Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Steady growth, reiterate Buy, new TP: IDR13,200

We roll forward our valuation to 2025F; TP raised to IDR13,200

Among major banks, BBCA is currently trading at the highest valuation multiples (using FY25F books as reference, BBCA is at 4.2x vs major banks’ average at 2.4x). However, following solid 1H24 results and expectations that 2024F will be another solid year for the bank, as the macroeconomic outlook continues to be positive, in our view (i.e., potential rate cut), combined with potentially better asset quality trends than in 2023 and better loan pricing, we raise our target price by 15% (from IDR11,500 previously).

Raise TP by 14% due to rolling forward valuation to 2025F

1H24 results showed headline profit of IDR26.9tn (+11% y-y), accounting for ~51% of our FY24F projection. We attribute the healthy profit growth to better NIM, driven by BBCA’s strong transactional franchise (which resulted in its lowest funding cost increase compared to other major Indonesian banks) and improved asset quality (leading to lower credit costs). In addition, we have seen further operational improvements and cost efficiencies for BBCA. The bank has implemented cost controls (as non-provision costs were only +1% y-y), which were particularly related to limited hiring. BBCA delivered loan growth of 16% y-y, ahead of banking sector growth (~11-12% y-y). Most notably, in the corporate and consumer segments, BBCA reported loan growth of 19% y-y (+5% YTD) and 14% y-y (+6% YTD), respectively – well ahead of the industry’s loan growth. In the corporate segment, the mining sector contributed to this strong corporate loan growth, particularly in investment loans for smelters. For consumer loans, BBCA saw a pickup in spending for hotels (both for tourists & non-tourists) and airline tickets. Meanwhile, in the commercial/SME segments, BBCA also reported superior loan growth of ~11% y-y (+3% YTD) – well ahead of the industry SME growth of ~5% y-y. SME loans are driven by F&B business loans, which are booming. Thus, broadly, these resulted in a rise in combined loan utilization to ~67% in 1H24 (from 63% in 1Q24).

Valuation and risks

We derive our TP of IDR13,200 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%. Our TP implies 5.4x FY25F P/B (from current price valuation of 4.2x) and 26.9x FY25F P/E (from current price valuation of 21.0x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

Fig. 1: BBCA valuation

BCA - Fair Valuation	New	OLD	Remarks
Risk free rate %	6.50	6.50
Equity risk premium %	7.80	7.80
Beta (x)	0.80	0.80
Cost of capital %	12.70	12.70
Growth rate (2-yr Cagr) %	10.00	10.00
CAR-adj ROAE %	24.50	25.00
12m fwd BVPS (IDR)	2,468	2,055	FY25F book as reference from FY24F
Target PB x	5.4	5.6
Implied PER x	31.1	30.8
Implied share price (IDR)	13,249	11,411	Rounded to IDR13,200

Source: Company data, Verdhana estimates

Forecast Table

Year-end 31 Dec	FY23		FY24F		FY25F		FY26F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
PPOP (bn)	62,443	67,867	67,867	78,920	78,920	86,553	86,553
Reported net profit (bn)	48,639	52,497	52,497	60,826	60,826	66,698	66,698
Normalised net profit (bn)	48,639	52,497	52,497	60,826	60,826	66,698	66,698
FD normalised EPS	394.56	425.86	425.86	493.42	493.42	541.05	541.05
FD norm. EPS growth (%)	19.4	7.9	7.9	15.9	15.9	9.7	9.7
FD normalised P/E (x)	26.2	–	24.3	–	21.0	–	19.1
Price/adj. book (x)	5.3	–	4.8	–	4.2	–	3.7
Price/book (x)	5.3	–	4.8	–	4.2	–	3.7
Dividend yield (%)	2.1	–	2.5	–	2.1	–	2.4
ROE (%)	21.0	20.6	20.6	21.2	21.2	20.6	20.6
ROA (%)	3.6	3.6	3.6	3.7	3.7	3.7	3.7

