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Nov 30,2016 11:45:12

Indonesia Strategy: Managing Volatility
We opine that Indonesia’s fundamentals remain pointed towards long-term positives. This is underpinned by BI’s pro-growth policies to propel economic growth, the low inflation environment, continued government focus on infrastructure spending, and the security forces’ exemplary conduct in maintaining stability as political tensions rise. Thus, we expect stronger market direction post the Fed’s anticipated rate hike in December.

¨ Outflows dominate. Worries over a potential US Federal Reserve (Fed) rate increase and weakening IDR have triggered outflows in both the equities and fixed income markets. This is a reversal after months of inflows. Post Donald Trump’s win in the recent US elections, the JCI continues to trade at sub-5,200 level, with outflows recorded at IDR9.6tnin November. Similarly, outflows in the fixed income market have deepened, reaching IDR17trn over the past month, with the 10-year government bond continuing to escalate to 8.3% (August: +6.3%). Arguably, a lack of catalysts in the market have also led to the insipid performances, and we are only expecting stronger market direction post the Fed rate increase that is expected by mid-December.

¨ The three spectres are currency, interest rate trends and politics. As highlighted in our 14 Nov 2016 Currency Woes Dampen Sentiment report, the fundamentals still point towards a resilient IDR. This is underpinned by its high-yield differential vs developed market (DM) economies and peers, relatively high levels of growth among major emerging market (EM) economies, and ongoing reforms. Rising current account deficit (CAD) over the next few years is still manageable, while forex reserve levels also improved to USD115bn.

¨ Action by Bank Indonesia (BI) to intervene in the currency market is plausible to indicate direction. An influx of asset repatriation is also expected towards year-end, which would help the IDR to recuperate to a more favourable level. We opine that BI would maintain its current relaxation bias policy to propel economic growth, especially given the subdued inflationary outlook. As the series of rate cuts have yet to result in a meaningful economic trajectory, it is unlikely that the central bank would take the risk by reversing its current relaxation policy.

¨ Over the past five years, the spread between the BI rate and inflation has averaged 130bps vs the current 145bps spread. This provides room for further relaxation if needed. We expect BI to maintain its current benchmark rate until year-end, and potentially make another 25bps cut in early 2017 to further support economic growth under stable IDR circumstances.

¨ Jakarta Governor Basuki Tjahaja Purnama’s alleged religious defamation has raised the political landscape’s temperature, as seen by the magnitude of the anti-Basuki rally that occurred earlier this month. This upheaval is negatively perceived by investors, especially after >2 years of stable politics. The market is likely to take heed of the next rally and, more importantly, how the Government handles the situation. So far, the security forces have been exemplary in restoring stability. We continue to believe that the Government’s position remains strong. As long as these forces remain united under presidential control, any act that destabilises the country can be brought under control quickly.

¨ Commodity plays and blue chips. We like PP London Sumatra (Lonsum) and United Tractors as commodity plays. Bank Negara Indonesia (BBNI), Astra International, Ciputra Development, Bumi Serpong Damai (BSD), Telekomunikasi Indonesia (Telkom), Indofood Sukses Makmur and Waskita Karya are all stocks with strong fundamentals. (Helmy Kristanto)


Nov 18,2016 15:16:45

Recovery on track ?

Loans growth has rebounded
Bank Indonesia states that banking industry loans growth in October 2016 grew by 7.5% YoY. The growth was better than September’s growth of 6.5% YoY, and October is the first month where loans growth accelerates after a string of deceleration that had happened since the start of the year. Furthermore, Bank Indonesia expects that significant loans growth recovery could start in 2Q17 as appetite for capacity expansion is expected to rebound. In line with authorities’ projection, we expect that loans to grow by 11% in 2017, helped by : 1) Higher GDP growth as we expect GDP to grow by 5.3% in 2017 versus 5.1% in 2017 2) Bank Indonesia’s stance to keep liquidity afloat by keeping lenient monetary policy 3) High level consumer confidence that we expect to continue throughout 2017 where in October 2016 the reading was at 116.8, much higher than in September of 110.0.
NPL is stabilizing
Banking industry NPL was lower to 3.1% in September 2016 from 3.2% a month earlier after accelerating consistently since January 2016. This is an encouraging sign that asset quality has begun to stabilize. With accelerating loans growth in October 2016, we expect that the NPL reading in October could be better. The improvement of asset quality is the main theme of our call for better bottom line growth for banking industry in 2017. As of September 2016, banks grew its net income by only 9.7% YoY to Rp84.8 tn. Slower growth of provision expense in 2017 due to gradual decrease of NPL would be the main factor for net income acceleration in 2017. We expect banking industry’s to book 15-17% net income growth in 2017 thanks to higher loans growth and declining NPL.
Cost of fund is starting to creep up
OJK confirms that several banks from Book I to Book IV have started to slightly increase special TD rates since October 2016. The increase of TD rate is inevitable as LDR is stubbornly above 90% and banks have begun to push loans book growth after long period of asset quality consolidation. Nevertheless, we will only see gradual increase of cost of fund and stabilization of NIM instead of significant drop of NIM as we believe Bank Indonesia will keep its commitment to lenient monetary policy to keep the acceleration of GDP growth,
What will the central bank do ?
Bank Indonesia decided to keep reverse repo rate benchmark at 4.75% (in part to guard the exchange rate stability) in response to global uncertainty after Trump won US presidential election. However, we do not believe that BI would change its course to a more hawkish stance as inflation is still contained and the need of monetary policy to complement the already limited fiscal room. Instead, we expect BI to lower reserve requirement in 1H17 to push liquidity to the market.
BBNI and BJBR are still our top pick

We maintain BBNI as our top pick for Book IV bank on the back of our conviction that the bank could significantly lower improve its asset quality in 2017. We expect BBNI’s NPL to decline to 2.5% at the end of 2017 from 3Q16 level of 3.1% on. For Book III bank, BJBR is our choice as the bank’s transformation has proven to significantly improve asset quality in 2016 that can continue throughout 2017.


Nov 17,2016 13:10:28

Bank Negara Indonesia: Attractive Valuations With Strong Fundamentals

Bank Negara Indonesia’s ($BBNI) current 2017F valuation of 1x P/B and reasonable ROAE of 12.8% looks more appealing (vs BMRI’s 2017F 1.4x P/B, 12.1% ROAE) as we believe its fundamental value remains intact. Its USD exposure should be manageable, given that they are mostly dominated in long-term funding instruments. Infrastructure projects would be the key catalyst for loan growth, at the same time limiting BBNI’s exposure to the mining sector, given the volatility in commodity prices. BUY and IDR6,800 TP maintained (30% upside).

¨ USD exposure risk should be manageable, as the loan-to-funding ratio (LFR) in USD was 75.2% as at September, due to BBNI’s policy of providing USD-loan exposure only for export-oriented borrowers. Meanwhile its USD denominated long-term funding should also remain under control as BBNI secures long-term funding instruments to match its long-term loans, particularly for infrastructure projects.

¨ Solid commitment on infrastructure projects. Management shared that BBNI would continue to provide a substantial amount of financing to infrastructure projects, given that Indonesia still lacks proper infrastructure. Construction, toll road, power plant, and port-related sectors would be BBNI’s main focus to support its loans growth. In 2017, we expect the contribution from infrastructure projects to total loan book to reach 21% (end-2016: 20.5%).

¨ Limited mining sector exposure. At 3.1% of total loan book (IDR11.5trn) with a 91.8% LLC ratio, BBNI has limited exposure to the mining sector. We believe BBNI should not need to set aside significant additional coverage. Despite the recent pick-up in commodity prices, BBNI management has no plans as yet to write back provisions. They are expected to do so only when there are more visibility of a sustainable global commodities environment ahead.

¨ 3Q16 results in-line. As NIM expanded by 39bps to 6.1% QoQ, coming from a combination of wider asset yield and lower blended cost of funds (CoF). Its 196bps credit cost, with a slight uptick in LLC ratio of 140.5% reflected BBNI’s consistency in keeping LLC ratio stable. Our assessment is for limited risk from higher corporate NPLs – BBNI has guided for only one corporate borrower as a potential addition to NPLs, and has already asked for additional collateral to cover the loan of IDR750bn.

