0
ROA (%)0.40.60.51.31.32.0
Source: Company data, Verdhana estimates

Key data on Bank Jago

Profit and loss (IDRmn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Interest income
1,500,465
1,874,936
2,361,318
2,985,186
3,790,835
Interest expense
-147,469
-309,493
-407,626
-514,970
-665,791
Net interest income
1,352,996
1,565,443
1,953,692
2,470,216
3,125,044
Net fees and commissions
8,904
8,720
11,886
15,363
19,630
Trading related profits
Other operating revenue
69,119
188,301
188,301
188,301
188,301
Non-interest income
78,023
197,021
200,187
203,664
207,931
Operating income
1,431,019
1,762,464
2,153,878
2,673,880
3,332,975
Depreciation
-26,710
-21,761
-17,061
-17,844
-19,628
Amortisation
Operating expenses
-676,012
-813,332
-947,601
-994,981
-1,044,730
Employee share expense
-322,909
-432,499
-561,255
-572,786
-584,606
Pre-provision op profit
405,388
494,872
627,961
1,088,269
1,684,011
Provisions for bad debt
-392,669
-401,309
-458,957
-593,226
-758,011
Other provision charges
Operating profit
12,719
93,563
169,005
495,043
926,000
Other non-op income
7,709
0
0
0
Associates & JCEs
Pre-tax profit
20,428
93,563
169,005
495,043
926,000
Income tax
-4,515
-21,201
-33,801
-99,009
-185,200
Net profit after tax
15,913
72,362
135,204
396,034
740,800
Minority interests
Other items
Preferred dividends
Normalised NPAT
15,913
72,362
135,204
396,034
740,800
Extraordinary items
Reported NPAT
15,913
72,362
135,204
396,034
740,800
Dividends
Transfer to reserves
15,913
72,362
135,204
396,034
740,800
Growth (%)
Net interest income
129.4
15.7
24.8
26.4
26.5
Non-interest income
76.8
152.5
1.6
1.7
2.1
Non-interest expenses
98.1
20.3
16.5
5.0
5.0
Pre-provision earnings
294.2
22.1
26.9
73.3
54.7
Net profit
-81.5
354.7
86.8
192.9
87.1
Normalised EPS
-81.5
354.7
86.8
192.9
87.1
Normalised FDEPS
-81.5
354.7
86.8
192.9
87.1
Loan growth
74.7
39.5
34.1
24.1
30.8
Interest earning assets
33.7
24.5
35.2
17.9
19.7
Interest bearing liabilities
117.2
47.6
55.1
25.0
25.0
Asset growth
37.8
25.5
32.3
18.2
20.0
Deposit growth
117.2
45.8
50.0
25.0
25.0
Source: Company data, Verdhana estimates
Balance sheet (IDRmn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash and equivalents
10,107
8,863
2,320,011
2,740,785
2,148,935
Inter-bank lending
731,448
1,766,589
1,766,589
1,766,589
1,766,589
Deposits with central bank
718,440
1,178,913
1,178,913
1,178,913
1,178,913
Total securities
4,814,485
3,487,791
3,574,986
3,664,360
3,755,969
Other int earning assets
Gross loans
9,427,987
13,020,051
17,577,069
21,971,336
28,562,737
Less provisions
-270,170
-242,117
-437,418
-701,074
-745,017
Net loans
9,157,817
12,777,934
17,139,651
21,270,262
27,817,720
Long-term investments
Fixed assets
143,604
119,131
139,025
142,424
146,162
Goodwill
Other intangible assets
Other non IEAs
1,389,394
1,956,619
2,055,284
2,550,604
3,169,754
Total assets
16,965,295
21,295,840
28,174,458
33,313,937
39,984,043
Customer deposits
8,274,385
12,067,195
18,100,793
22,625,991
28,282,488
Bank deposits, CDs, debentures
139
149,235
843,745
1,054,681
1,318,351
Other int bearing liabilities
Total int bearing liabilities
8,274,524
12,216,430
18,944,537
23,680,671
29,600,839
Non-int bearing liabilities
427,014
722,618
737,923
745,230
754,365
Total liabilities
8,701,538
12,939,048
19,682,460
24,425,902
30,355,204
Minority interest
Common stock
8,502,332
8,521,500
8,521,500
8,521,500
8,521,500
Preferred stock
Retained earnings
-238,575
-164,708
-29,502
366,535
1,107,339
Reserves for credit losses
Proposed dividends
Other equity
Shareholders' equity
8,263,757
8,356,792
8,491,998
8,888,035
9,628,839
Total liabilities and equity
16,965,295
21,295,840
28,174,458
33,313,937
39,984,043
Non-perf assets
171,088
109,372
147,652
184,565
239,938
Balance sheet ratios (%)
Loans to deposits
113.9
107.9
97.1
97.1
101.0
Equity to assets
48.7
39.2
30.1
26.7
24.1
Asset quality & capital
NPAs/gross loans (%)
1.8
0.8
0.8
0.8
0.8
Bad debt charge/gross loans (%)
4.16
3.08
2.61
2.70
2.65
Loss reserves/assets (%)
1.59
1.14
1.55
2.10
1.86
Loss reserves/NPAs (%)
157.9
221.4
296.2
379.9
310.5
Tier 1 capital ratio (%)
81.7
52.0
42.2
36.8
31.8
Total capital ratio (%)
82.8
52.0
42.2
36.8
31.8
Per share
Reported EPS (IDR)
1.15
5.22
9.76
28.58
53.46
Norm EPS (IDR)
1.15
5.22
9.76
28.58
53.46
FD norm EPS (IDR)
1.15
5.22
9.76
28.58
53.46
DPS (IDR)
0.00
0.00
0.00
0.00
0.00
PPOP PS (IDR)
29.26
35.71
45.32
78.54
121.53
BVPS (IDR)
596.39
603.11
612.86
641.45
694.91
ABVPS (IDR)
596.39
603.11
612.86
641.45
694.91
NTAPS (IDR)
596.39
603.11
612.86
641.45
694.91
Valuations and ratios
Reported P/E (x)
2,351.0
517.0
276.7
94.5
50.5
Normalised P/E (x)
2,351.0
517.0
276.7
94.5
50.5
FD normalised P/E (x)
2,351.0
517.0
276.7
94.5
50.5
Dividend yield (%)
–
–
–
–
–
Price/book (x)
4.5
4.5
4.4
4.2
3.9
Price/adjusted book (x)
4.5
4.5
4.4
4.2
3.9
Net interest margin (%)
12.31
9.04
8.64
8.73
9.29
Yield on assets (%)
13.66
10.82
10.45
10.55
11.27
Cost of int bearing liab (%)
2.61
3.02
2.62
2.42
2.50
Net interest spread (%)
11.05
7.80
7.83
8.13
8.77
Non-interest income (%)
5.5
11.2
9.3
7.6
6.2
Cost to income (%)
71.7
71.9
70.8
59.3
49.5
Effective tax rate (%)
22.1
22.7
20.0
20.0
20.0
Dividend payout (%)
0.0
0.0
0.0
0.0
0.0
ROE (%)
0.2
0.9
1.6
4.6
8.0
ROA (%)
0.11
0.38
0.55
1.29
2.02
Operating ROE (%)
0.2
1.1
2.0
5.7
10.0
Operating ROA (%)
0.09
0.49
0.68
1.61
2.53
Source: Company data, Verdhana estimates
Company profilePT Bank Jago Tbk is an Indonesia-based banking company. It is a technology-based bank that serves the small and medium enterprises segment, Retail segment, and mass market segment. It offers a wide range of products and banking services such as money changer, pickup service, bank guarantee, and payroll system. Its loan products include working capital loans, investment loans, consumption loans, and mortgages loan. In addition, the bank also established business partnerships with other banks, rural banks, multi-finance, and insurance companies.
Valuation MethodologyOur TP is IDR3,000. This is based on a target PEG ratio of 0.90x. Using our estimated three-year (2023-26F) earnings CAGR of 117%. The benchmark index is JCI.
Risks that may impede the achievement of the target priceKey risks are execution risks particularly abilities to execute ending collaborations with Goto (GOTO IJ – Buy) ecosystems. This would be the single major risk to our earnings estimates and TP. Admittedly, of late, we have seen some encouraging developments with respect to loan channelling towards Goto ecosystems (albeit still early days).
ESGThe Bank’s sustainability strategy is based on the eight principles of Sustainable Finance to guide the Bank’s business activities. This make sure that they are aligned with environmental, social, and governance (ESG) aspects and to support the achievement of sustainable development. In general, the objectives of implementing the Bank’s Sustainable Finance are: a. Develop financial products and services that apply the principles of Sustainable Finance; b. Provide adequate sources of funding to achieve the goals of sustainable development and funding related to climate change; c. Boost resilience and competitiveness of the Bank’s through the management of social and environmental risks by developing financial products and services that are capable of contributing positively to financial system stability; d. Reduce social inequality, reduce and prevent environmental damage, preserve biodiversity, and promote efficient use of energy and natural resources; e. Integrate ESG aspects into operational activities. f. Provide strategic direction for the Bank in developing a financing portfolio for sustainable business activities and integrate ESG risk management into business activities. g. Ensure sustainable financing for MSME and non-MSME customers, including environmentally-friendly business activities; h. Improve internal competence and skills in implementing Sustainable Finance.

