Assessing Bank Negara Indonesia's (BBNI) 5-year impressive p

Bareksa.com - We continue to recommend Buy on BBNI with a new target price of Rp6,510 (previous: Rp5,775). We raise our net profit forecast 14F/15F to Rp10 tn/Rp11.6 tn, an +11%/+10% increase from the previous earning projection. BBNI FY13 result is impressive. Loans grew 26% YoY, and net income grew 28% YoY. Those results are highest amongst BBNI’s peers. We view that with BBNI’s current PBV of 1.6x and PE 8.7x, it is cheap, looking at the Company’s FY13 result. In the last five years, it is evident that BBNI’s profitability quality has advanced (EPS growth CAGR of 32%) and also the loans quality (NPL went down -250 bps ) which is much faster than its peers’ performance.

BBNI Net income increased +28% YoY to Rp9.05 tn, forming 109% of our forecast and 105% of consensus’s. The increase in interest income of +23% YoY to Rp19 tn is the main driver (106% of our projection). BBNI’s loans in 2013 grew +25% YoY to Rp251 tn, well above the industry growth of 21%. The portion of loans to total assets is 65%. This figure is above three years average of 57%. LDR rose to 85%, an all time high for BBNI. The improving loan quality trend of BBNI continues as gross NPL decreases by -60 bps to 2.2%.

Business transactions grows at a faster rate in 2013, reaching 12% YoY to Rp9.4 tn vs. ~11% in 2011. This amount is equivalent to 49% of net interest income, significantly higher than its peers. In 2014, management is targeting higher growth in the range of 19-21%.

Looking back five years, BBNI shows rapid progress in the improvement of its asset quality, efficiency and profitability. In five years, BBNI’s NPL down by -250 bps, Cost income ratio declined -510 bps, and EPS grew 32% CAGR (2009-2013). Those stated figures are higher compared to other SOE bank.

BBNI’s progress in the last five years is very impressive. Rapid growth is not only on profitability, but also on the Company’s asset quality and the efficiency of its business. EPS growth of 32% CAGR growth BBNI 2009-2013, is higher compared to other SOEs such as BBRI by 30%, and BMRI by 23%. In the graph above shows the NPL of BBNI where it went down faster than its peers. From 2009 to 2013, NPL has dropped -250 bps , above BBRI –197 bps decline, and BMRI’s -93 bps decreases.

An improvement in credit quality went along side by side with the increase in portion of credit towards total asset. In 2008 the ratio of loans to total assets was 56%, in 2013 the ratio has now increased to 65%.

Measurement of efficiency through cost to income ratio, also show a similar improving result. It went down faster than its peers. The impact of improvements in credit quality and the efficiency is reflected in the increase in net margin from level 13% in 2009 to 34% in 2013.

BBNI’s interest income in FY2013 rose +16% YoY to Rp26.4 tn. This increase was driven by growing loans of 25% (vs. 21% industry). Additionally, an increase in NIM by 20 bps BBNI or up to 6.1%. Net income in FY2013 BBNI grew higher (+28.5% YoY) to Rp9 tn. The result books 109/106% of our forecast/consensus. The high growth in net profit in FY2013 is on the back of operating profit increases, a maintained cost, and the increase in pro-vision was only increased by 7% YoY.

In 2013, BBNI’s credit growth reached +26% YoY, the highest amongst other state-owned banks. Corporate segment remains a growth engine BBNI with a composition totaling to 45% of total loans with a 55.4% YoY growth (116 medium upgrades to corporate customers, normalize growth for corporate 41.3%). Consumer segment with a composition of 19% grew +19% YoY in 2013.

In improving trend of deposit is also shown in Fy13. Composition of cheap funds (CASA) increased to 69% compared to last year’s 67%. This is made the interest expense in Fy2013 only grew 2%. Overall, total deposits reach Rp292 trillion in 2013 (+13% YoY), with CASA grew by 15.3% YoY. Out of the total deposits, 16% Of these are in the form of foreign currency deposits.

*Marolop A. Nainggolan is PT Buana Capital's head of research. This article is part of the Equity Research of PT Buana Capital