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Apr 12,2017 12:39:33

Bank Jatim ($BJTM): Unjustified Valuation, Downgrade to REDUCE

- Second-largest regional development bank, but valuation looks stretched: Bank Pembangunan Jawa Timur ($BJTM) is the second largest regional development bank in terms of market cap (after $BJBR), owned by East Java Provincial and Municipal Governments (80% of outstanding shares); its main purpose is to provide financial services for East Java civil servants. BJTM’s share price has rallied by 21.2% in the past one month, now reaching 1.4x FY17F PBV (at 15% ROE), notably higher than its small cap bank peers’ of 0.6-1.1x PBV, and also more expensive than BBNI at 1.3x PBV. BJTM’s PBV is currently more than +2SD above its 5yr mean, which we find too expensive. As such, we downgrade our recommendation to REDUCE (from HOLD) with a new target price of IDR600.

- Low-risk payroll a majority of loan book: More than half of BJTM’s loan book was dominated by consumer loans (2016: 67%), which consist of payroll and mortgage loans. Due to its nature as a low-risk loan segment, payrolls deliver excellent asset quality with an NPL ratio of 0.44% in 2016. Helped by its status as a regional development bank, BJTM gained exposure in providing payroll services to regional civil servants of the East Java government, which accounted for >50% of its total outstanding consumer loans in 2016. Going forward, we believe civil servants’ payroll loans will remain as a core asset driver, accounting for 68.2% of total loans in 2017F. Given the growth in the consumer segment, we expect loan growth to reach c.7% y-y in 2017F and 2018F, slightly higher than 4.4% y-y in 2016.

- High NPL ratio in SME & Commercial (10-13%) remains key concern: Despite its asset growth being supported by strong payroll loans, BJTM is dragged down by the non-consumer division on poor asset quality. The SME and commercial segments have worsened the overall NPL ratio to 4.77% (2015: 4.29%). The SME segment’s NPL ratio stood at 9.6% (2015: 22.7%) while that of the commercial segment stood at 12.77% (2015: 9.97%). We believe that BJTM’s current valuation (at more than +2SD above mean) looks unjustified with the current elevated NPL level.

- Earnings likely to grow slower on the back of higher provisioning expenses: Given that the high NPL ratio will remain an issue in 2017F, we expect earnings growth to slow to 7% y-y in 2017F (2016: 16% y-y) on higher provisioning expenses of IDR553bn in 2017 (vs. 2016: IDR510bn). In addition, we expect the NII to grow slower at 5.3% y-y in 2017F vs. 9% y-y in 2016, and the NIM to come down to 6.7% in 2017F (2016: 6.9%) before further declining to 6.5% in 2018F.

Downgrade to REDUCE; prefer $BNGA and $PNBN for Small Cap Banks
BJTM is currently trading at 1.4x 2017F PBV, at more than +2SD of its 5yr mean. We downgrade BJTM to REDUCE with a revised TP of IDR600 (from IDR475), now based on a PBV multiple of 1.16x, at 1SD above its 5yr mean, on the new 2017F BVPS of IDR513 (previous TP based on 1x PBV on previous 2017F BVPS of IDR475 – see exhibit 10). We prefer BNGA (IDR1,215, BUY) and PNBN (IDR935, BUY) within the Indo Small Cap banks universe. Risks to our call include: 1) Stronger-than-expected economic growth, 2) NPL improvement, and 3) Lower-than-expected provisioning.

Dec 14,2016 08:06:01

Property (Overweight), ‘Tis The Season To Be Jolly About Mortgages
Our ground checks reveal that commercial banks are stopping their promotional mortgage rates. However, as they are aiming for double-digit mortgage growth rates next year, we expect them to re-introduce packages at lower rates as well – since the rates do not yet reflect the latest cut made by BI in Oct. Note that the combination of the relaxation of LTV thresholds and lower mortgage rates following the BI rate cut during 3Q16 resulted in a shifting of consumer preferences back to obtaining financing for properties via a mortgage.
¨ Promo on hold, but... we learnt that some banks are stopping their promotional mortgage packages this month. The current normal mortgage rate has a fixed interest rate of 9.5-10.25% for one year. Bank Central Asia (BCA) ($BBCA) is still offering the lowest mortgage rate with its latest Fix & Cap promotion, ie 7.99% pa fixed interest for the first three years and capped for a further three years at 8.99% pa. This is almost 50bps lower than what was offered in its previous Fix & Cap promotion. However, we believe IND Banks would continue to introduce lower mortgage rates in the future as:

