Equity Research

PT BANK TABUNGAN NEGARA (PERSERO)TBK 

2Q19 Disappointing Result

BBTN’s NPL deteriorated by 54 bps became to the level of 3.32% in 2Q19 (vs 2.78% in 2Q18) as the consequences of PSAK 71 implementation mainly came from its Non Performing Financing (NPF) worsening in sharia business. The company’s 1H19 net profit declined by 8.3% YoY to Rp 1.31 trillion (vs Rp 1.42 trillion in 1H18) as a result of higher CoF and15.3% YoY provision cost hike. BBTN’s share price was traded below its 5 years average forward PBV of 1.01x while our fair value offer 4% downside potential. Maintain Neutral rating on the counter.

Weaker 1H19 Result – Below expectation

BBTN recorded a disappointed 1H19 financial result and below our expectation, in which the net interest income (NII) and net profit only covered by 42% and 41% to our 2019F of Rp 11.3 trillion in NII and Rp 3.2 trillion in net profit. The NII inched down by 1% YoY became to Rp 4.72 trillion in 1H19 (vs Rp 4.77 trillion in 1H18) due to average lending rate re-pricing mainly in consumer (-33 bps YoY) and commercial (-71 bps YoY) segments. Meanwhile, the company’s net profit declined by 8.3% YoY from Rp 1.42 trillion to Rp 1.31 trillion on the back of higher CoF (+74 bps YoY) and an increases in provision cost allocation of 15.3% YoY as the consequence of PSAK 71 implementation (adopted from IFRS 9, will be implemented in 1 January 2020).

NIM continued to decline

BBTN’s NIM continued to decline by 64 bps in 2Q19 became to the level of 3.5% (vs 4.2% in 2Q18) which was caused by 1) an increase in its blended CoF by 74 bps (5.91% in 2Q19 vs 5.17% in 2Q18); 2) time deposit growth of 25% YoY; 3) lower CASA ratio (42.2% in 2Q19 vs 46.4% in 1Q18) and 4) 32% YoY increases in deposits from other banks (dominated from Regional Development Banks, due to its tight liquidity). We noted that the company’s 2Q19 total loan and customer deposit grew by 18.8% YoY and 15.9% YoY reached to Rp 251 trillion (vs Rp 211.4 trillion in 2Q18) and to Rp 219.8 trillion (vs Rp 189.6 trillion in 2Q18), respectively. This reflected into a tight liquidity in which the company’s LDR was registered to the level of 114% (vs 112% in 2Q18), higher than the industry (LDR was at 95.5% in May 2019).

NPL deterioration due to the consequences of PSAK 71 implementation

In 2Q19, BBTN’s NPL deteriorated by 54 bps became to the level of 3.32% (vs 2.78% in 2Q18) as the consequences of PSAK 71 implementation mainly came from its Non Performing Financing (NPF) worsening in sharia business (4.47% in 2Q19 vs 1.09% in 2Q18). We highlight that the NPL from construction, non-mortgage and non-subsidized mortgage segments deteriorated in 2Q19 by 425 bps, 93 bps and 31 bps become to the level of 8.53% (vs 4.28% in 2Q18); 6.03% (vs 5.10% in 2Q18) and 3.49% (vs 3.18% in 2Q18), respectively. Meanwhile, the NPL from subsidized mortgage managed to improve at the level 1.05% in 2Q19 (vs 1.21% in 2Q18).

Neutral rating –new fair value Rp 2,300/share                 

We revise down our net profit projection by 18.3% and 8.8% to Rp 2.63 trillion in 2019F (previously at Rp 3.23 trillion) and to Rp 3.48 trillion in 2020F (previously at Rp 3.82 trillion) due to the changes assumption of 1) lower earning asset yield by 20 bps – 40 bps in 2019F-2020F and 2) higher provision cost expectation (+10% in 2019F and +2% in 2020F, due to the PSAK 71 implementation). Meanwhile, the company’s NIM is projected to decline at the level of 3.5% in 2019F and 3.7% in 2020Fas a result of higher CoF in the midst of its tight liquidity environment. Therefore, we cut BBTN’s fair value to Rp 2,300 per share (previously at Rp 2,750/share) which implying target PBV 2020F of 0.84x. Recently, the share price was traded below its 5 years average forward PBV of 1.01x while our fair value offer 4% downside potential. Maintain Neutral rating on the counter.