¨ Maintain BUY and GGM-derived IDR6,800TP, assuming CoE of 10.1%, sustainable ROAE of 12.6% and long-term growth of 3%. Our TP implies 1.3x 2017F P/BV (-0.25SD of historical mean).

¨ Risks to the downside are include:

i. Slower-than-expected GDP growth that may prolong its NPL improvement;

ii. Tight liquidity, which may result in a higher blended CoF and NIM compression. (Eka Savitri)

Nov 16,2016 12:21:45

Indonesian banking: Sept-16 data - improvement in asset quality

- Here is some details on the banking data:

- Loan growth:
1) +6.5% y-y (+3.8% ytd; +1.6% m-m) in September compared to +6.8% y-y (+2.2% ytd; +0.4% m-m) in August.
2) Adjusted for rupiah appreciation, total loan growth was +8.4% y-y, compared to +7.7% y-y in August. Rupiah loans were +10.5% y-y (+10.7% y-y in August) while FX loans in USD term is at -1.7% y-y vs. -6.9% y-y in August.
3) Based on bank classification, strongest loan growth came from BUKU IV banks at +13.5% y-y, followed by BUKU II banks at +3.9% y-y and BUKU III banks at +2.9%y-y. Meanwhile, BUKU I banks recorded a decline in loan growth at -45.1% y-y as a number of banks have been upgraded from BUKU I to BUKU II.
4) In terms of usage, investment loans still has the highest growth rate of 9.1% y-y, down from 9.4% y-y in August, followed by consumption at 8.0% y-y from 8.2%y-y in August and working capital loans at 4.2% y-y vs. 4.7% y-y in August.
5) Of the large sectors with >5% loan exposure: agriculture (6.5% exposure) +14.7% y-y vs. +15.7% y-y in August, manufacturing (17.7% exposure) at -0.1% y-y vs. +2.9% y-y, wholesale and trade (19.7%) at +7.1% y-y vs. +6.1% y-y, and home ownership (8.1% exposure) at +7.2% y-y, up from 6.8% in August.
6) Regionally, all areas showed declining y-y loan growth except Sumatera at +6.1% y-y in September from +5.5%y-y in August.

- Deposit growth:
1) +3.1% y-y (+4.3% ytd; -0.1% m-m).
2) Adjusted for the currency movement, deposit grew +5.2% y-y in September vs. +6.4%y-y in August. Rupiah deposits grew +7.1% y-y vs. +9.9% in August and foreign currency deposits contracted by 14.5% y-y. In USD terms, FX deposits contracted by 3.6% y-y.
3) Based on bank classification deposits in BUKU IV banks +8.0% y-y, BUKU III +3.8% y-y while in BUKU II -5.6%y-y and BUKU I -48.4%y-y.
4) Based on type, CASA deposits was +5.0% y-y vs. +8.8% y-y in August (CA at -2.7% y-y and savings at +11.5% y-y) while time deposits growth remains weak at +1.1% y-y. - Liquidity: the weak deposit growth increased the industry LDR to 91.5% in September from 89.9% in August. Increase in LDR was seen across all bank classifications, with the highest increase coming from BUKU II banks to 92.5% in September (from 89.0% in August) and BUKU III banks to 97.6% in September (from 94.3% in August).

- Asset quality:
1) NPL declined to 3.10% in September from 3.22% in August while special mention loans (category 2) also declined to
5.44% in September from 5.52% in August. In terms of absolute amount, total NPL increased 21.9% y-y (+29.5% ytd; -2.1% m-m).
2) Improvement in NPL was seen across all banks, with exception of BUKU I banks in which NPL increased to 2.02% in September from 1.98% in August.
3) In terms of segment, NPL in investment loans improved to 3.46% from 3.53% in August, in consumer loans to 1.71% from 1.79% and in working capital to 3.73% from 3.91%.
4) Industry with >4% NPL level: mining at 6.38% (7.22% in August), construction at 4.26% (4.92% in August), wholesale & retail at 4.42%( 4.33%), and transportation at 4.77% (5.61%). Meanwhile, NPL in manufacturing sector declined to 3.88% from 3.92% in August, in household to 1.80% from 1.88%, in apartment 2.32% from 2.44% and in shop houses to 4.16% from 4.18%.
5) Location wise, all areas saw improvement in loan quality with the highest improvement was seen in Sumatera to 3.18% from 3.38% in August and Kalimantan to 4.92% from 5.07%.

- Profitability:
1) Industry NIM improved to 5.65% from 5.59% in August thanks to continuing reduction in time deposits rates.
2) NIM in state banks increased to 6.40% from 6.24% while NIM of forex commercial banks remains stable at 5.31%.
3) NIM in BUKU IV banks increased to 6.59% (from 6.46% in August) while BUKU III NIM remained relatively stable.

- Capital: average CAR declined to 22.6% in September from 23.3% in August. Decline in CAR was seen across all bank classifications with the highest decline coming from BUKU IV banks to 20.7% (from 21.8% in August).


Nov 14,2016 10:00:51

Strategy: Currency Woes Dampen Sentiment

Sharp correction in JCI (down 4% on Friday) was mainly triggered by precipitous IDR weakening on external factors, while domestic macro improvements remain on track. We believe fundamentals still point to a resilient IDR, especially given Indonesia’s relatively high levels of growth among major EM economies. Consumer, pharmaceutical, poultry and high-end retailers would be at risk of IDR weakening, while commodities and heavy equipment players tend to benefit. High dividend yield stocks also offer protection in the current volatile market. Maintain LT positive view.

¨ Currency volatility is back on. Fears over potential Federal Reserve (Fed) rate hike resulted in IDR falling by up to 3% to IDR13,545/USD onFriday. Considerable IDR weakening could lead to higher production costs and potential cost overruns in certain infrastructure projects, which would lead to higher inflation and growth risks. Strong foreign fund inflows have also increased risks.

¨ Indonesia is still on track for macro improvement, in our view particularly with its rising forex reserve of USD115bn and potential influx of repatriated funds by end-2016. However, the weakening IDR is seen as the main spectre for investors and its occurrence could trigger a market melt-down due to panic selling, shifting focus away from real fundamentals. Thus, BI’s firm response and action would be critical in restoring stability and confidence, in our view. We opine that IDR volatility would still linger before it recovers to IDR13,200/USD by end-2016.

¨ Stronger fundamentals now. There have been several episodes of high IDR volatility, with the last one occurring during 2014-15, when IDR depreciated as much as 30% and JCI suffered 13% losses. In our view, the current situation is different especially given the positive macro environment, in contrast to the subdued economic situation during 2014-15,on BI’s tightening rate policy bias.

¨ BI is already in the market to stabilise the currency given considerable depreciation in IDR, and we view this intervention as plausible to show direction. Current account deficit also remains manageable at 2.1% in 9M16 (3Q16: 1.8%) vs peak of 4.3% in 2014.We expect IDR to weaken slightly to 13,600/USD by 3Q17 on the back of larger current account deficit and potential Fed rate hike.

¨ Resilient IDR. In summary, we opine that fundamentals point to a resilient IDR, underpinned by high yield differentials vs developed market (DM) economies and peers, relatively high levels of growth among major emerging market (EM) economies, and ongoing reforms. Domestic consumption and government-led infrastructure spending also continue to serve as supporting factors for economic growth improvements and we still expect the economy to grow at 5.3% in 2017.

¨ Impact of weakening IDR. IDR weakening would impact corporate earnings through operational currency mismatch and/or forex debt translation. Consumer, pharmaceutical, poultry and high-end retailers have high importation costs and would be at risk. Conversely, exporters such as commodities and heavy equipment players would tend to benefit. Companies with high USD debt would also be negatively impacted if IDR weakening continues.

