Indonesia Small & Mid Banks: Embracing Rising Rates
Alvin Baramuli & Henry Wibowo – RHB Sekuritas
We recently initiated coverage on 4 Small & Mid banks: BNGA, BBTN, BDMN and PNBN and maintain NEUTRAL view on the Indonesian banking sector.
• Rising interest rate outlook should affect the Small & Mid banks more than the Big-4 given their generally lower CASA. Our sensitivity analysis suggests for 25bps increase in TD rate, NIM would decline by 7-15bps.
• No more declining CoC boost earnings for most banks as the credit cycle has normalized.
• Liquidity is tight (LDR: 95-111%) for the small & mid banks, posing a challenge as the need for funding increases in the near term, but at a higher cost.
Bank CIMB Niaga (BNGA, BUY, TP: IDR1,200, +36% upside): Cheap valuation at 0.6x P/BV, at a similar multiple as back in 2016, but with a much better asset quality (NPL <3 .5="" 1.7="" accelerating="" and="" bank="" bps="" casa="" coc="" earnings="" extent.="" fy18f="" growth.="" growth="" have="" higher="" highest="" improvement="" in="" its="" last="" loans="" lower="" mitigate="" nbsp="" only="" p="" peers="" rate="" ratio="" rising="" roe="" some="" support="" the="" to="" vs.="" with="">
Bank Tabungan Negara (BBTN, NEUTRAL, TP: IDR2,700, +7% upside): Valuation undemanding at 1.1x P/BV with 14% ROE (vs. peers with average 1.2x P/BV, 11% ROE). However, asset quality issue from higher restructured loan and NPLs from non-subsidized mortgage and construction. Uncertainty with housing subsidy program (FLPP & SSB), as the budget has continued to decline and election next year that could change the direction of the program.
Bank Danamon (BDMN, NEUTRAL, TP: IDR6,900, +3% upside): M&A angle with MUFG is on the cards, which could trigger tender offer at 2.x P/BV (currently at 1.5x P/BV) at similar valuation as the first stage purchase. However, we remain cautious on asset quality, (2Q18 provision up 3% YoY/ 11% QoQ on higher NPL from SME (4%), Commercial (3%)) earnings down 1% in 1H18 and prefer to come back to fundamentals.
Bank Panin (PNBN, SELL, TP: IDR725, -15% downside): Risk still looms from Syariah subsidiary (NPF: >8%) and overall provision coverage is still <100 1h18.="" 4="" and="" asset="" at="" c.100="" casa="" coc="" declining="" despite="" deterioration="" down="" earnings="" from="" higher="" in="" is="" ldr="" on="" overall="" p="" performance="" potential="" quality="" reducing="" still="" td="" trend="" weak="" with="">
New Small & Mid banks pecking order: BNGA>BTPN>BBTN>BDMN>PNBN
For more details, please refer to our report:
https://research.rhbtradesmart.com/attachments/36/rhb-report-ind_small-and-mid-cap-banks_20180913_rhb-68751693207892495b99c085e876d.pdf
Let us know if you have any questions.
Thank you.
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