Danareksa Equity Snapshot – BJTM, 13 Desember 2018

Eka Savitri

We maintain our BUY call on BJTM with a higher GGM-derived TP of IDR850 (implying 1.4x 2019F P/BV) as we roll over the valuation to next year. We like the bank for its strong foothold in East Java’s civil servants salary-basedlending segment with a lower risk weight. CAR will remain high at 24.2% with 9.3% loans growth expected next year. Yet, NIM is expected to dip to 7.6% on the back of lower asset yields coming from lower rates on salary-based loans. The dividend payout ratio will remain enticing, however, especially in view of its status as a regional bank and its ample capital. We assume a 55% payout ratio, resulting to a 7.2% dividend yield next year.

Consumer lending will continue to be the driver. While salary-based loans will continue to account for most of BJTM’s loans, the bank can also leverage its strong customer-base covering regional civil servants to boost its mortgage lending. On the other hand, commercial lending may only be driven by the syndicated loans scheme (along with other big SOE banks) for certain infrastructure projects such as the toll roads. Next year, we estimate 10.4% yoy growth in consumer loans, thus pushing up the contribution from consumer loans to total loans to 71.6% by December 2019F.

Lower projected NIM. Amidtight competition in salary-based lending, BJTM recently cut its lending rate in this segment by 200bps to 11-12%. Yet, we still expect the bank’s funding structure to remain secure thanks to strong support from the local government, both institutional and retail customer-based. Taking these factors into account, we project a NIM compression to 7.6% given a lower assets yield of 11.2% in 2019.

Good dividend yield. Given its status as a regional bank, we believe that BJTM will maintain its attractive dividend payout ratio. Additionally, with estimated loans growth of 9.3%, CAR will remain high at 24.2% by the end of next year. Note that historically, the dividend payout ratio has ranged from 52% to 73.5% in the past five years. As such, with the expectation of a 55% payout ratio over the next three years, the dividend yield looks attractive within our banking universe at 7.2% for next year.

BUY with a new TP of IDR850. Wemaintain our BUY call on BJTM with a GGM-derived TP of IDR850 assuming 11.3% CoE, 14.7% sustainable ROAE and 3% long-term growth. Our TP implies 1.4x 2018F P/BV. The main downside risks are political risks in relation to its shareholders (regional governments), lower-than-expected loans growth, higher-than-expected blended CoF and slower progress on improving its assets quality.


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