PT WIJAYA KARYA BETON TBK 

Below Expectation due to Seasonal Factor

WTON’s 1H19 revenue and net profit only covered by 34% and 31% to our 2019 forecast due to the seasonal factor i.e.: lower infrastructure spending and 2019 Election effect. However, the company managed to improve its gross margin by 104 bps in 2Q19 to the level of 13.4% (vs 12.4% n 1Q19) which was mainly fuelled by a significant increases in its service’s gross margin of 558 bps to 9.4% (vs 3.8% in 1Q19) thanks to its transformation as a one-stop solution of precast concrete business strategy.Recently, the share price increased by 54% YTD 2019 and still trading below its 3-years average fwd PER band of 15.47x, translated into an attractive valuation. Keep BUY rating on the counter.

1H19 Below expectation due seasonal factorand election effect

During the 1H19 period, WTON’s revenue and net profit only inched up by 1.6% YoY and 3.8% YoY became to Rp 2.64 trillion (vs Rp 2.59 trillion in 1H18) and to Rp 167 billion (vs Rp 161 billion in 1H18), respectively, which was mainly due to the seasonal factor i.e.: 1) lower infrastructure spending and 2) 2019 presidential election process that has delayed new project contract tenders. As a result, the company’s new contract declined by 13.2% YoY in 1H19 from Rp 3.13 trillion to Rp 2.72 trillion which was still dominated by infrastructure (61%) and energy (25%) sectors. In all, the company’s revenue and net profit came below expectation which only covered by 34% and 31% to our 2019F of Rp 7.86 trillion in revenue and Rp 530 billion in net profit.

Improving quarterly profitabilitythanks to its one-stop solution strategy

On quarterly basis, WTON managed to improve its gross margin by 104 bps in 2Q19 to the level of 13.4% (vs 12.4% n 1Q19) which was mainly fuelled by a significant increases in its service’s gross margin of 558 bps to 9.4% (vs 3.8% in 1Q19) thanks to its transformation as aone-stop solution of precast concrete business strategy (i.e.: precast sales and installation services). At bottom line, the company’s net margin surged by 166 bps to the level of 7.1% in 2Q19 (vs 5.5% in 1Q19) on the back of the recovery of receivable’s impairment loss of Rp 20.6 billion, mainly came from SoE construction company, i.e.: HutamaKaryadanIstakaKarya.

Gearing ratio improved to finance its aggressive capex

We note that the company’s net debt to equity ratio has increased to 0.67x in 1H19 (vs 0.51x in 1H18) since the company obtained its total short term loan worth of Rp 2.5 trillion (+57% YoY) in order to finance its aggressive capex allocation this year of Rp 779 billion (+82% YoY) mainly for land expansion, increase capacity and ready mix development as well as to support the construction of its ongoing projects. This increasing gearing ratio was still reasonable and maintained at healthy level, in which, we forecast that the company’s gearing ratio will be maintained at the level of 0.39x in 2019F-2020F.

Keep BUY rating with TP Rp830/share

YTD 2019, the share price has increasedby 54% which was still traded below its 3-years average fwd PER band of 14.95x, translated into an attractive valuation. We keep our BUY rating on the counter with 43% upside potential.

The Risk:1) delays in infrastructure projects; 2) rising raw material prices; 3) weakening Rupiah currency; 3) delays in production capacity expansions; 4) contingencies from being labour?intensive; and 5) increasing competition.