¨ All in, commodities and high dividend yield stocks offer some shield, in our view. We like London Sumatra and United Tractors as commodity plays, while Indocement Tunggal and Hexindo Adiperkasa offer highest dividend yields. Stocks with strong fundamentals for potential bottom-fishing include Bank Negara Indonesia, Astra International, Ciputra Development, Bumi Serpong Damai, Telekomunikasi Indonesia, Indofood Sukses Makmur and Waskita Karya. (Helmy Kristanto)


Nov 10,2016 23:01:55

Trump victory - the impact on Indonesia
JCI went into considerable correction, down as much as 2.4% during the intraday, following the prospect of Trump’s winning. Selling pressure were visible across sector, with IDR also depreciated 0.9%. Closer to end of trading hour, market slightly improved mainly led by a rebound on commodity counters, with index closed down 1% with IDR relatively flat.
The Trump’s winning undoubtedly creates uncertainty, especially on the execution and direction of what would be the policy under his administrative, on both economy and politic. According to our economist, historical facts imply that a clean sweep tends to be more positive for the US economy in general because of less gridlock. As such, with Republican sweep (Trump President and GOP Congress), fiscal policy, both from higher spending and lower taxes, is likely to be more expansionary over the next four years on average. It is still too early to conclude for any potential downward revision on economic growth at this stage.
One of the main concerns of the Trump administration would be on potential trade protectionist (anti-trade) issue. In regards of Indonesia, the main export products to the US would be textile, rubber product, shoes, electronics and F&B with export to US accounts for 12% of total non oil and gas export. However, the impact the share of export to GDP in Indonesia remains the lowest in the region at 22% (Vs Thailand’s 58%, Malaysia 73% and Singapore 198%), which would provide much-needed shelter under global economy volatility circumstances. Domestic consumption and government-led infrastructure spending continue to serve as the underpinning factors for economic growth improvement and we still expect economy growth at 5.3% in 2017.

Our economist still expect that the Fed is likely to go ahead with its tightening policy bias and raise rate by 25 bps this December. As such, one of the palpable risks would be on currency of which IDR has enjoyed 5% appreciation ytd. Any sudden increase in volatility could risk of escalation of importation of raw material and potential cost overrun in certain infra projects, which undoubtedly will led to inflation and growth risk. In our view, this risk would be contained, especially as: 1. Indonesia rising forex reserve of USD115b and expected to reach USD150b by 2017; 2. Repatriation fund inflow by end of the year; and 3. Record low inflation outlook at sub-4% level.
Acknowledging potential change in global trade and politics, Indonesia with its domestic consumption at the core, remains to offer attractive investment thesis. At this stage, we see no change on Indonesia fundamental investment story, and maintain our constructive view mainly underpin by macro improvement and government-led infrastructure investment. Our top picks in the market mainly comprise of company with strong balance and visible earnings growth and they are: $BBNI, $CTRA, $BSDE, $TLKM, $INDF and $WSKT. To play on the positive rally on the commodity, we like LSIP and UNTR. (Helmy Kristanto)

Nov 08,2016 19:08:47

Escalation in political tension; Macro improvement remains intact

While demonstration arguably has became part of life in Jakarta, last Friday’s demonstration would be one of the largest, reported to gather c. 50,000 people. The action were joined by many Moslem organisations from several regions to protest against Basuki T. Purnama (Ahok) on the allegation of religious defamation. The demonstration was mostly running in peace and calm order, but suddenly escalate into chaos at c.6 pm, the cut off time limit given by police. Couple of police trucks were burned with several casualty was reported on both side. The chaos only occurred in two specific locations, outside the Presidential Palace and one location in North Jakarta, with one Indomaret convenience store was looted. On Sunday, the police mentioned that the perpetrators of chaos in North Jakarta were unrelated to the one in Presidential Palace, and appears to be purely criminal act.

3 key messages from President Jokowi

We were encouraged by the way of the police and army to act quickly to restore the stability with tear gas, water cannon and truncheons, with strict order that rubber bullet was not allowed to be used. The situation was mostly under control past midnight.

Presiden Jokowi held press conference on early Saturday, with 3 key messages: 1. He condemned the chaos and violent demonstration;2. The legal process of Jakarta governor alleged transgressions would be concluded quickly and transparently and 3. Political actors are believed to ride on yesterday's chaos. In our view, the third points would signify escalation of political tension, which would led the government to make stronger intelligence effort and beef up security to prevent the whole situation to heighten. President Jokowi has also delayed his trip to Australia (scheduled: 6-8 Nov) to focus in restoring domestic stability.

Negative pressure is expected but macro improvement is still on tract

JCI has priced in a peaceful rally on Friday, with index closed up +0.6% ( +1.1% from Friday's low). Selling pressure is expected to happen on Monday, especially on the potential higher volatility of IDR.

There is also growing concern in relation to the prospect of asset repatriation under the current tax amnesty scheme. While the repatriation has been reported to the tax office, the physical transfer of that assets are still underway, with deadline by end of December. As such, it is imperative for the government to act quickly to restore confidence.

Despite Friday’s chaos, we see no change on Indonesia fundamental investment story, underpin by macro improvement and government-led infrastructure investment. Our top pick in the market are: $BBNI, $CTRA, $BSDE, $TLKM, $INDF and $WSKT.

Nov 08,2016 18:29:17

MQQ Strategy – Nov 2016 update

- The Mansek Quant Quest (MQQ) strategy marked its debut with 2.9% return (vs JCI’s 1.1%) in October. We reshuffle the MQQ ten-stock portfolio for November by substituting $KREN and $LPPF with $BBNI and $BJTM.

- Top picks for November 2016. We reshuffle our MQQ ten-stock portfolio, adding $BBNI and $BJTM to replace $KREN and $LPPF. Estimated outperformance (equal-weighted) of the rebalanced portfolio is 1.8% relative to our Quant universe, with greatest contributions coming from Value and Profitability again this month. For a forecast of each stock in the universe, please refer to Figure 8 inside.

- Outperformed in October 2016. October is a boost to confidence. The MQQ’s recommendations (includes Mansek non-rated) managed to gain an equalweighted return of 2.9% (vs JCI’s 1.1%) in its debut. The biggest contributors were the coal-related stocks – $PTBA (+23.6%) and $UNTR (+22.2%), while the cement companies dragged on performance – $INTP (-5.2%) and $SMGR (-2.5%). Overall, it is a tougher month as the MQQ strategy tends to perform better in trending markets, while October is rather uneventful for the JCI.

- What investment styles worked? Momentum and Profitability worked spectacularly in October, with each recorded a long-only return of 8.3% mom and 11.4% mom respectively. Monthly style performance, however, can swing widely, and is thus a noisy indicator of future performance. The MQQ weighting to each style in November remains largely similar – 26% Value, 23% Profitability, 25% Growth and 26% Low Risk.

Sep 13,2016 08:15:45

Bank Negara Indonesia ($BBNI) predicts NPL to still rise in 2H16 BBNI predicts that NPL will still rise in 2H16, caused by debtors in the oil and gas sector. In anticipation of increasing NPL, BBNI targets a coverage ratio of 140-153% in 2H16. (Kontan)

Sep 13,2016 08:14:41

Bank Rakyat Indonesia ($BBRI), Bank Mandiri ($BMRI), Bank Negara Indonesia ($BBNI) to take on loans from China Rp130tn BBRI, BMRI, and BBNI potentially receive loans from China Development Bank (CDB) to finance government projects totaling to USD10bn or equivalent to Rp130tn next year. Deputy Ministry of SOE of Financial Services, Construction Services, and Other Services, states that they have not decided the nominal amount to be drawn down from CDB, this will depend on the projects to be financed. (Bisnis Indonesia)

Aug 29,2016 22:08:56
Indonesia Equities: Pricing In Near Term Positives

Key Points

- +9% gains in MSCI Indonesia since our country upgrade in July - Since our upgrade of Indonesian equities to overweight two months ago in the MIG publication after clarity on its tax amnesty programme emerged, sentiment has further improved following the appointment of well respected Finance Minister Sri Mulyani Indrawati. The Indonesian equity market has seen strong equity inflows in 3Q16 lifting the index up ~9% (local currency terms, +8.2% in USD), which has outpaced world equities’ gains (+5.2%) for the same period and supported our call.

- Year to date’s gains of +18.6% has also more than recouped 2015’s losses of -12%, which has supported the turnaround highlighted in our January 2016’s South East Asia Equity Strategy report. The equity market rally year to date has been supported by a benign environment of lower interest rates, stable IDR currency vs the USD, under-owned positions in global portfolios and improving confidence in Indonesia’s recovery story. Estimated equity inflows into Indonesia so far for 3Q has exceeded the total inflows for 1H16, driving the market to new highs. Since mid May this year, it is estimated that net equity inflows reached $1.7bln, vs $1.6bln net outflows over the whole of 2015 (source: JPM estimates).