Fig. 1: Bank Jago – earnings estimate changes

Source: Company data, Verdhana estimates

 

Fig. 2: Bank Jago – loans, deposits, and ratios

Source: Company data, Verdhana estimates

 

Fig. 3: Indonesia digital banks – comparison

Source: Company data, Verdhana research

 

Fig. 4: Indonesia digital banks – comparison (2)

Source: Company data, Verdhana research

 

Fig. 5: 12MMA NIM%

Source: Company data, Verdhana research

 

Fig. 6: 12MMA risk-adj NIM%

Source: Company data, Verdhana research

 

Fig. 7: 2025F PEG (x)

Source: Company data, Verdhana estimates

 

Fig. 8: Three-year FY23-26F EPS CAGR %

Source: Company data, Verdhana estimates

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

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Rating Table

Rating
Remains
Neutral
Target price
Increased from IDR 2,750
IDR 3,000
Closing price
6 December 2024
IDR 2,700
Implied upside+11.1%
Market Cap (USD mn)2,337.6
ADT (USD mn)2.3

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)
2,337.6
Free float (%)
26.8
3-mth ADT (USDmn)
2.3
(%)
1M
3M
12M
Absolute (IDR)
5.5
-2.9
-10.9
Absolute (USD)
5.3
-5.9
-12.9
Rel to Jakarta Stock Exchange Composite Index
5.5
1.5
-15.1


Research Analysts

Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)

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