AGRO – Strengthen capital to become bigger

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September 18, 2018 Stock No Comments

AGRO – Strengthen capital to become bigger

BRI Agro, which is categorized as a BUKU II bank (i.e., one with core capital in the range ofIDR1tr ≤ IDR5tr),focuses on agribusiness financing and operates throughthree major segments: middle, consumer, and retail. 1)The middle segment focuses on corporate sector financing. 2) The consumer segment focuses on the credit needs of consumers, such as Agrogriya, Agromobil,and multipurpose loans. 3)The retail segment provides credit services and programs for retailclients. As of June 2018, the agribusiness sector accounted for 68% of all financing, and the non-agribusiness accounted for32%.

Performance

For 1H18, BRIAgro posted net income ofIDR130.93bn(+160% YoY). The increase was due to a significant increase in loans. Medium segment loans expanded 67% YoY, driving overall loan growth. In1H18, BRI Agro’s loans increased 43% YoY to IDR13.16tr, and NIM stood at3.55% (vs. company target of3.64%). The NIM level is at the level of 3.55% (RBB 3.64%) slightly below the RBB because deposit interest rates increase and interest rates on loans are not directly increased, Loan-to-deposit ratio was 88.43% (vs. target of 88.26%), and NPL ratio was2.20% (vs. target of 3.69%). BRI Agro has taken various steps to decline NPL ratio, including debt restructuring, more intensive and persuasive collecting and formation of simpler teams to handle the NPL. In addition, the increase in outstanding loans was a factor in the decline of NPL. The bank targets 2018 net profit of IDR233bn and expects 2019FY profit target after the right issue of IDR376 billion. In order to achieve this target the company’s focus will remain on agribusiness with the largest portion in palm oil, sugar cane and chicken farms.

Corporate Actions

In September 2018, BRI Agro conducted a rights issue with a total worth of around IDR2tr (5bn new shares). With an exercise price of IDR400/share,each owner of 1,000 old shares can obtain 271 preemptive rights. BRI Agro will use the funds to strengthen its capital structure and thereby support credit growth. Bank BRI Tbk, as the main shareholder of BRI Agro (87.19% stake), will execute a portion of its rights at IDR400/share. The issuing price on September 6th was IDR358, below the IDR400 rights issue price. However, management is optimistic about the price movement of the issuer in the future, supported by a solid performance in 2018.

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