- Near term positives post amnesty and cabinet reshuffle look priced in, valuations are now close to 10 year high – At 16x PER, Indonesian equities is now trading close to +2 standard deviations to its 10 year historical average multiple and at its highest valuation level since 2007, which we believe has priced in much of the near term positives. Although near term liquidity is likely to remain supportive given benign expectations on interest rates, we caution that valuations have caught up and believe it is prudent to start taking some money off the table. On domestic updates, while the recently released 2017 budget is credible, it is unlikely to lead to further corporate earnings upgrades given a moderate government spending target of 6% (planned fiscal deficit for 2017 is 2.4% of GDP, flat/lower than 2016E). Towards the end of September and December which marks the first and second phases of the tax amnesty programme’s staggered tax rates for declared wealth, investor sentiment may also be influenced by expectations over the tax collections.

- Muted start to the 9-month tax amnesty programme, although still early days - As of 23rd August 2016, the asset declaration in the Tax Amnesty Program has reached Rp51.7tn, consisting of 85% onshore/15% offshore assets (12% overseas assets declared, 3% overseas net assets repatriated), while asset repatriation has reached Rp1.6 tn. Momentum of onshore assets declared in first half of August has picked up, with the tax office reporting about Rp11.5tn worth of onshore assets declared (>4x July’s). About three-quarters of the assets declared were from private individuals, and the balance private entities, which we view as supportive of property sector’s recovery given interest rates are expected to remain low while the Ministry of Finance has allowed repatriated funds to be invested in real assets (such as property and gold).

- Looking ahead, earnings upgrades need to pick up momentum for the rally to have more legs - Earnings wise, the recent 2Q results season was mixed with single digit corporate top line growth from a year ago. Concerns on banks remain dragged by asset quality issues while commodity related earnings have been moderate. Following the latest 2Q earnings season (where consensus earnings were trimmed -2% lower for FY16E and FY17E), FY16E and FY17E earnings are now forecast to grow +7% and +14% respectively (higher than Asia ex Japan equities’ 2.2% FY16E and 11% for FY17E respectively) which we believe is priced in current valuations.

Time to lock in some profits – Switch out of names which have rallied and offer no upside to target prices
- Sectors we are cautious on are: Commodity related plays which have rallied and priced in recovery expectations (coal – Bukit Asam, ITMG, palm oil – Astra Agro, London Sumatra), Banks (loans growth will be moderate while we expect asset quality concerns to remain a near term overhang) and Utilities (in particular, Perusahaan Gas – where we think profitability will remain pressured by regulatory efforts to lower gas prices).

Preferred Picks/Switch Ideas

- Preferred Sectors we would accumulate new positions are: Property (Bumi Serpong – Western Jakarta play, large landbank catering to middle income buyers), Telecommunications (Telekomunikasi Indonesia – improving smartphone penetration and data usage supported by a young population), Consumer (Indofood and Media Nusantara, which benefit from an improving domestic economy in 2H16) and Infrastructure (Jasa Marga – No. 1 toll road operator, long term beneficiary of infrastructure development in Indonesia).

- Risks to the current rally include weaker than expected global economy, faster than expected Federal Reserve interest rate hikes which may result in global liquidity volatility and disappointments in the domestic recovery and infrastructure spending pace (continues to be a focus in the 2017 budget, with 9% yoy expected growth).


Jun 21,2016 22:11:10
Bank Negara Indonesia ($BBNI): Strong growth to stay

On track to meet FY16 target
We remain positive on the toned down expectation in BBNI’s loan growth
following its strong 5M16 achievement, as an over aggressive expansion
could result in a potential downgrade in credit quality. A downward
revision in both growth and loan quality should not alter our 24% YoY EPS
growth forecast for FY16 as we have taken a more conservative stance
compared to management. Maintain BUY with TP at IDR6,300, pegging
the stock at its average 1.4x FY16 P/BV.

Growth to remain above the sector’s average
We met BBNI following its 5M16 earnings release. After posting a strong
23% YoY loan growth for 5M16 the bank sounded more cautious in lending
as it recognizes the risk attributed to aggressive expansion during an
economic slowdown to future credit quality. However, a slight downward
revision on its 18-20% YoY loan growth target should not change our 24%
YoY EPS growth forecast for FY16 as we already took a more conservative
stance with 16% YoY expansion this year, which is still above the sector’s
estimated growth of 10% YoY.

Taking safety measure on quality
We saw IDR1t MoM jump in provision to IDR2.7t in 5M16, implying 41% of
our FY16 estimate. This resulted in a seemingly weak 5M16 profit of
IDR4.3t (+8% YoY). However, the safety measure was necessary as NPLs
might peak to 3.2% in June when BBNI downgrades the IDR1.3t Trikomsel
(TRIO IJ) loan to NPL. We maintain our NPL estimate at 3%, which is
40bps higher than the bank’s 2.6% target by YE16.

Maintain BUY; TP at IDR1,175
For BBNI, the confidence comes from its on-going loan restructuring
programme, which includes another IDR1.5t to be made in 2Q16 in
addition to the IDR1.3t in 1Q16, as well as write-offs. Faster-thanexpected
improvement in loan quality could pose as a catalyst to our
IDR6,300 (1.4x FY16 P/BV) TP. Maintain BUY.
Jun 15,2016 10:18:16
Oil at US$50/bbl – Sweet Spot for Indonesia; Tax Amnesty – On Schedule for June 2016 Implementation

- Higher oil price will reduce fiscal deficit — The Indonesian government now expects incremental revenue from the recent bounce in oil price to ~US$50/bbl. Despite Indonesia is a net importer of oil & gas, fiscal deficit could decline by Rp0.1- 0.9trn based on government’s calculation for every US$1/bbl of oil price increase. The government is currently using an oil price of US$35/bbl in their 2016 proposed budget and thus with higher oil prices, they should receive additional revenue from the oil & gas sector.

- Gasoline being sold at c.US$50/bbl equivalent after taking into account the distribution margins of Pertamina — The current price of gasoline at Rp6,550/litre translates to c.US$48-50/bbl of oil prices. Thus the government is already at a comfortable level in terms of the selling prices of gasoline, and should see no pressure to increase the prices unless the oil prices were to increase to a higher level, say US$55-60/bbl. At Rp6,550/litre, Pertamina is making a distribution margin of Rp1,010/litre, as per government calculations (see Fig 1 for government’s detailed calculation of fuel prices).

- Non-subsidized fuel (RON97) in Malaysia is cheaper vs that in Indonesia — RON95 gasoline price in Indonesia (Rp8,250/litre) is +22% higher than RON97 price in Malaysia (Rp6,715/litre). The RON97 in Malaysia is a non-subsidize fuel while the RON95 is still being subsidized and sold at Rp5,575/litre.

- Tax amnesty is still on schedule to be passed in June 2016 — We see such an outcome as not being priced in by the market (see our recent Indonesian strategy note - Still Positive: Spotlight on Five Key Issues for Market). The parliament head of commission XI, Ahmadi Noor Supi, mentioned that tax amnesty bill will not get delayed since it is a critical part of the government’s 2016 budget revision. As per the government, they have included proceeds amounting to ~Rp103trn (US$7-8bn) from the tax amnesty bill in the 2016 revised budget.

- Maintain our positive view on the market — At a 1-year forward PER of 15.1x, the JCI is not cheap but nor does it look overly expensive, and we maintain our 5,700 target (+16%) set last October. Sector-wise, we continue to like property, construction and infra. $ASII rejoins our top picks and we see more value in banks as gainers from the expected passage of a tax amnesty bill. Top picks: $BBNI, $BBTN, $LPPF, $TLKM, $ASII, $MIKA, $PTPP, $ADHI, $BSDE, $CTRA, $PWON and $JSMR.

- Key market catalysts and risks — 1) Tax amnesty; 2) Lower personal income tax which would lift purchasing power. Risks: 1) Fed rate hikes; 2) Delay in passage of tax amnesty; 3) Heavy-handed policy intervention

Jun 04,2016 18:47:46
Bank Negara Indonesia : Key Takeaways From Bojonegoro Site Visit
Last weekend, BBNI took us with several foreign and local investors on a site visit to Bojonegoro, which had the highest GDP growth of 13.3% in the country last year. By leveraging its close connection with the local government, BBNI is able to tap into the medium-size enterprise and corporate loan segments in the region. We maintain our BUY call and GGM-derived TP of IDR6,200 (34% upside). The stock is currently trading at 1.0x 2016F P/BV (-1SD of its historical mean).

