Bahana Securities - upgrade to target price 520

Date: 05 agustus 2014

Kategori : IRU

Solid NII for 5M14 30% y-y earnings growth in 5M14: BJTM’s 5M14 net profit of IDR488bn (+29.6% y-y) is nearly 48% of our FY14 estimate (exhibit 5). Strong NII offset increased provisioning: Net interest income grew 31.4% y-y, supported by a healthy NIM of 7.6% in 5M14. However, high provisioning dampened earnings growth while the gross NPL ratio inched up (+10bps) to 3.54% as a result of mortgage NPLs.

Strong 20.9% y-y loan growth with LDR of only 74%: BJTM had 5M14 loan growth of 20.9% y-y while deposits grew by 17.3%, bringing the LDR to 74% from 71% a year ago. 5M14 consumer loans (including nearly-risk-free multipurpose loans) accounted for approximately 64% of total, followed by commercial loans (19%) and SME loans (17%).

Outlook: A strategic business model outlook Largest domestic regional bank status an advantage: Helped by regional government funding (+IDR1.7tn in May), BJTM enjoys support on its loan expansion without having to aggressively re-price its deposit rate, which is currently capped at 100bps above the LPS rate at 7.75%. Moreover, its attractive funding structure, heavily skewed towards CASA (69% in 5M14), allows BJTM to keep its attractive blended cost of funding at below 4% while creating flexibility for it to remix its loan portfolio.

Aims to lower NPL ratio to industry’s average: BJTM’s management is fully aware of ongoing concerns over its high NPLs. Hence, asset quality improvement has been a top priority through a more selective new loans approval process, raising collateral values and carefully monitoring repayment rates. Some two-thirds of BJTM’s new micro loans (IDR70bn) are derived from other banks’ debtor migration, with the rest being from new debtors. Meanwhile, multipurpose loans remain the main growth driver, as part of its strategy to lower its NPL ratio to the industry’s average of 2.1%.

Network expansion within the region: BJTM continues to expand its network by opening 60 outlets and 100 micro units to penetrate the local market segment in east Java. Fortunately, this network expansion within the region is not subject to the central bank’s regulation regarding the minimum capital requirement for new openings. This has helped BJTM to expand its market share and coverage without excessive capital.

Recommendation: Reiterating BUY with higher TP of IDR520. As BJTM’s operating performance has progressed within our expectation, were-iterate our BUY rating on the bank and raise our target price (TP) slightly from IDR500 to IDR520, based on a 2015 P/BV of 1.2x and now offering 26% upside potential. We believe the 3.6% ytd market under-performance (exhibit 4) is due to the higher-than-consensus dividend announced in March 2014. Downside risks of our call include BJTM’s failure to improve its assets quality, leading to higher-than-expected provisioning charges.