Equity Research

 

BBNI has allocated higher than expected provision cost in 4Q19 by 2-fold which was aimed to mitigate deteriorating NPL risk in 2020. We forecast that the company will maintain its NPL at the level of 2.3% in 2020F due to the PSAK 71 implementation in January 2020. Currently, BBNI share price traded slightly below its average 5 years forward PBV – 1 stdev of 1.04x which translated into an attractive valuation. Hence, we kept BUY rating on the counter with 27% upside potential.

 

To mitigate deteriorating NPL risk in 2020, the company has allocated higher than expected provision cost of Rp 3.4 trillion (2-fold vs Rp 1.5 trillion in 3Q19) which was due to the downgrade of corporate loan into bad debt category, mainly came from tin mining in Bangka (Rp 877 billion), IT trading in Jakarta (Rp 682 billion) and Duniatex (Rp 464 billion). Hence, the company’s NPL from corporate segment deteriorated by 80 bps QoQ from 1.1% in 3Q19 became to the level of 1.9% in 4Q19 which resulted   total NPL deterioration by 50 bps QoQ (2.3% in 4Q19 vs 1.8% in 3Q19). We forecast that the company will maintain its NPL at the level of 2.3% in 2020F which is due to the PSAK 71 implementation in January 2020.

 

The company net profit in 4Q19 decreased by 21.4% QoQ became to Rp 3.4 trillion (vs Rp 4.3 trillion in 3Q19) as a result of higher than expected provision cost. Nevertheless, we note that the company managed to improve its 4Q19 Pre Provision Operating Profit (PPOP) by 12.5% QoQ reaching to Rp 7.8 trillion (vs Rp 6.9 trillion in 3Q19) thanks to its strong fee base income’s growth by 29.3% QoQ and 5.1% QoQ in net interest income’s growth (NII). 

 

All in all, the company’s 2019 financial results relatively came in line with our expectation, in which NII and net profit covered by 99% and 90% to our 2019F of Rp 37.1 trillion in NII and Rp 17.1 trillion in net profit, respectively. The NII only inched up 3.3% YoY became to Rp 36.6 trillion in 2019 (vs 35.4 trillion in 2018) as consequence of its lending rate reduction by 40 bps. Meanwhile, the company’s net profit only advanced by 2.5% YoY from Rp 15.0 trillion to Rp 15.4 trillion fuelled by higher CoF (+40 bps YoY) and provision cost (+19.6% YoY).

 

BBNI total loan grew by 8.6% YoY in 2019 reach to Rp 556.8 trillion (vs Rp 512.8 trillion in 2018), still dominated from corporate and SoE segment (52%) which increased by 9.8% YoY (Rp 288.4 trillion in 2019 vs Rp 262.7 trillion in 2018). We highlight that it was higher than banking industry growth of 6.5% YoY in October 2019 thanks to 1) its strong customer deposit support which increased by 6.2% YoY to Rp 614.4 trillion (vs Rp 578.8 trillion in 2018) and 2) lending rate reduction in corporate segment by 70 bps. Hence, BBNI’s LDR increased to 91.5% in 2019 (vs 88.8% in 2018).

 

Given by the company guidance in 2020F, we adjust BBNI fair value to Rp 9,350 per share (vs previously Rp 11,500 per share), in which we forecast that 2020 BBNI’s loan and customer deposit will increase by 10.7% YoY (vs 14.8% YoY previous 2020F) and 8.3% YoY (vs 13.0% YoY previous 2020F) to Rp 616.2 trillion and to Rp 665.4 trillion, respectively. The company’s NPL is projected to maintain at the level of 2.3% in 2020F (vs 2.1% previous 2020F) due to the PSAK 71 implementation in January 2020. Currently, BBNI share price traded slightly below its average 5-years forward PBV – 1 stdev of 1.04x which translated into an attractive valuation. Hence, we kept BUY rating on the counter with 27% upside potential.