¨ Support from local government. Bojonegoro recorded 13.3% GDP growth in 2015, thanks to its abundant oil & gas reserves. Amid lower commodity prices, the local government has set the minimum wages for villages at only IDR1m (below the minimum wages of IDR1.3m for its city) to stimulate growth in surrounding villages and to attract more local and foreign investors in the non-commodity sector. The local government has also simplified the permit application process for investors under one roof in an effort to achieve more sustainable GDP growth going forward.

¨ More players in local banking landscape. Given its high GDP growth, more banks have opened branches in Bojonegoro. Apart from state-owned enterprise (SoE) banks and regional bank (Bank Jatim), these include private banks eg Bank Tabungan Pensiunan Nasional (BTPN), Panin (PNBN) and Bank Central Asia (BBCA)). This has led to increased competition in the area. Specifically, we think that Bank Negara Indonesia (BBNI) is well-positioned due to its strong relationship with the local Government and business owners.

¨ Leveraging its relationship. During our site visit, we met up with one of BBNI’s corporate borrowers – the biggest Wallet bird nest producer in the area. The company started out managing bird nests but has now expanded to the downstream business by producing bird nest bottled beverage using recycled water and by-products of its upstream bird nests. However, we think its downstream business is still at an early stage and would only be profitable in three years’ time at the earliest due to the small market for specialised (bird nest) bottled beverage. Moreover, with the estimated ASP of IDR35,000, its product is relatively expensive in the bottled beverage market given that most Indonesians prefer tea bottled beverage. The second BBNI borrower we visited was a local batik producer, who emphasised that her business is a side job to supplement her full-time employment as a junior high school teacher. This falls under BBNI’s small business segment due its <IDR5bn loan size. On the other hand, Bank Rakyat Indonesia (BBRI) caters more towards loan sizes of <IDR100m, while Bank Mandiri (BMRI) taps more into the national-scale corporate segment.

¨ Maintain BUY and GGM-derived TP of IDR6,200, which implies 1.3x 2016F P/BV. The stock is currently trading at 1x 2016F P/BV (-1SD of its historical mean). Key risks to our call are:
i. Government intervention risk;
ii. Lower-than-expected GDP growth that may worsen its assets quality. (Eka Savitri)


May 25,2016 09:12:24
LTV properti dilonggarkan, Bank yang memiliki KPR besar:

Bank Indonesia mengkaji penghapusan larangan inden KPR rumah kedua. Selain itu, BI juga tengah mengkaji untuk melonggarkan ketentuan LTV bagi KPR. Pelonggaran ini akan berlaku bagi bank yang memiliki NPL dibawah 5%.

Berikut komposisi KPR terhadap total KPR:

BBTN   90%
BBCA   15%
BBNI   11%
BBRI   3%
BMRI   0,7%

Kebijakan pelonggaran LTV akan sangat dirasakan dampak positifnya bagi BBTN.
BBCA dan BBNI juga memiliki portfolio sekitar 11-15%, meski tidak besar, namun cukup mendorong pertumbuhan kreditnya.
Sementara BBRI dan BMRI tidak fokus pada bisnis KPR.


May 24,2016 22:02:40
Lending rates remain under scrutiny by government
Since the new government took office in November 2014, there has been increased focus on lowering lending rates to help boost  economic growth and improve Indonesia’s competitiveness vs. its neighbors. So far the Financial Services Authority (OJK) and Bank Indonesia have taken steps to ease borrowing conditions (see Exhibit 5). While average lending rates have begun to decline, overall lending rates/NIMs/ROAs remain higher than that of ASEAN peers.

Could it intervene further?
OJK has ruled out a formal cap on lending rates, but it has asked banks to propose how “single digit” lending rates could be achieved in 2016. So far, lower lending rates are already being targeted in three ways: (1) reducing deposit costs for lenders; (2) providing a lower-cost substitute, e.g. government subsidized lending; or (3) providing incentives for greater competition. Government officials have also discussed the potential for a further cut in the subsidized micro finance lending rate and a capping of SOE deposit rates to reduce system interest rates further.

Broader systemic risks a concern given structurally high rates
A broad-based reduction of industry lending rates could result in credit rationing as banks avoid riskier segments with higher credit risks, reduce lending in remote areas, and further shrink loan books of smaller banks with higher funding/operational costs.  Additionally, system liquidity risks are a concern given the already high LDR and slow deposit growth. Tax amnesty could boost to system liquidity, but falling deposit rates and policy uncertainty could dis-incentivize repatriation of offshore funds.

BDMN and BBRI most impacted; BBNI (CL-Buy) still attractive
We cut EPS for our coverage by up to 24% and adjust our target prices to reflect further cannibalization of high-margin lending into our forecasts and a slower recovery in credit costs. We downgrade BDMN to Sell given these headwinds and its larger earnings risk from single-digit lending rate pressures. Upside risk: Faster growth in SME lending; better funding costs. While BBNI could see downside 2017/2018 ROA of 1.8%-1.9 (vs. GSe of 2.0-2.1%) under single-digit lending rates, its valuation would still be attractive with a 2016E P/BV of 1.0X. At CL-Buy, BBNI remains our top pick.


Apr 26,2016 13:52:39
Banking; Limited Impact from Change in BI Reference Rate

- BI will change the benchmark rate into 7-day reverse repo rate, effective 19 August 2016. While OJK has yet to decide their maximum rate, we believe there will not be any major change in rates and hence impact is neutral on banks. We maintain our Neutral rating on the sector on rising NPL and lower margin.

- New central bank benchmark rate. Bank Indonesia has just announced that they will change the reference rate from BI rate into 7-day reverse repo rate (RRR), effective 19 August 2016. This will bring down the benchmark rate closer to the overnight interbank rate of 4.8%, in line with the practice conducted by many other central banks. The 7-day RRR is currently at 5.50%, while the BI rate is at 6.75%, similar to the 12-month interbank rate.

- OJK needs to change their ceiling rates. All of the banks under BUKU 4 (main capital >Rp30tr) and BUKU 3 (main capital of Rp5-30tr) are required to set maximum rupiah time deposit rates of BI rate +75-100bps, or 7.50-7.75% pa. With the BI rate no longer available in the future, OJK needs to use the new benchmark, either the 7-day reverse repo or other rate. What we have to confirm is whether OJK will keep the same premium to set the maximum rates or change it (reduce or expand it). If they use the new reference rate and keep the same premium, banks will see their cost of funds decline substantially by 125bps. However, the central bank has been quoted saying that OJK will use the 12 month SBI (currently at 6.75%), similar to the current BI rate, as the base for the deposit rate cap, in which case there will be no change in rates.

- Implication to the banking industry. We believe the impact will be neutral to banks. While there is a chance that deposit rates will be lowered following the change of the reference rate, BI’s statement that OJK might still use the 12- month SBI rate should keep the rates in line with the movement of the benchmark rate. The LPS guaranteed deposit rate (for deposits <Rp2bn in a bank) for commercial banks is at 7.25%, while the maximum special rate set by OJK for large deposits is at 7.75%.

- Concerns over deposits shifting to bonds overstated. There has been a concern that some large deposits will be shifted into the bond market, in particular the government bonds, which provide 7.4% yield for 10-year tenor, as well as the corporate bonds with higher yield. However, the market size of the government bonds of Rp1,473tr is 82% of total rupiah time deposits and the size of the total bond market of Rp1,727tr is 96% to total rupiah time deposits. This makes little room for rupiah time deposits to switch into bonds given their similar size. What will happen in our opinion is the rising demand for bonds, increasing their value and lowering the yield towards the deposit rates. The government will still keep issuing new bonds, but this will not be enough to satisfy demand, hence depending on the OJK’s new rate cap on large deposits, we do not see significant shift in time deposits and concerns over liquidity problem is not warranted.

- Deposit structure – Based on LPS data, total banks’ third party funds were Rp4,402tr in Dec 15, of which 84% of them were rupiah deposits or Rp3,723tr. Of this amount, 49% (Rp1,812tr) were rupiah deposits with outstanding amount of >Rp2bn (11% or Rp411tr with deposits between Rp2-5bn and 38% or Rp1,402tr with deposits >Rp5bn). Hence the size of the large deposits of >Rp5bn is close to the government bond market as well.