Source: Company data, Verdhana estimates

Key data on Bank Central Asia

Profit and loss (IDRbn)
Year-end 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
Interest income	72,241	87,398	92,709	104,376	112,637
Interest expense	-8,252	-12,269	-12,100	-13,316	-14,647
Net interest income	63,990	75,129	80,609	91,060	97,990
Net fees and commissions	16,584	16,653	17,468	19,215	21,136
Trading related profits	1,287	1,888	2,138	2,388	2,638
Other operating revenue	5,616	6,276	6,526	6,776	7,026
Non-interest income	23,487	24,817	26,132	28,379	30,800
Operating income	87,476	99,945	106,741	119,439	128,790
Depreciation	-2,377	-3,126	-2,984	-3,044	-3,104
Amortisation	0	0	0	0	0
Operating expenses	-16,454	-18,178	-18,883	-19,617	-20,383
Employee share expense	-13,651	-16,198	-17,008	-17,858	-18,751
Pre-provision op profit	54,994	62,443	67,867	78,920	86,553
Provisions for bad debt	-4,527	-2,263	-2,911	-3,660	-4,026
Other provision charges	0	0	0	0	0
Operating profit	50,467	60,180	64,955	75,260	82,527
Other non-op income	0	0	0	0	0
Associates & JCEs	0	0	0	0	0
Pre-tax profit	50,467	60,180	64,955	75,260	82,527
Income tax	-9,711	-11,522	-12,436	-14,409	-15,800
Net profit after tax	40,756	48,658	52,519	60,851	66,727
Minority interests	-20	-19	-22	-25	-29
Other items	0	0	0	0	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	40,736	48,639	52,497	60,826	66,698
Extraordinary items	0	0	0	0	0
Reported NPAT	40,736	48,639	52,497	60,826	66,698
Dividends	-19,108	-26,196	-31,278	-26,249	-30,413
Transfer to reserves	21,628	22,443	21,219	34,577	36,285
Growth (%)
Net interest income	14.0	17.4	7.3	13.0	7.6
Non-interest income	5.1	5.7	5.3	8.6	8.5
Non-interest expenses	12.1	10.5	3.9	3.9	3.9
Pre-provision earnings	14.2	13.5	8.7	16.3	9.7
Net profit	29.6	19.4	7.9	15.9	9.7
Normalised EPS	29.6	19.4	7.9	15.9	9.7
Normalised FDEPS	29.6	19.4	7.9	15.9	9.7
Loan growth	12.0	14.7	9.2	10.3	10.3
Interest earning assets	6.6	6.2	10.8	10.9	10.7
Interest bearing liabilities	6.2	6.1	10.1	10.0	10.0
Asset growth	7.0	7.1	9.6	10.6	10.4
Deposit growth	6.5	5.9	10.0	10.0	10.0
Source: Company data, Verdhana estimates

