Bank Negara Indonesia BBNI IJ - Buy - Operating 1H24 results were below

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Operating 1H24 results were below

BBNI released its 1H24 results with headline profit of IDR10.7tn (+3.8% y-y), accounting for 50% of our FY24 projection, largely driven by management’s efforts to lower credit costs (CoC) (+1.3% q-q, -25.2% y-y), as 1H24 PPOP declined (-5.0% y-y). The decline in CoC was a result of the bank’s broad improvement in asset quality and shift to higher-quality loans (hence competitive pricing was compensated by the lower CoC). For the remaining 2024, we see limited room for funding costs to head lower given still generally tight liquidity in the system, although we could see reduction in SRBI loan outstanding. We also think that there are very limited opportunities for BBNI to reprice its loan portfolio given the competitive dynamics in the corporate/commercial segments. Thus, we think 2H24F NIM could hover at ~4.1-4.3%. While these would be accretive, it should lag behind the bank’s larger a and more dominant peers.

1H24 results summary

2Q24 net interest income (NII) stood at IDR9.7tn (+3.1% q-q; -5.1% y-y) and 2Q24 NIM reached 4.0%. 1H24 NII at IDR19tn (-7.4% y-y) accounted for 43% of our FY24F projection. We attribute the quarterly NII decline to an increased focus on higher-quality loans, whereby rates are lower due to competition, as well as higher funding costs. Given that interest rate is expected to have peaked, it is unlikely that the bank can re-price its loans further upwards. .
2Q24 PPOP reached IDR8.3tn (+1.0% q-q; -4.5% y-y), bringing 1H24 PPOP to IDR16.4tn (-5.0% y-y), accounting for 47% of our FY24F projection. During 2Q24, the bank reported CoC of 1.0% (flat q-q; -50bp y-y) as overall asset quality improved. Indeed, in 2Q24 NPL reached 2.0% (flat q-q; -50bp y-y), while the loans-at-risk (LAR) ratio was 10.2% (-30bp q-q; -580bp y-y). This brings LAR coverage to 47.9% (-250bp q-q; +80bp y-y). At the bottom line, 2Q24 profit reached IDR5.4tn (+0.7% q-q; +5.6% y-y), bringing 1H24 profit to IDR10.7tn (+3.8% y-y), accounting for 50% of our FY24F projection.
On the balance sheet, BBNI booked loan growth of 11.7% y-y (+4.6% YTD); predominantly coming from the corporate segment (+19% y-y / +9.8% YTD). We see better quality loan growth, as management would put more focus on quality. Deposits for the bank only rose by 1% y-y (-4.7% YTD), with growth mostly came from savings accounts (+4.3% y-y / +3.7% YTD), resulting in an increase in the CASA ratio to 70.7% (+110bp y-y). With BBNI’s ongoing digital transformation, we expect that CASA ratio will remain elevated. The above translated to a loans-to-deposits ratio (LDR) of 94.1% in 2Q24 (+900bp y-y).

Valuation and risks

We derive our TP of IDR6,100 using DuPont methodology with risk-free of 6.5%, an equity risk premium of 7.8%, growth rate of 8.5% (down from 10.0%) and a CAR-adjusted ROAE of 16.5%. We have also used the FY24F book as reference to derive our TP. At our TP, this implies 1.4xFY24F P/B and 10.9x FY24F PER. Downside risks include worse-than expected macroeconomic trends, lack of loan re-pricing, tight liquidity competition and higher credit costs and opex growth.