- Expect rates to decline. We have factored in declining interest rates on both deposits and lending rates of around 75- 100bps pa in 2016-2017. Aside from the government’s pressure for banks to lower the rates, the lower inflation expectations should also support lower rates. Under the declining interest rate scenario, usually banks will see a temporary margin expansion as they lower the cost of funds a few months before lending rate adjustment. However, we expect a 20bps average margin reduction in the industry in 2016 and another 30bps in 2017, taking into account steeper reduction in lending rates, as anticipated by the authorities.

- Maintain Neutral on banking. At this juncture, we maintain our Neutral stance on the banking industry as we see risk of rising problem loans in the coming months plus lower margin. This should limit the industry's earnings growth, which we expect at 7% this year. We keep BBNI (TP Rp6,000) and BBTN (TP Rp2,100) as our sector top picks. The recent price weakness on BBRI (TP Rp12,000) makes its valuation attractive at this level however, we keep our Neutral call for now.

Apr 26,2016 09:02:32
Semen Indonesia secured IDR1trn loan from BNI

Semen Indonesia (SMGR) has secured IDR1trn (USD76m) from Bank Negara Indonesia (BBNI) on Friday (22/04). The company plans to use the loan as a bridging loan to fund its strategic plans and working capital. The company is completing its new plant in Padang that has a total capacity of 3m tonnes and its plant in Rembang with similar capacity to operate later this year.

Apr 23,2016 00:30:03
Indonesia Bank NPL estimated to stand at 2.8%

Bank Indonesia estimated that the non performing loan (NPL) ratio for Indonesian banks stand at 2.7-2.8% in 1Q16. The central bank stated that the banking industry is still cautious in its credit disbursement amid the high credit risk this year. The central bank further stated that the credit demand is not as high and is still waiting for the lower benchmark rate to support its growth. Moreover, the NPL for mortgage (KPR) stood at 2.6% in 2M16 or 0.3% higher compared to 12M15. While mining sector NPL reached 4.67% or 0.55% higher than 12M15.

Apr 20,2016 09:38:58
Banks - Bumpy But Still Promising
We re-initiate coverage on Indonesia banks with an OVERWEIGHT. Higher government spending should translate into a 5.1% GDP growth pick-up and stronger loan growth of 14.3%. We forecast for earnings to grow a stronger 8.7% as credit costs stabilise at 161bps. Our Top Picks are BBCA (strong asset quality and least vulnerable to regulatory risks) and BBTN, as it would benefit most from the Government’s subsidised mortgage scheme.

¨ Reasonable valuations on higher GDP growth. According to our economists, 2016 would be a better year, supported by higher government spending in 2M16 to IDR5.4trn (+306% YoY) and a GDP growth pick-up to 5.1%. Yet with such potential, Indonesian banks under our coverage are trading at current P/BV multiple of 2.2x 2016F P/BV vs a historical mean of 2.9x and -2SD of 2.1x. We believe the multiple de-rating reflects the slide in ROAE to 17.6% for 2016F from c.25% in 2010 as loan growth slowed and credit costs spiked.

¨ Two sides of the knife. The Financial Services Authority (OJK) has introduced changes/revised guidelines to spur banks to lend more, but its renewed lower lending rates push has unnerved investors. We believe an immediate lending rate cuts to single digits directive is unlikely, as this has a detrimental impact on earnings. We expect it to take indirect measures that provide banks room to lower lending rates. March’s 125bps cut in maximum time deposit rates was the first move in this direction. We believe state-owned enterprise (SOE) banks would be most impacted, as the OJK would expect them to take the lead.

¨ Lower margins outlook. Lower caps for time deposit (TD) rates would mitigate the policy rate cuts (75bps YTD and another 25bps expected by end-2016), resulting in a moderate 7-12bps decline in net interest margins (NIMs). We expect Bank Negara Indonesia (BBNI) and Bank Tabungan Pensiunan Nasional (BTPN) to be most affected, while Bank Rakyat Indonesia (BBRI) and Bank Tabungan Negara (BBTN) are expected to see some uptick in NIMs.

¨ Smoother assets quality ride. Stronger economic growth and lower interest rates, we believe, would ease pressure on asset quality in 2016. We expect non-performing loans (NPLs) to trend higher in 1H16 and peak in 2Q16. Among banks under our coverage, we believe Bank Mandiri (given its loan portfolio size) would need a longer time to improve asset quality. We expect sector gross NPL ratio to edge down to 2% by Dec 2016 (Dec 2015: 2.1%) with stable 161bps credit costs and improvements in loan loss coverage to 155.2% by end-2016.

¨ Wholesale funding as additional liquidity source. As the system loan-to-deposit ratio (LDR) touched 90.9% in January, banks are likely to tap the wholesale market for funding, given more affordable benchmark rates and longer maturity profiles. Negotiable certificates of deposits, bonds and medium-term notes are the preferred wholesale instruments of the three big SOE banks.

¨ Bank Central Asia (BBCA) and BBTN are our Top Picks. Given regulatory risks and asset quality concerns, BBCA is our Top Pick for big-cap banks. Its premium valuation (3.0x 2016F P/BV vs peers’ 1.8x average) is justified as its NIMs are least vulnerable to government intervention risks while assets quality is superior vis-à-vis peers. BBTN is our small-cap Top Pick as we anticipate ROAE expansion and asset quality improvements in the next two years.

Apr 18,2016 12:18:33
Bunga Acuan Berubah, Saham Bank Layak Diburu

Koran Tempo memberitakan Harga saham perbankan turun tajam akibat kebijakan Bank Indonesia, yang mengubah suku bunga acuan (BI Rate) menjadi 7-Day (Reverse) Repo Rate (suku bunga acuan repo tujuh harian). Pengamat dari PT NH Korindo Securities Indonesia, Reza Priyambada, mengatakan penurunan tersebut justru menjadi momentum bagi investor untuk memborong saham bank. "Saat ini justru kesempatan buat beli saham bank mumpung lagi diskon besar,"

Menurut Reza, penurunan harga saham bank sepanjang pekan lalu terjadi akibat salah persepsi soal kebijakan BI tersebut. BI sedianya ingin memperkuat kerangka kebijakan moneter serta membuat spread (selisih) antara BI Rate dan suku bunga acuan negara lain tidak terlalu jauh. Sebagian investor dan analis melihat kebijakan ini bisa menurunkan potensi pendapatan bunga bank

Akhir pekan lalu, BI mengumumkan perubahan acuan BI Rate menjadi 7-Day Repo Rate. BI memindahkan titik acuan kebijakan dari BI Rate, yang berjangka tenor 12 bulan, ke tenor lebih pendek, yakni tujuh hari. Saat ini, BI Rate sebesar 6,75 persen, sedangkan BI 7-day Repo Rate sebesar 5,5 persen (setara dengan suku bunga operasi moneter tujuh hari).

Sebelum kebijakan ini diumumkan, sepanjang pekan lalu, harga saham bank-bank besar anjlok. Saham PT Bank Rakyat Indonesia (Persero) Tbk (BBRI), misalnya, dalam penutupan pada pekan lalu, anjlok menjadi Rp 10.050 per saham, atau tersungkur 7 persen dibanding pada pekan sebelumnya (Rp 10.800 per saham). Adapun harga saham PT Bank Mandiri (Persero) Tbk (BMRI) anjlok 6 persen menjadi Rp 9.250 per saham. Sementara itu, harga saham PT Bank Negara Indonesia (Persero) Tbk (BBNI) jeblok 7 persen menjadi Rp 4.840 per saham.

Namun harga saham PT Bank Central Asia Tbk (BBCA) sedikit menguat menjadi Rp 13.100 per saham ketimbang saat penutupan pekan sebelumnya (Rp 13.075 per saham). Menurut Reza, anjloknya harga saham ini juga terjadi lantaran beberapa analis dan lembaga riset menurunkan peringkat bank itu di antara saham beberapa bank besar di Indonesia.
Ekonom dari Universitas Indonesia, Lana Soelistianingsih menilai kebijakan BI yang mengubah acuan dari BI Rate menjadi 7-day Repo Rate merupakan langkah yang tepat saat ini. Kebijakan ini akan berdampak pada penurunan biaya operasi perbankan. Dengan begitu, bank bisa menurunkan bunga kreditnya. Dari sisi momentum sangat pas karena menjelang Lebaran dan tahun ajaran baru sekolah, ujarnya.

