Bank Tabungan (BBTN IJ)

  26 October 2018 (BBTN IJ)

  Bank Tabungan Results Note (Unchanged)

  BUY Stock Data Slowing profit growth as rate rises

  Target price (Rp) Rp2,900 9M18 profit up 12%, still within our expectation, despite rising rates.

  Prior TP (Rp) Rp3,075 Surprisingly resilient 3Q NIM (+53bps) mitigated provisioning jump.

  Share price (Rp) Rp2,180 PSAK 71 implementation led to our higher credit cost assumption.

  Upside/downside (%) +33.0

  Shares outstanding (m) 10,590 We lower our earnings and TP (to Rp2,900) but keep BUY rating. Market cap. (US$ m) 1,520

  s

  Free float (%)

40.0 Modest results. BBTN’s net profit of Rp2.23tn in 9M18 (+11.5%) was still within

  k

  Avg. 6m daily T/O (US$ m) 6.3 our expectation, despite accounting for only 66% of our FY18F forecasts, given its

  n a usually stronger 4Q earnings. Quarterly profit was up 10% qoq in 3Q18, despite a

  Price Performance doubling of loan provisioning, driven by the bank’s strong core profit growth in 3Q

  B

  3M

  6M

  12M (+27% qoq). Excluding provisions, which increased by 45% yoy, BBTN’s core

  | profit grew robustly by 19% in 9M18, which was by far the strongest core profit

  Absolute (%) -9.5 -29.9 -22.7

  ia growth in Indonesia’s banking industry, driven by: 1) strong asset growth (loans:

  Vs. JCI (%) -5.6 -25.9 -18.0

  s

• 19%; deposits: +16%); and 2) resilient NIMs (only -15bps) in the face of rising

  52w high/low (Rp) 2,180 - 2,150

  e rates, and despite its strong operating cost growth (+18%). n

  140 o

  130 Resilient NIMs. In our calculation, BBTN’s NIM widened to 4.55% in 3Q (2Q: d

  120 4.02%; 1Q: 3.89%), which was above its 2017 levels, surprisingly in light of the n

  110 bank’s mostly fixed-rate lending and weak deposit franchise. BBTN’s rising asset

  I 100 yields in 3Q (+67bps qoq) outpaced its cost of funds (+12bps only). However, we

  90 | still assume NIMs to narrow to 4.03% in FY18F (-49bps yoy) and to decline by

  80 y

  70 10bps each year in next 2 years. We expect NIM pressure to be mitigated by new it

  7

  8

  8

  8

  8

  7

  7

  7

  8

  8

  8

  8

  8

  8

  8

  8

  8

  8

  1

  1

  1

  1

  1

  1

• 1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 t- l- l- t- r- r- v c c n b b y y n g p p c a p u u c

  

u o e e a a a u e e subsidy schemes such as KPR SSB (interest subsidy is linked to 12mth SBI rate)

e e J J u O J F F M A J O

  N D D M M A S S q and new KPR FLPP scheme (with funding ratio of 75%:25%), which should lower

  BBTN-Rebase JCI Index-Rebase E BBTN’s vulnerability to rising rates while also lowering opex growth.

  Major Shareholders Asset quality. BBTN’s asset quality was stable with NPL of 2.65% and provision

  Republic of Indonesia 60.0%

  coverage of 46%, which was above its comfort level of 35-40%. In spite of this, the bank doubled its credit cost to 83bps in 3Q (2Q: 41bps) in anticipation of a provision gap arising from implementation of new accounting rule PSAK 71 (vs.

  Estimate Change; Vs. Consensus PSAK 55 used at present), which if directly adjusted in equity capital would lower capital adequacy ratio by 1.5% (CAR was 18% in 3Q18). As such, we increase our

  2018F 2019F annual credit cost assumption by 10bps to 50bps for FY18F to FY20F as we expect

  Latest EPS (Rp) 310 352

  the bank to cover most of the provisioning gap under PSAK 71 through direct

  Vs. Prior EPS (%) -3.6 -5.7 adjustments to its equity and only partially by increasing provisioning. Vs. Consensus (%) -3.2 -2.4

  Valuation. We cut our earnings forecasts by 3-5% for FY18-20F, due to higher Source: Bloomberg provisioning assumption, and lower our TP to Rp2,900 (from Rp3,075). Our TP is based on GGM-derived target FY18F P/B of 1.26x, assuming LT ROAE of 13.5% (from 13.8%), LT growth of 8.5%, cost of equity of 12.5%. We estimate LT ROAE based on DuPont analysis, assuming LT ROAA of 1.13% and asset/equity leverage of 12x. However, we maintain our BUY rating given the stock’s low valuation.