i. Banks are aiming for double-digit growth in their mortgage segments in 2017. BCA and Bank CIMB Niaga ($BNGA) are aiming for 12% and 9-10% mortgage loan growth respectively;

ii. Based on research by, the most important factor in buying properties is the Bank Indonesia (BI) rate. Most buyers still utilise mortgage facilities to purchase properties. This is also reflected in the trend shifting back towards taking a mortgage as a payment method during 3Q16. This is due to a combination of the relaxation of the loan-to-value (LTV) thresholds and lower mortgage rates following BI’s rate cut.

As such, we expect banks to start re-introducing their respective mortgages at lower rates earliest by Jan 2017. Their current mortgage rates do not yet reflect the latest BI rate cut, which was made in October. Note, also, that presales activities in December are more moderate.

¨ Maintain OVERWEIGHT. We keep our OVERWEIGHT rating on the sector, as we expect a better outlook in 2017 as the following factors have already been priced in:

i. All the catalysts that include the tax amnesty;

ii. A potentially lower benchmark interest rate;

iii. The relaxation of the LTV threshold;

iv. The allowance for properties under construction to come under a second mortgage.

The share prices of property counters under our coverage have softened following public protests on 4 Nov that demanded incumbent Jakarta governor Basuki Tjahaja Purnama, commonly known as Ahok, be arrested for blasphemy. Share prices dropped further after the US election was concluded on 9 Nov. On average, share prices have plunged 9% YTD since 4 Nov. These numbers have recovered by 5% on average from their lowest level during the same period. Nonetheless, the sector is currently valued at a 65% discount to RNAV, or around -1.5SD from its 3-year mean of 56%, which looks compelling. (Lydia Suwandi)


Dec 08,2016 12:23:19

CIMB Niaga ($BNGA) to increase infrastructure loans

BNGA plans to increase the contribution of infrastructure loans in its loan portfolio in 2017. The bank is optimistic that infrastructure loan growth will be higher than over all loan growth in the upcoming year. Chief Corporate Banking of BNGA Rusly Johannes states that they expect consolidated loan growth to be in the high single digit or low double digit range in 2017. (Bisnis Indonesia)

Dec 05,2016 14:41:25

Bank diberi waktu 12 bulan untuk masa transisi Pemangkasan Bunga Kartu Kredit  dari 2.9% per bulan menjadi 2.5% per bulan untuk menyesuaikan perubahan peraturan ini. Hal ini disebabkan pemangkasan dapat berdampak menurunkan pendapatan dari kartu kredit sebesar 30%. Emiten yang akan terkena dampak adalah $BMRI, $BNGA, dan $BBCA

Nov 08,2016 18:49:43

Bank CIMB Niaga: Meeting Takeaways ($BNGA)

- We met with CIMB Niaga’s (BNGA) CFO and Investor Relations team last week. We discussed about the bank’s ditigal banking developments and business focus for 2017. Below are the key takeaways from the meeting:

- Focusing on the digital world. Now that the worst NPL level is behind, the bank is ready to concentrate on its initial strategy, to be an innovative leader in the digital space and to provide better customer experience for its clients. CIMB Niaga takes pride in its ability to successfully deliver digital services as the bank was the first to introduce the ATM in 1987, the first to provide online banking services in 1991, and the first to launch a mobile banking application in 2013. In order to remain competitive, BNGA plans to launch a new and improved mobile banking application in 2017. Furthermore, to fill in the missing gap between the wholesale and consumer segment, BNGA is working on an internet banking platform for SME customers. The new platform, planned to be launched in 2017/18, will be a hybrid between the current consumer and wholesale banking platforms. We believe the successful implementation of digital developments will help accelerate CASA growth, increase transaction volumes, and reduce cost to income ratio over the medium to long term.

- Can’t always have the best of both worlds. Management has made it clear that they are willing to sacrifice NIMs in return for premium quality customers; this will help keep asset quality in check over the long run. The bank has been working on tightening underwriting standards for the auto segment and has stopped taking referrals from auto dealers, resulting in negative auto loan growth of -17% yoy and increase in NPL to 3.1% in Sept-16 (from 2.8% in Jun-16). Over time, the bank has discovered that pressure to maintain inventory levels and healthy cash flows has caused auto dealers to accept marginal customers, negatively impacting BNGA’s asset quality. Going forward, client acquisition strategies will be focused inwards rather than outwards as management has decided to only extend auto financing services to BNGA’s existing clients, however at a lower rate of 2.39% (flat rate) for one year. The bank also plans to apply a similar strategy to its mortgage segment. We believe the tradeoff will help prevent significant asset quality deterioration during tough economic times.

