Bank Central Asia BBCA IJ - Buy - Solid YTD Jul-24 results - Verdhana Research

Bank Central Asia BBCA IJ - Buy - Solid YTD Jul-24 results

Bank Central Asia BBCA IJ - Buy - Solid YTD Jul-24 results

Banks NS EW 3.2K

Solid YTD Jul-24 results

BBCA’s bank-only Jul-24 earnings of IDR4.9tr (+1% m-m / +17% y-y) brings YTD Jul-24 headline profit to IDR31.4tr (+12% y-y), on track to exceed our FY24 projections (particularly when we consider the consolidated numbers). In our opinion, the bank has continued to demonstrate its status as the top transactional bank (particularly non-government/non-SOE related) in Indonesia. BBCA recorded the lowest funding costs of 1.03% in Jul-24, well below its major peers which stood at >2.5%. This was a slight uptick from Jun-24 funding costs as the bank raised its TD rates by 50bp m-m. Despite the slight increase in funding costs, the bank continued to report improvement in NIM to 6.0% in Jul-24 (bringing YTD Jul-24 NIM to 5.8%). With BBCA’s generally stable funding costs, we think this is potential for its peers to reflect the same for the upcoming Jul-24 results. We argue recent months’ stable funding costs may indicate stability in the system liquidity. And considering BI’s reduction in the issuance of Bank Indonesia Rupiah Securities (SRBI), this could further improve system liquidity, thereby reducing funding costs pressures across banks. Ultimately, these could also improve banks’ near-term earnings (all else remain unchanged). *Admittedly, monthly results can be volatile; and thus, in this report, from time to time, 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.

Another key area that we closely observe relates to the bank’s provisioning policies. We think BBCA management has continued to show a prudent stance. When comparing monthly credit costs (CoC) with our estimated monthly write-off for Jul-24, BBCA had a higher CoC than the estimated write-off. This resulted in BBCA’s stable Loan-Loss-Reserve (LLR) of 4.0%, well above the bank’s pre-pandemic level of 2.5%. Combined with the bank’s sustained low funding costs, we believe BBCA recorded improved 12MMA ROAEs or ROAAs (for a given loan growth) in Jul-24. Indeed, as of Jul-24, only BBCA reported a hefty annualized ROAA of 4.3% and ROAE of 25.3% – easily well above its major peers.

Post the Jul-24 results, we reiterate BBCA as one of our top picks in the Indonesia banking sector with a TP of IDR11,500.

Valuation and risks

We derive our TP of IDR11,500 using DuPont methodology with key parameters as follows: a risk-free rate (Rf) of 6.5%, equity risk premium (k) of 7.8%, beta of 0.8x and a CAR-adjusted ROAE of 25.0%. Our TP implies 5.4x 12-month FY24F P/B (vs current price-based valuation of 4.7x) and 27.4x FY24F P/E (24.2x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

Fig. 1: BBCA monthly results

BBCA - Monthly Results IDRbn	Jul-23	Jun-24	Jul-24	M-M	Y-Y	YTD 2024	YTD 2023	Y-Y	vs FY24F	FY24F
Int income	6,730	7,228	7,574	5%	13%	50,686	46,868	8%	55%	92,709
Int expense	1,042	888	957	8%	-8%	6,731	6,390	5%	56%	12,100
NII	5,689	6,340	6,618	4%	16%	43,955	40,478	9%	55%	80,609
PPOP	5,020	5,433	6,096	12%	21%	39,783	35,920	11%	59%	67,867
Provisions	(156)	(658)	98	-115%	-163%	1,162	1,582	-27%	40%	2,911
Net profit	4,195	4,851	4,911	1%	17%	31,396	27,942	12%	60%	52,497
LDR	68%	75%	76%
NIM	5.4%	5.8%	6.0%			5.8%	5.6%
Risk-Adj NIM	5.5%	6.4%	5.9%			5.6%	5.3%
LLR	4.7%	4.1%	4.0%
Credit cost (CoC)	-0.26%	-0.96%	0.14%			0.2%	0.4%
CASA ratio	81%	82%	82%
Monthly CIR	34%	17%	18%
Loan-to-CASA	84%	91%	92%
B/S ROAE (annualised)	23.2%	25.5%	25.3%
Risk-adj NIM	5.7%	6.7%	5.9%
B/S ROAA (annualised)	3.8%	4.2%	4.3%
Asset yield (annualised)	6.4%	6.6%	6.9%
COF (annualised)	1.17%	0.96%	1.03%
CASA Y-Y %	4.8%	5.7%	5.0%

Source: Company data, Verdhana research

Fig. 2: BBCA assets breakdown

BBCA - Monthly Results IDRbn	Jul-23	Jun-24	Jul-24	M-M	Y-Y	YTD 2024	YTD 2023
Loans	727,049	824,590	832,341	1%	14%	6%	5%
Deposits	1,061,484	1,103,512	1,100,707	0%	5%	1%	2%
CA	330,456	351,345	344,494	0%	8%	-2%	-2%
Savings	531,056	555,584	559,847	0%	4%	5%	3%
TD	199,972	196,583	196,366	-1%	4%	-3%	6%
CASA	861,512	906,930	904,341	0%	5%	2%	1%
Equities	219,293	230,834	235,920	2%	7%	-3%	-1%
Total Assets	1,323,142	1,384,972	1,379,197	-1%	5%	0%	1%

Source: Company data, Verdhana research

Fig. 4: BBCA - 12MMA Loan vs NII growth %

Source: Company data, Verdhana research

Fig. 5: BBCA - CoC vs est WO %

Source: Company data, Verdhana research

Fig. 6: BBCA - CoC trend (%)

Source: Company data, Verdhana research

Fig. 8: BBCA - ROAA trend (%)

Source: Company data, Verdhana research

Fig. 9: BBCA - Asset to Equity x

Source: Company data, Verdhana research

Fig. 10: BBCA - ROAE trend (%)

Source: Company data, Verdhana research

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.

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Rating Table

Rating Remains	Buy
Target price Remains	IDR 11,500
Closing price 15 August 2024	IDR 10,225

Research Analysts

Indonesia Research Team

Nicholas Santoso (nicholas.santoso@verdhana.id), and

Erwin Wijaya (erwin.wijaya@verdhana.id),

Tags: Banks, BBCA, Nicholas Santoso, Erwin Wijaya

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