  Year To 31 Dec 2016A 2017A 2018F 2019F 2020F

  Operating income (RpBn) 9,268 10,805 12,116 13,698 15,616 PPOP (RpBn) 3,881 4,637 5,027 5,737 6,670 Net profit (RpBn) 2,619 3,027 3,288 3,729 4,301 Net profit growth (%)

  41.5

  15.6

  8.6

  13.4

  15.3 FD EPS (Rp) 247 286 310 352 406 P/E (x)

  8.8

  7.6

  7.0

  6.2

  5.4 P/B (x)

  1.2

  1.1

  1.0

  0.8

  0.7 Stephan Hasjim Dividend yield (%)

  2.0

  2.6

  2.8

  3.2

  3.7 PT Indo Premier Sekuritas ROAA (%)

  1.4

  1.3

  1.2

  1.2

  1.1 stephan.hasjim@ipc.co.id ROAE (%)

  15.7

  15.1

  14.3

  14.4

  14.7 Source: BBTN, IndoPremier Share Price Closing as of : 25-October-2018

• 62 21 5793 1168

  Rp bn

  5

  1 Q

  1

  8

  2 Q

  1

  8

  3 Q

  1

  8 Pre-Provision Profit Pre-Provision Profit ROAA

  Rp bn

  50 100 150 200 250

  3 Q

  1

  4 Q

  1

  1

  5

  1 Q

  1

  6

  2 Q

  1

  6

  3 Q

  1

  6

  4 Q

  1

  7

  4 Q

  1 Q

  6

  300 600 900 1,200

  1,500 1,800

  3 Q

  1

  5

  4 Q

  1

  5

  1 Q

  1

  6

  2 Q

  1

  3 Q

  7

  1

  6

  4 Q

  1

  6

  1 Q

  1

  7

  2 Q

  1

  7

  3 Q

  1

  6

  1

  8 Operating Expenses Cost-Income Ratio

  3 Q

  6

  3 Q

  1

  6

  4 Q

  1

  6

  1 Q

  1

  7

  2 Q

  1

  7

  1

  2 Q

  7

  4 Q

  1

  7

  1 Q

  1

  8

  2 Q

  1

  8

  3 Q

  1

  8 Net Profit Net Profit ROAA

  1

  6

  7

  1

  2 Q

  1

  7

  3 Q

  1

  7

  4 Q

  1

  7

  1 Q

  1

  8

  2 Q

  8

  1

  3 Q

  1

  8 Net Provisions bps of Loans

  bps Rp bn 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 200

  400 600 800 1,000

  1,200 1,400

  3 Q

  1

  5

  4 Q

  1

  5

  1 Q

  Rp bn 0% 1% 2% 3% 4% 5%

  1

  Fig. 1: Net Interest Income (Rp bn) and NIMs (%) Fig. 2: Non-Interest Income (Rp bn; % of Gross Income) Source: Company, IndoPremier Source: Company, IndoPremier

  200 300 400 500 600 700

  1

  7

  1 Q

  1

  8

  2 Q

  1

  8

  3 Q

  1

  8 Net Interest Income Net Interest Margin

  Rp bn 0% 5%

  10% 15% 20% 25% 30% 100

  3 Q

  7

  1

  5

  4 Q

  1

  5

  1 Q

  1

  6

  2 Q

  1

  6

  3 Q

  1

  4 Q

  1

  4 Q

  2 Q

  Fig. 3: Operating Expense (Rp bn) and Cost/Income Ratio (%) Fig. 4: Pre-Provision Profit (Rp bn; % of Average Assets) Source: Company, IndoPremier Source: Company, IndoPremier

  Fig. 5: Net Loan Provisioning (Rp bn; bps of Average Loans) Fig. 6: Net Profit (Rp bn) and ROAA (%) Source: Company, IndoPremier Source: Company, IndoPremier

