On track to meet our FY24F projections despite weak operating results

BBNI has released its bank-only YTD Aug-24 results, which suggest limited operating improvements for the bank. Headline Aug-24-only profit reached IDR1.7tn (-12.4% m-m / +12.7% y-y), bringing YTD Aug-24 profit to IDR14.2tn (+4% y-y), which was largely in line with our FY24F projection (considering consolidated numbers). For the remaining 2024F, we see limited room for funding costs to head lower given the still-generally tight liquidity in the system, although we could see reduction in SRBI loans outstanding. We also think that in the near term, the market may perceive better benefits for BBNI from potential interest rate cuts. In our opinion, it is likely to be minimal, as we expect the system’s liquidity to remain tight. Given that we also believe other large banks may grow loans and deposits faster, we expect them to continue to garner a larger deposit share (relative to BBNI). We also notice inferior loan growth for BBNI which, in the longer term, would make it harder to compete with major peers. Hence, in the longer term, we continue to prefer BBCA, BMRI, and BBRI over BBNI (in preferred order).

At the operating level, the bank’s headline Aug-24 NII of IDR3.4tn may trigger concern (as it suggests a decline of 4.3% m-m, although on a y-y basis it is a 2.6% improvement). Fortunately, the bank’s funding costs appear to have stabilized on an m-m basis, with headline Aug-24 CoF standing at 2.9% (flat m-m / +30bp y-y). This brought down NII to IDR3.4tn (-4.3% m-m / +2.6% y-y), implying NIM of 4.3% (-20bp m-m / -20bp y-y). Still, in our view, the stabilized funding costs should pave the way for the bank to record better operating results.

Headline PPOP for Aug-24 was IDR2.7tn (-7.0% m-m / +2.0% y-y), bringing YTD Aug-24 PPOP to IDR21.7tn (-5% y-y). However, in our opinion, the bank still needs to keep its credit costs (CoC) elevated to beef up its loan-loss-reserve (LLR) to accommodate excess lending it has made, particularly during the Covid period. The increase in CoC is necessary to accommodate some loan downgrades. CoC in Aug-24 was at 1.1% (bringing YTD Aug-24 CoC to 1.0%). The bank has an LLR of 5.7% (a decline y-y but flat m-m). Given that the level of CoC is consistently below the bank’s loan write-offs, we believe that BBNI may have to increase its provisioning. Admittedly, monthly results can be volatile; thus, in this report, we look at the bank’s 12-month moving average (12MMA) to give us a better understanding of the bank’s latest trends in several areas. Further details on the results are shown in the following tables/charts inside this report.

Valuation and risks

We derive our TP of IDR6,600 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 8.5%, beta 1.0x and a CAR-adjusted ROAE of 16.5%. We also use 2025F book as reference. The implied multiples at our TP are 1.4x 2025F book and 10.7x 2025F earnings (compared to current multiples of 1.2x and 9.3x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex.

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 
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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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Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)