- Commercial and corporate still sore areas. The soft economic environment has caused low hotel occupancy rates and decline in property sales, leading to elevated NPL levels in the commercial (7.4% as per Sept-16) and corporate (4.0% in Sept-16) segment. The bank strongly believes that the majority of its problematic assets will improve once the economy begins to recover. Despite the recent coal price rally, the bank notes that they have not experienced any trickledown effects on its mining related loans.

- Optimistic outlook for 2017. BNGA guides loan growth to be below the targeted industry level of 12% in 2017 as the bank has no direct exposure to infra related projects. Even though management guides for a more optimistic year ahead, they still remain cautious as the soft economic environment may prolong elevated NPL levels and slow loan growth.

- Maintain BUY with TP of Rp1,130, the stock is trading at 0.6x 2017F P/BV.

Nov 08,2016 18:32:53

Banking: 9M16 Results - On the Road to Recovery?

- Banks' average profit growth improved to 4% y-y in 9M16 from +1% y-y in 6M16, but loan and deposit growth remained weak at +9% y-y and +6% y-y respectively. NIM improved to 6.7% while NPL reached 3.0% with signs of peak. Trading at 1.6x P/BV 2017, we keep our Neutral sector call with $BBRI, $BBTN and $BNGA as top picks.

- Average net profit growth of 4% y-y in 9M16. The 12 banks under our result universe show improving profit growth from the previous quarter given the high losses incurred by $BNLI in 1Q and 2Q16. The results were in line with expectations, accounting 73% of the consensus’ full year targets. $BMRI, $BBTN, and $BJBR posted below expectations, while $PNBN, $BJTM and $BNGA above. $BNLI continued to record losses in 9M16 on its rising NPL level. At the PPOP level, average growth was a decent 18% y-y as banks had a better management on operating costs.

- Loan growth slowed down to 9% y-y. The industry indicates +6.4% y-y loan growth in September while some of the banks in our universe managed to record much higher loan growth; BBNI (+21% y-y) is on corporate/infrastructure loans, BBRI (+16% y-y) on corporate and micro loans, while $BBTN (+17% y-y) on housing loans. Over the past one year, more loans have been channeled into corporate (especially state companies) and micro segments, at the expense of SME commercial and consumer loan segments. Of the 12 banks, three ($BDMN, $BNGA and $BNLI) still posted negative y-y growth.

- Deposit growth also weakened to 6% y-y. Total deposit still grew at +8% y-y in June, while the 5% economic growth is not enough to generate better deposit growth. Five banks ($BDMN, $BJBR, $BJTM, $BNGA and $BNLI) still recorded negative y-y deposit growth with two of them ($BDMN and $BNLI) continued to see negative ytd growth. CASA deposits continued to gain more than time deposits, which see declining rates.

- NIM still improved to 6.7% in 9M16. In contrast to our earlier expectation, banks recorded better margin in 3Q16 as they had not lower the lending rates as much as deposits rates. While this is true in the declining rate environment, banks are also pending further reduction in view of rising need for provisioning. Average NIM reached 6.9% in 3Q16 from 6.7% in 2Q16, but this level is expected to decline in the coming quarter on pressure to reach single digit lending rates.

- NPL reaching the new peak of 3.0%. Additional problem loans are growing at a slower pace, with some banks claiming to have seen peak NPL in August. Banks like $BMRI and $BBCA still expect peak NPL in 4Q16 and continued charging high provisioning.

- Classified loans at 11.3%. Average classified loans (NPL, SML, and performing restructured loans) were at 11.2% in June and 10.9% in March 2016. This shows less pressure on asset quality while coverage/classified loans ratio improved to average 32% from 28% a year ago.

- Operating costs were well managed. The average cost/income ratio went down to 45% in 3Q16 from 48% in 2016 and 47% in 3Q15. Of the banks, $PNBN, $BNGA, and $BDMN showed the best cost/income ratio improvement.

- Maintain Neutral. We will wait for stronger support for improving NPL and hence keep our Neutral call for the stock, which trades at 1.6x P/BV 2017. Our top picks are $BBRI, $BBTN and $BNGA.