Balance sheet (IDRbn)
As at 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
Cash and equivalents	21,360	21,702	28,671	31,551	34,719
Inter-bank lending	0	0	0	0	0
Deposits with central bank	104,110	92,618	74,394	81,867	90,087
Total securities	405,093	420,208	484,064	543,747	607,631
Other int earning assets	36,129	10,816	30,015	32,837	35,956
Gross loans	703,274	801,049	871,416	958,558	1,054,414
Less provisions	-33,948	-33,309	-33,220	-33,880	-34,906
Net loans	669,326	767,740	838,196	924,678	1,019,508
Long-term investments	0	0	0	0	0
Fixed assets	24,709	26,825	24,591	22,297	19,943
Goodwill	0	0	0	0	0
Other intangible assets	0	0	0	0	0
Other non IEAs	54,004	68,198	63,758	70,132	77,142
Total assets	1,314,732	1,408,107	1,543,689	1,707,108	1,884,985
Customer deposits	1,033,278	1,093,969	1,203,366	1,323,702	1,456,072
Bank deposits, CDs, debentures	8,192	11,126	12,238	13,462	14,808
Other int bearing liabilities	1,817	2,130	3,508	3,809	4,140
Total int bearing liabilities	1,043,287	1,107,224	1,219,112	1,340,973	1,475,021
Non-int bearing liabilities	50,263	58,345	56,052	61,657	67,823
Total liabilities	1,093,550	1,165,569	1,275,164	1,402,631	1,542,844
Minority interest	163	181	203	228	257
Common stock	7,090	7,090	7,090	7,090	7,090
Preferred stock	0	0	0	0	0
Retained earnings	200,959	222,957	248,922	284,850	322,486
Reserves for credit losses	0	0	0	0	0
Proposed dividends	0	0	0	0	0
Other equity	12,970	12,309	12,309	12,309	12,309
Shareholders' equity	221,019	242,356	268,321	304,249	341,884
Total liabilities and equity	1,314,732	1,408,107	1,543,689	1,707,108	1,884,985
Non-perf assets	11,798	14,198	15,618	17,180	18,898
Balance sheet ratios (%)
Loans to deposits	68.1	73.2	72.4	72.4	72.4
Equity to assets	16.8	17.2	17.4	17.8	18.1
Asset quality & capital
NPAs/gross loans (%)	1.7	1.8	1.8	1.8	1.8
Bad debt charge/gross loans (%)	0.64	0.28	0.33	0.38	0.38
Loss reserves/assets (%)	2.58	2.37	2.15	1.98	1.85
Loss reserves/NPAs (%)	287.7	234.6	212.7	197.2	184.7
Tier 1 capital ratio (%)	26.9	29.4	28.7	29.1	29.3
Total capital ratio (%)	26.9	29.4	28.7	29.1	29.3
Per share
Reported EPS (IDR)	330.45	394.56	425.86	493.42	541.05
Norm EPS (IDR)	330.45	394.56	425.86	493.42	541.05
FD norm EPS (IDR)	330.45	394.56	425.86	493.42	541.05
DPS (IDR)	155.00	212.50	253.73	212.93	246.71
PPOP PS (IDR)	446.11	506.53	550.53	640.20	702.11
BVPS (IDR)	1,792.89	1,965.98	2,176.60	2,468.05	2,773.35
ABVPS (IDR)	1,792.89	1,965.98	2,176.60	2,468.05	2,773.35
NTAPS (IDR)	1,792.89	1,965.98	2,176.60	2,468.05	2,773.35
Valuations and ratios
Reported P/E (x)	31.3	26.2	24.3	21.0	19.1
Normalised P/E (x)	31.3	26.2	24.3	21.0	19.1
FD normalised P/E (x)	31.3	26.2	24.3	21.0	19.1
Dividend yield (%)	1.5	2.1	2.5	2.1	2.4
Price/book (x)	5.8	5.3	4.8	4.2	3.7
Price/adjusted book (x)	5.8	5.3	4.8	4.2	3.7
Net interest margin (%)	5.34	5.89	5.82	5.93	5.76
Yield on assets (%)	6.03	6.86	6.70	6.80	6.62
Cost of int bearing liab (%)	0.81	1.14	1.04	1.04	1.04
Net interest spread (%)	5.22	5.72	5.66	5.76	5.58
Non-interest income (%)	26.8	24.8	24.5	23.8	23.9
Cost to income (%)	37.1	37.5	36.4	33.9	32.8
Effective tax rate (%)	19.2	19.1	19.1	19.1	19.1
Dividend payout (%)	46.9	53.9	59.6	43.2	45.6
ROE (%)	19.2	21.0	20.6	21.2	20.6
ROA (%)	3.20	3.57	3.56	3.74	3.71
Operating ROE (%)	23.8	26.0	25.4	26.3	25.5
Operating ROA (%)	3.97	4.42	4.40	4.63	4.59
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 IDR13,200 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

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.

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Rating Table

Rating Remains	Buy
Target price Increased from IDR 11,500	IDR 13,200
Closing price 28 August 2024	IDR 10,350
Implied upside	+27.5%
Market Cap (USD mn)	81,915.6
ADT (USD mn)	47.6

Stock Chart Data

Source: LSEG, Verdhana

M cap (USDmn)	81,915.6
Free float (%)	45.1
3-mth ADT (USDmn)	47.6

(%)	1M	3M	12M
Absolute (IDR)	0.2	11.3	12.5
Absolute (USD)	5.9	16.1	11.5
Rel to Jakarta Stock Exchange Composite Index	-4.8	5.7	1.9

Research Analysts

Indonesia Research Team

Nicholas Santoso (nicholas.santoso @verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)

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

Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Steady growth, reiterate Buy, new TP: IDR13,200

Fig. 1: BBCA valuation

Forecast Table

Key data on Bank Central Asia

Rating Table

Stock Chart Data

Research Analysts

Indonesia Research Team

yudi Administrator

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

Bank Rakyat Indonesia -BBRI IJ- Buy - Towards more commercial micro

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

Bank Rakyat Indonesia -BBRI IJ- Buy - YTD Jul-24 bank only results - steady progress

Bank Rakyat Indonesia -BBRI IJ- Buy - ROAE uptrend on positive micro trends

Bank Mandiri -BMRI IJ- Buy - Better stability in ROE ROA Re-rating to continue

Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Fig. 1: BBCA valuation

Indonesia Research Team

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