Willy Suwanto, Prasetya Gunadi PT BCA Sekuritas

Facts: Loan growth still spurred by Adira Finance

· BDMN posted a net profit of IDR884bn in 4Q18 (+36.4% YoY, -13.9% QoQ), bringing 2018 net profit to IDR3.9tn (+6.5% YoY), in line – representing 97.6% of our estimate, but below consensus’ at 93.9%. NII only grew 2.0% YoY in FY18, on the back of the company’s strategy to cut back on its micro banking segment portfolio. In addition, non-interest income settled -6% YoY, depressed by lower admin fees.

· Loan growth picked up to IDR139tn (+7.5% YoY; +3.8% QoQ) end Dec-18. BDMN saw strong growth in Adira Finance, up 13% YoY vs. 12% end Sep-18. BDMN managed to book +18% YoY in consumer (supported by +29% YoY in mortgages) and +10% YoY increase in SME, as of end Dec-18. It is worth noting that corporate loans have started to perk up (+11% YoY), as synergies with MUFG Bank prove to be a positive catalyst for BDMN. Meanwhile, CASA ratio stood at 47.1% (vs. 47.5% end Dec-17, and 49.1% end Sep-18), tracking slower current account growth.

· NPL was recorded at 2.7% end Dec-18 (Sep-18: 3.3%; Dec-17: 2.8%), with major NPL relief from mining and processing industries, which stood at just 0.4% (-30bps) and 2.6% (-20bps), respectively, end Dec-18. SML also improved 100bps QoQ and 120bps YoY to 9.8% end Sep-18.

Outlook: A year of consolidation for BDMN

Going forward, we are confident that BDMN will be able to achieve higher loan growth in 2019F (9%-10% YoY), as synergies with MUFG Bank will continue to support its corporate loan growth as well as growth in payroll loans from its customer supply chains. In terms of asset quality, we assess company potential as still able to maintain NPL at the current level, as the Company keeps pulling its loan portfolio out of higher risk segments.

A major concern for BDMN remains further NIM pressure (20-30bps reduction) in 2019F, as the company plans to be more aggressive in increasing its TD rates in order to keep up with the higher loan growth target during the tightening liquidity situation. It is worth to note that BDMN will have one-off gain in 2019F, which will come from sales of 70% stake in Adira Insurance to Zurich Insurance valued at IDR3.9tn.

Recommendation: Maintain HOLD rating, IDR9,000 TP

We currently maintain our HOLD stance with TP of IDR9,000, following the final phase of MUFG’s acquisition in Jan-19. However, note that our derived TP would settle at IDR5,500, implying 2019F PBV of 1.2x, without the M&A sentiment and basing on pure fundamentals. However, the challenge would come from continuing liquidity tightening.

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