Jul 27,2016 08:50:23
EARNINGS CALENDAR (Half Year 2016 - Estimated)

JULY 2016

Jul 25, 2016 :
$BBTN (Bank Tabungan Negara (Persero) Tbk PT)

Jul 26, 2016
$BDMN (Bank Danamon Indonesia Tbk PT)
$BMRI (Persero) Tbk PT Earnings Release - 4:00PM GMT+7

Jul 27, 2016
$AALI (Astra Agro Lestari Tbk PT)
$HMSP (Hanjaya Mandala Sampoerna Tbk PT)
$LPPF (Matahari Department Store Tbk PT)
$MPPA (Matahari Putra Prima Tbk PT)
$PTBA (Bukit Asam (Persero) Tbk PT)

Jul 28, 2016
$ASII (Astra International Tbk PT)
$BEST (Bekasi Fajar Industrial Estate Tbk PT)
$BJBR (PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk)
$DOID (Bloomberg)
$NCO (Vale Indonesia Tbk PT)
$JPFA (Bloomberg)
$PSAB (Bloomberg)
$SSMS (Bloomberg)
$SMGR (Semen Indonesia (Persero) Tbk PT)
$UNTR (United Tractors Tbk PT)
$UNVR (Unilever Indonesia Tbk PT)

Jul 29, 2016
$ASRI (Alam Sutera Realty Tbk PT)
$ADHI (Bloomberg)
$BSDE (Bumi Serpong Damai Tbk PT)
$BNGA (Bloomberg)
$BNLI (Bloomberg)
$BNII (Bloomberg)
$BKSL (Bloomberg)
$BHIT (Bloomberg)
$BISI (Bloomberg)
$CPIN (Bloomberg)
$CTRA (Ciputra Development Tbk PT)
$CTRP (Bloomberg)
$ELSA (Bloomberg)
$GIAA (Bloomberg)
$GJTL (Bloomberg)
$GGRM (Gudang Garam Tbk PT)
$NKP (Bloomberg)
$INTP (Indocement Tunggal Prakarsa Tbk PT)
$INDF (Indofood Sukses Makmur Tbk PT)
$ICBP (Indofood CBP Sukses Makmur Tbk PT)
$INDY (Bloomberg)
$KARW (Bloomberg)
$KAEF (Bloomberg)
$KIJA (Bloomberg)
$KLBF (Kalbe Farma Tbk PT)
$KRAS (Bloomberg)
$LPKR (Lippo Karawaci Tbk PT)
$LSIP (Perusahaan Perkebunan London Sumatra Indonesia Tbk PT)
$MAPI (Bloomberg)
$PWON (Bloomberg)
$PNBN, $PNLF, $PNIN (Bloomberg)
$PTPP (Bloomberg)
$RALS (Bloomberg)
$SMRA (Bloomberg)
$TBLA (Bloomberg)
$TLKM (Telekomunikasi Indonesia (Persero) Tbk PT)
$TOTL (Bloomberg)
$WSKT (Bloomberg)

Aug 1, 2016
$HRUM (Harum Energy Tbk PT)
$SSIA (Surya Semesta Internusa Tbk PT)

Aug 10, 2016
$ITMG (Indo Tambangraya Megah Tbk PT)

Aug 12, 2016
$EXCL (XL Axiata Tbk PT)

Aug 29, 2016
$ADRO (Adaro Energy Tbk PT)
$ANTM (Aneka Tambang (Persero) Tbk PT)
$BBRI (Bank Rakyat Indonesia (Persero) Tbk PT)
$ISAT (Indosat Tbk PT)
$PGAS (Perusahaan Gas Negara (Persero) Tbk PT)


Sep 13, 2016
$SMCB (Holcim Indonesia)

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 08,2016 09:17:10
CIMB Niaga ($BNGA), Bank Permata ($BNLI), and OCBC NISP ($NISP) targets to be included in BUKU IV
The three commercial banks plan to increase capital by increasing retained earnings in order to be included in BUKU IV. BNGA states that their current capital totals to Rp27tn and targets to increase capital to Rp30tn this year. Meanwhile, BNLI  will increase its capital by relying on retained earnings and by conducting a rights issue. BNLI’s planned rights issue, worth Rp5.5tn, will boost BNLI’s capital to Rp24tn. Meanwhile, NISP’s current capital totals to Rp16.5tn and will rely on retained earnings to increase its capital.