  0% 1% 2% 3% 4% 5% 6% 7%

  500 1,000 1,500 2,000 2,500 3,000 3,500

  3 Q

  1

  5

  4 Q

  1

  5

  1 Q

  1

  6

  1

  3 Q

  6

  3 Q

  1

  6

  4 Q

  1

  6

  1 Q

  1

  7

  2 Q

  1

  7

  6

  1

  3 Q

  2 Q

  6

  2 Q

  1

  6

  3 Q

  1

  6

  4 Q

  1

  6

  1 Q

  1

  7

  1

  1 Q

  7

  3 Q

  1

  7

  4 Q

  1

  7

  1 Q

  1

  8

  2 Q

  1

  8

  1

  5

  6

  1

  1 Q

  1

  7

  2 Q

  1

  7

  3 Q

  1

  7

  4 Q

  1

  7

  1 Q

  8

  1

  2 Q

  1

  8

  3 Q

  1

  8 Other Income Other Income % of Total

  Rp bn 0% 20% 40% 60% 80% 100%

  300 600 900 1,200

  1,500 1,800 2,100

  3 Q

  1

  5

  4 Q

• 100 100 200 300 400 500
• 50

  Third-Quarter 2018 Results Results (Rp Bn)

  9M18

  9M17 % Y-Y

  3Q18

  2Q18 % Q-Q Net Interest Income 7,458 6,469 15.3 2,754 2,390

  15.2 Fees & Commissions 738 537

  37.6 260 260

  0.0 Insurance & Other Incomes 231 201

  15.0 70 105 -33.4 Trading Income 353 363 -2.6 105 136 -23.0

  Operating Income 8,781 7,418 18.4 3,189 2,891

  10.3 Operating Expenses -5,212 -4,418

  18.0 -1,779 -1,780 -0.1

  Pre-Provision Profit 3,569 3,001 18.9 1,410 1,111

  26.9 Provision for Impairment -867 -597

  45.2 -449 -211 112.7 Recovery of Written-Off Loans 103 101

  2.5

  40

  37

  8.1 Operating Profit 2,805 2,587

  8.4 1,001 937

  6.8 Other Non Operating Items

  42 -8 n.m

  33 3 n.m

  Pre-Tax Profit 2,847 2,579 10.4 1,033 940

  10.0 Tax -611 -574

  6.4 -221 -200

  10.4 Net Profit 2,236 2,005

  11.5 812 739

  9.9 Gross Loans 220,077 184,502 19.3 220,077 211,353

  4.1 Customer Deposits 194,830 167,870

  16.1 194,830 186,640

  4.4 Non-Performing Loans (NPL) 5,825 5,672 2.7 5,825 5,876 -0.9 Special Mention Loans 22,593 21,589 4.7 22,593 21,127

  6.9 Loan Loss Reserves (LLR) 2,710 2,270 19.4 2,710 2,452

  10.5 Total Assets 272,305 231,935 17.4 272,305 268,044

  1.6 Risk-Weighted Assets 122,323 119,780 2.1 122,323 124,072 -1.4

  Shareholders’ Funds 23,250 20,590 12.9 23,250 22,379

  3.9 BV Per Share 2,195 1,944 12.9 2,195 2,113

  3.9 Source: Company, IndoPremier Key Ratios (%)

  9M18

  9M17 % Y-Y

  3Q18

  2Q18 % Q-Q ROAA (annualized)

  1.13 1.21 -7.0

  1.20

  1.12

  7.1 ROAE (annualized)

  13.4 13.6 -1.3

  14.2

  13.4

  6.2 Net Interest Margin (bps) 415 430 -3.4 455 402

  13.2 Gross Credit Cost (bps)

  55

  46

  20.1

  83 41 104.1 Fee Inc/Operating Income

  8.4

  7.2

  16.3

  8.2 9.0 -9.3 Non Int Inc/Operating Income

  15.1

  14.8

  1.6

  13.6 17.3 -21.3 Op. Cost/ Operating Income

  59.4 59.5 -0.3

  55.8 61.6 -9.4 Loan-to-Deposit Ratio (LDR) 113.0 109.9 2.8 113.0 113.2 -0.2 NPL/Loan Ratio