Apr 14,2016 08:56:06
Loan Growth on Infrastructure Projects
The Rp3tr net profit in 1Q16 was in line with expectations, supported by 21% y-y loan growth, particularly on the infrastructure projects. Expect NIM to decline towards 6% by the year end from 6.1%, while NPL at peak in mid year. We maintain our Buy call with TP of Rp6,000 based on 1.3x P/BV 2016-17.
BBNI posted Rp2,973bn net profit (+6% y-y, -3% q-q) in 1Q16 and this accounts for 27% of the market’s full year expectation and ours. The results were supported by high loan and deposit growth while NPL was relatively stable.
Strong loan growth of 21% y-y. On the back of total loan growth of 21% and of the total loans, business banking (accounting for 72% of total loans, consisting of corporate, SOE, medium, and small loans) posted 23% y-y growth rate. Consumer lending (18% of total loans) increased 10% y-y, overseas loans (5% of total loans) +62% y-y due to rupiah depreciation and loans to Pertamina, Medco, and SMART, and the last portion, loans from the subsidiaries (6% total loans) grew 15% y-y. Of the corporate, SOE, and overseas loans, the largest sector contributor for loan growth is on infrastructure, which grew 48% y-y, accounting 22% of total consolidated loans. Total deposits grew 22% y-y with CASA deposits +13% y-y and time deposits +37% y-y. The shift towards business lending and higher cost time deposits resulted in lower NIM of 6.1% in 1Q16.
NPL increased to 2.8% in Mar 16 from 2.7% in Dec 15 with coverage ratio of 142% vs. 140%. BNI wrote off around Rp460bn of bad debts in 1Q16 while recovering Rp280bn or 61% of the write offs. The special mention loans (cat 2 loans) deteriorated again to 3.3% from 2.8% in Dec 15. We note that loan exposure to Trikomsel (Rp1.3tr – 0.4% of total loans) is still in category 2 with coverage ratio of 50%.
Operating expenses set to increase – maintain BUY. With profitability not as good anymore, BNI has been trying to improve their operating efficiency through asset purchase for their offices instead of leasing and reduction of unnecessary IT costs, among others. However, operating costs usually rise in 2H of the year and we expect a full year cost to income ratio of 48% instead of 45% in 1Q16. We keep our forecast and trading at 1.1x P/BV 2016F we maintain our Buy rating with TP of Rp6,000 based on average P/BV of 1.3x for 2016-17.

Apr 08,2016 09:14:42
Bank Negara Indonesia ($BBNI) targets e-banking transactions to increase by 30% yoy
BBNI plans to achieve its target by partnering up with modern retailers such as Apotik K-24. BBNI is encouraging its customers to use online transactions such as SMS banking and internet banking in order to achieve its target. BBNI also plans to develop an e-commerce product in 2H16.
Apr 05,2016 15:30:37
Banking: 2M16 Results Wrap – Continuing Provisioning

- Banks have not shown significant earnings improvement in 2M16, with average net profit growth of 6% y-y, accounting for 14% of consensus expectations. Meanwhile, average NIM remained stable at 6.6% with loan growth of 11% y-y (vs. industry loans of 8%) and provisioning increased 60% y-y. Maintain Neutral.

- 6% y-y average earnings growth - banks have not shown any significant earnings improvement in the first two months of the year with average net earnings growth of 6% y-y. The results were still within expectations, accounting for 14% of average consensus’ full year forecast. Despite 16% y-y growth in operating income (net interest income plus non-interest income), banks have been increasing provisioning charges, which rose 60% y-y, as an anticipation for higher problem loans ahead. This, in addition to growing operating expenses, limited earnings growth. Among the larger banks, BBCA posted the highest earnings growth of 18% y-y, while among the smaller banks, BBTN, BJBR, and BJTM excelled with 19% y-y growth rate. Meanwhile BTPN and BDMN suffered 20% and 17% y-y earnings decline respectively due to competition in the micro lending.

- Loan and deposit growth. Due to cyclicality, most banks recorded negative or slow loan m-m growth in February, with average growth rate of 11% y-y, higher than the indicated industry loan growth of 8% y-y. Some banks reported high loan growth, such as BBNI due to government projects and BBTN on subsidized housing loans. Deposit growth was also weak, averaging 7% y-y, similar to the industry level, with CASA deposit growth overtaking time deposit growth at 12% vs. 1% yy. This is partly due to increasing government funds transferred as well as the crowding out effect on the government’s bond issuance and the regulation that requires pension funds to place some portion of their funds in government papers.

- Stable net interest margin for now – average NIM remained high at 6.6% in 2M16, up from 6.2% in 2M15 thanks to steeper reduction in cost of funds than in asset yield (60bps vs. 10bps). Banks have been cutting their time deposit rates on the back of weaker loan demand and are still taking the advantage before they start lowering the lending rates.

- Rising provisioning charges – the industry data shows the NPL level increased to 2.7% in January from 2.5% in December 2015 and we believe banks are experiencing the same pattern in February. This prompted banks to increase their provisioning charges, which rose 60% y-y. NPL is still expected to rise in the coming months, in particular from the retail commercial segment, and in terms of industry NPL comes mainly from mining related businesses. BBCA recorded the highest increase in provisioning charges at 429% y-y amid from the low base. PNBN came second with +262% y-y, while BJBR and BJTM bucked the trend with -62% and -39% y-y, as they have seen asset improvement. Provisioning level is now at 3.3% of total loans.

- Industry outlook and recommendation - We are still expecting rising problem loans in the coming months as a delayed effect from weak economic growth last year. Hence banks are still forecast to beef up their provisioning. We still rate Neutral on the sector, which is trading at 1.9x P/BV for 2016, with top picks on BBNI (TP Rp6,000) and BBTN (TP Rp2,100).

Apr 02,2016 11:47:03
Indonesia Banks: 4Q15 Results Round-Up

Earnings growth: our 10 banks +8.1% y-y; industry: -1.5% y-y
All 10 banks under our coverage have reported 4Q15 net earnings, booking 8.1% y-y growth, vis-à-vis the industry average of a 1.5% y-y decline. On a quarterly basis, the 10 banks reported 3.3% q-q growth while the industry average contracted by 3.3% q-q, mainly due to the limited advantages of a lower blended cost of funding. The industry NIM reached 5.4% (+10bps q-q) in 4Q15 compared to 30bps higher q-q for our 10 listed banks. Only 4 of the 10 banks displayed lower NIMs: $BBRI (-20bps q-q), $BBNI (-20bps), $BJTM (-60bps) and $BBKP (-30bps). The better-than-expected 4Q15 earnings were supported by lower provisioning (-9.4% q-q) on improved loan quality, as most banks restructured their debt, benefiting from the OJK relaxation policy in pursuing NPLs based on debtor abilities to serve their loans while ignoring financial stability and the industry outlook.

Loan growth: 10.4% y-y vs 11.4% y-y on lower GDP
Sector 4Q15 loan growth was 2.5% q-q, bringing full-year 2015 loan growth to 10.4%, vis-à-vis 11.4% y-y growth in 2014, in line with the deceleration in GDP growth to 4.8% in 2015 from 5.0% in 2014. Our 10 listed banks’ loan growth of 12.6% was above the industry average, except for $BDMN and $BJTM. $BBTN posted the highest growth, at nearly 20% y-y, benefiting from continued strong demand from the low-end market segment, including government subsidized mortgages. Corporate loans were the main contributor, while consumer loans (9.1% y-y) moved at a slower pace due to slow mortgage demand. This brought the proportion of consumer loans to total loans to 27.1% (-30bps y-y). However, deposits contracted 1.1% q-q, bringing full-year 2015 growth to only 7.3% y-y. As a result, LDR increased to 92.5% from 89.9% a year earlier.

