ARTO released its 1H25 results on 24 July, which we believe were solid. Despite a still challenging macroeconomic environment amid tight liquidity as well as soft purchasing power and/or economic trajectory, the bank reported 2Q25 profit of IDR67bn (+11% q-q; +136% y-y), bringing YTD 1H25 NP to IDR127bn, accounting for ~42% of our FY25F profit projections. The bank’s solid performance was primarily driven by improved collaboration between the bank and its loan channelling partners. Going forward, ARTO will focus on four key points: optimize existing strategic partnerships, start lending directly to customers, launch wealth management products and upgrade the Jago app with AI, according to management.

For the remaining part of 2025F, we think challenges for Bank Jago will persist, among which is asset quality, where of late we have seen a decline in savings rates at the mass market segments. Moreover, we think a gradual reduction in the lending rate cap for fintechs (they are lending partners for digital banks) could impact the bank’s overall earnings. We believe this could be detrimental to the survivability of many fintechs and tighten future underwriting of loans. We also think loan growth will slow down for digital banks.

2Q25 results summary

Net interest income (NII) stood at IDR575bn (-3% q-q; +58% y-y), bringing 1H25 NII to IDR1.2tn (+65% y-y) – accounting for ~46% of our FY25 projections. PPOP reached IDR271bn (-10% q-q; +173% y-y), bringing 1H25 PPOP to IDR572bn (+218% y-y) – accounting for ~42% of our FY25F projections. These solid operating results resulted in lower cost ratios (CIR) of 60.2% vs. 77.2% in 2Q24 and 63.3% in 4Q24. Consequently, profit increased to IDR67bn (+11% q-q; +136% y-y), bringing 1H25 NP to IDR127bn (+154% y-y) – accounting for ~42% of our FY25F profit projection.

On the balance sheet, ARTO reported deposits and loans growth of IDR22.4tn (+5% q-q; +52% y-y) and IDR21.4tn (+6% q-q; +37% y-y), respectively. This resulted in LDR of 95.6% (down from 105.8% in 2Q24). Growth in deposits primarily came from Time Deposits (+11% q-q; +91% y-y). CASA also showed improvement with current accounts (-11% q-q; +10% y-y) and savings accounts (+10% q-q / +45% y-y), respectively. This resulted in a CASA ratio of 51.0% for 2Q25 (down from 61.0% in 2Q24).

Valuation and risks

We derive our TP based on a target PEG ratio of 1.0x. Using our three-year (2024-27F) earnings CAGR estimate of 69.5% and at a target PEG of 1.0x, we arrive at our TP of IDR2,275. We think it is at a significant discount compared to the average PEG of 2.29x for the Indonesia banks in our coverage universe. Key risks are related to execution risks, particularly the bank’s ability to execute on its collaboration with Goto’s (GOTO IJ, Buy) ecosystems. This, in our view, would be the single major risk to our earnings estimates and TP. Of late, we have also seen upward credit risks in the mass-market segments (which has led to ARTO reducing its loan exposure to syariah ultra-micro lending).

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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Erwin Wijaya (erwin.wijaya@verdhana.id)