  2.6 3.1 -13.9

  2.6 2.8 -4.8 LLR/NPL Ratio

  46.5

  40.0

  16.3

  46.5

  41.7

  11.5 Tier-1 Capital Ratio

  15.6

  14.0

  11.0

  15.6

  14.9

  4.4 Total Capital Ratio

  18.0

  17.0

  5.8

  18.0

  17.4

  3.1 Source: Company, IndoPremier

  Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement

  Interest income 17,139 19,272 22,042 26,670 31,346 Interest expense (8,975) (9,931) (11,668) (14,949) (17,985) Net interest income 8,164 9,341 10,374 11,721 13,361 Fees and commissions 591 750 1,000 1,200 1,440 Trading income 282 403 400 400 400 Other operating income 231 311 342 377 414 Total operating income 9,268 10,805 12,116 13,698 15,616 Personnel expenses (2,122) (2,554) (3,014) (3,376) (3,781) G&A expenses (2,466) (2,953) (3,307) (3,704) (4,149) Other operating expenses (799) (661) (768) (880) (1,016) Pre-provision operating profit 3,881 4,637 5,027 5,737 6,670 Provisions (708) (884) (1,086) (1,276) (1,494) Loan recovery income 178 140 170 200 200 Operating profit 3,352 3,892 4,112 4,661 5,376 Non-operating profit (22) (30)

  50 Exceptional items Pre-tax profit 3,330 3,862 4,162 4,661 5,376 Income tax (711) (834) (874) (932) (1,075) Minority interests Reported net profit 2,619 3,027 3,288 3,729 4,301

  Balance Sheet

  Cash 1,007 1,028 1,113 1,315 1,555 Current account with BI 10,697 12,555 14,472 17,100 20,215 Placements at BI & other banks 17,903 25,254 17,326 22,834 28,924 Short-term investments 4,172 7,706 13,871 15,258 16,784 Government bonds 9,244 8,184 8,184 8,184 8,184 Gross loans 164,446 198,991 235,274 275,257 322,311 Loan provisions (2,116) (2,356) (2,742) (3,418) (4,312) Other assets 8,816 10,005 10,763 11,586 12,478 Total Assets 214,168 261,365 298,261 348,116 406,138 Customer deposits 159,988 192,474 222,639 263,082 311,000 Deposits from other banks 3,653 5,445 5,990 6,589 7,248 Securities and borrowings 24,304 32,856 37,347 42,187 47,196 Other liabilities 6,595 7,289 8,017 8,819 9,701 Total Liabilities 194,539 238,064 273,994 320,678 375,145 Share capital 7,349 7,349 7,349 7,349 7,349 Reserves and others 2,773 2,802 2,724 2,824 2,824 Retained earnings 9,008 11,512 14,194 17,265 20,820 Shareholders' equity 19,131 21,663 24,267 27,438 30,993 Minority interest Total Liabilities & Equity 213,670 259,727 298,261 348,116 406,138

  Source: BBTN, IndoPremier

  Year To 31 Dec 2016A 2017A 2018F 2019F 2020F Growth Ratios (% yoy)

  Gross loans

  18.3

  21.0

  18.2

  17.0

  17.1 Total assets

  24.7

  22.0

  14.1

  16.7

  16.7 Customer deposits

  25.3

  20.3

  15.7

  18.2

  18.2 Net interest income

  19.9

  14.4

  11.1

  13.0

  14.0 Non-interest income

  23.3

  32.6

  19.0

  13.4

  14.0 Total operating income

  32.3

  16.1

  5.6

  13.4

  15.3 Operating expense

  20.0

  14.5

  14.9

  12.3

  12.4 PPOP

  20.7

  19.5

  8.4

  14.1

  16.3 Net profit

  41.5

  15.6

  8.6

  13.4

  15.3 Profitability Ratios ROAA (%)

  1.38

  1.33

  1.17

  1.15

  1.14 ROAE (%)

  15.7

  15.1

  14.3

  14.4

  14.7 NIM (%)

  4.71

  4.52

  4.03

  3.93

  3.83 Credit cost (bps)

  35.4

  41.8

  42.2

  42.2

  43.3 Cost/income (%)

  58.1

  57.1

  58.5

  58.1

  57.3 LDR (%) 102.8 103.4 105.7 104.6 103.6 CAR (%)

  20.3

  18.9

  17.9

  17.2

  16.5 NPL ratio (%)

  2.8

  2.7

  2.3

  2.1

  2.0 Provisions/NPL (%)

  45.3

  44.6

  50.4

  58.4

  66.8 Source: BBTN, IndoPremier

  Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167

INVESTMENT RATINGS

  BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION.

  The views expressed in this research report accurately reflect the analyst;s personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

  DISCLAIMERS

  This reserch is based on information obtained from sources believed to be reliable, but we do not make any representation or warraty nor accept any responsibility or liability as to its accruracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, finacial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this