Seeking normalization under new low-lending rate regime
In 2016, we assume loan growth of 12.7% y-y on increased investment in infra-related projects, with the government having recently encouraged banks to set lending rates at single-digit levels. This, however, may create challenges given Indonesia’s geography, high inflation, limited fee-based income and low employee productivity. On monetary policy, lower lending rates may only be achieved once the benchmark rate reaches 6.25% (currently: 6.75%, or -125bps y-y), setting the ceiling on SOE deposit rates and eliminating current deposit rate spreads from 200bps and 225bps for bank categories IV and III, respectively, to 75bps and 100bps. On macroprudential policy, OJK should lower both the minimum primary (currently: 6.50% from 8.00% previously) and secondary (currently: 4.00%) reserve requirements, increasing LFR and lowering RWA. We believe this move may lower bank NIMs by 40-50bps (vs our previous estimate of 30-40bps) for the 10 banks we cover, but the overall industry may be worst off (exhibit 31). Based on this, combined with continued high provisioning, we forecast overall 2016 net earnings growth of around 6.3% y-y, helped by improved operating efficiencies and increased fee-based income.
Feb 22,2016 15:43:47
Indonesian Banks

Rate cut and its repercussions
• Rate cuts announced; accommodative monetary policy aimed at boosting loan growth
• Short-term positive but repercussions of further regulatory action may be negative to banks
• Keeping our cautious stance; $BBCA and $BDMN remain our picks

What’s New
Rate cut announced. BI announced a reference rate (BI rate) cut of 25bps to 7.0%. In addition, BI also lowered the Rupiah reserve requirement by 100bps to 6.5% (effective March 2016). In line with this, deposit and lending facility rates were cut by 25bps to 5% and 7.5% respectively.

Impact and view:
Short-term positive… While this is positive in the short term for the banks, as banks tend to be able to reprice deposits faster than loans, there would be some ups deposits faster than loans ide potential to NIM, particularly for banks with a deposit mix skewed towards a higher time deposit composition (eg. $BDMN, $BBTN, $BTPN). The lower rates would also be positive to multi-finance companies from a funding cost perspective.

…but we are still keeping our cautious stance on the Indonesian banks because:

1) Concerns on asset quality Concerns on asset quality Concerns on asset quality are not over yet although our base case assumes stability in 2H16

2) OJK and BI have formed an ad hoc team to push down lending rates to below 10% below 10% and the team is expected to meet this task by end 2016. Among the possible approaches to this is a new OJK regulation to cap NIM at 4% with the aim to improve efficiency and competitiveness.

Should the NIM cap regulation be implemented this will be negative to banks as this would limit to a large extent, topline growth. Even if loan growth were to be boosted to 14% as intended by BI/OJK, it would be insufficient to maintain growth momentum for the net interest income line.

There have been noises in the past to lower lending rates for loans and also to impose a cap on NIM but none of these have so far materialised.

There were however two instances which the goverment had intervened to force down loan yields:
1) the KUR loan yield cap to 19% (2016: 9% chargeable rate to borrowers + government interest subsidy of 10%) - this affected $BBRI
2) lower loan yield for subsidised mortgage to 5% (from 7.5% previously) despite being partially subsidised by the Subsidized Mortgage Liquidity Facility Scheme/Fasilitas Likuiditas Pembiayaan Perumahan (FLPP) scheme - this affected $BBTN

Stock picks:
As we retain our cautious stance on the sector, our top picks remain $BBCA and $BDMN. Our pick on $BBCA lies on its defensiveness and strong financial indicators especially with respect to asset quality. $BDMN remains our pick for a turnaround story. Key risk to $BDMN however would be its inability to retain its high NIM (>8%) should the NIM cap be strictly implemented. This would mean $BDMN would have to significantly ramp up its strategy to lower funding costs quicker than planned.

Should the NIM cap be implemented, it would be negative to the SOE banks SOE banks SOE banks namely, $BMRI, $BBNI and $BBRI, as we are of the view that the government may impose these punitive recommendations on them before rolling it out to the entire sector.
Jun 05,2015 00:51:46

New tax issue for banking sector?

A letter from the tax office stating that loan write-offs on customers without tax ID (NPWP) is non-tax-deductible raise a concern on how this might affect banks’ earnings. This and weak 2Q15 earnings expectation has put banks’ shares under selling pressure.

We cross check with several banks on the tax-related issue, and we conclude that the risk to earnings should be limited. This is because small debtors are exempted from this write-off policy, and based on tax office definition these are loans below IDR30m. Banks are already in compliance with BI regulation which requires tax ID for loans of IDR50m and above. So between tax office and BI’s policy, the potential non-tax-deductible issue might only arise for loans size between IDR30-50m. According to our channel check, loans in this category covers less than 10% of total portfolio. Also note that banks can still use government regulation PP No.130/2000 that define small debtors as those with loans below IDR350m.

Right now some banks are facing ongoing dispute with the tax office:
·BBTN: IDR36b tax dispute on written-off loans from 2010. BBTN just won the appeal last week.

·BBRI: IDR1.5t tax dispute on written-off loans from 2010. The amount has been fully paid and BBRI is currently waiting for the decision on their appeal.

·BMRI: IDR 1.3t tax dispute on written-off loans from 2010 and IDR1.1t tax dispute on tax discount based on shareholder composition. The amount has been fully paid.

·BBNI: IDR1.6t tax dispute on written-off loans from 2010 (half paid) and IDR620b tax dispute on tax discount based on shareholders composition (fully paid).

*Note that the 2010 case will not affect banks’ earnings.

May 31,2015 12:41:26
Indonesia Top 10 companies by market cap


Apr 29,2015 08:00:19
Indo Strategy - Positioning amidst slowest growth in a decade Too early to bottom fish The market sharp sell-down may appear excessive, yet we think it may be too early to be an aggressive buyer. The outlook of subdued growth outlook, probably a bit slower, broader and longer lasting than most envisaged, suggests it is still better to seek out stocks with relative earnings visibility. Indeed there is little indication to suggest this slowdown has stabilized thus far. Broad based slowdown Growth that was designed to slowdown in order to rein in CAD, e.g. BI allowing Rp to weaken for an essentially dollarized economy, has proven to be very potent. Weaker commodity prices along with the transition easing from the recent investment surge may well have contributed as well. Indeed, the recent earnings trend suggests a more pronounced and broad-based slowdown. This ranges from large ticket items to even basic consumer staples. Bellwether FMCGs that have already reported are showing that top-line growth running at a decade low pace (ex-GFC period); a reflection of weaker buying power and rising competition. Equally, we have also noticed an uptick in NPL though more toward the SME and micro segments. In addition, our channel checks across various industries, including bellwether consumer packaging, mostly reported a deteriorating environment. Slower and longer? Contrary to general expectations, we think it is premature to assume an economic recovery in 2H15. Indeed sub-5% growth for the year cannot be ruled out. Recently the capex trend suggests easing post the initial surge 3-4 years ago. That along with the job creation trend, easily half the pace seen in the past couple of years, is not supportive of any fast economic recovery in the second half. While we remain upbeat that the govt. infrastructure spending will be punchier into 2H, we think the direct economic impact would be muted. Indeed the more powerful multiplier effect will only be visible in the medium term. Indeed there is little indication to suggest this slowdown has already stabilized. As such, we believe stock picking toward earnings visibility and predictability will be key in this 'new normal'. Macro improving vs Micro worsening - Market context In balance, we think the market downside risk is limited; yet we think it may be too early to be an aggressive buyer. We think the macro environment is turning more positive, e.g. CAD possibly below BI's guidance of 1.6% in 1Q, along with easing inflation, etc. Politics too, seems to have stabilized, which should pave the way for the govt. to kick-start major infrastructure projects. Yet, faced with the possibly of the slowest growth in a decade (ex-GFC), along with flow favoring North Asia, we think stock picking towards better earnings visibility matters, notwithstanding the fact that initial sell-down tends to be indiscriminate. Within our DB Portfolio stocks, we think the following have high earnings visibility: BBCA and BBNI (Banks), TLKM (Telco), ICBP and KLBF (Consumer). Conversely, stocks that have done well in spite of worsening earnings fundamental such as ASII and UNTR appear more exposed. $IHSG
Apr 09,2015 19:10:39
$BBRI bank paling menarik di banding dengan $BBCA, $BMRI, BBNI
Quotes delayed, except where indicated otherwise.
7,925.00 325.00 (4.28%)
Bank Negara Indonesia (Persero)
Last Update 02:54:10