Analisa Saham PNBN | Road to 10% ROE

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Bank Panin (PNBN IJ) – Road to 10% ROE, Unlocking M&A Value
Alvin Baramuli, Henry Wibowo – RHB Sekuritas 

Upgrade to BUY from Sell with new TP of IDR2,000, +33% upside, implying 1.2x P/BV towards FY19F BVPS. Panin’s performance could improve given lower cost of funds, stable CoC and higher loans growth, with net profit CAGR of 13.4% in FY18-21F. 

Assume net profit CAGR of 13.4% in FY18-21F. Bank Panin’s performance would be driven by a combination of gradual improvement in NIM of 4.9%, 5%, and 5.1% in FY19F-21F, supported by a more dovish interest rate outlook (lower cost of funds) and higher loan growth. We should also see stable CoC (1.8% in FY17 to 1.3% in FY18) hovering around 1.3% due to overall improvement in asset quality. Consequently, we think that ROE could improve gradually from 8.7% in FY18 to 10% in FY21F. 

Loan growth CAGR 9.1% in FY18-21F. Loan growth to be driven by consumer (mortgage), SME and corporate segments. For mortgage, Panin’s promotion ie 7-9% fix rate for 3-year tenure is one of the most attractive among peers that is likely to drive demand especially in the middle-low segment. Also, upside could come in 2H19 largely from SME with Panin’s unique strength in the Chinese-Indonesian business community, while the corporate segment via loan syndication ie construction could also grow. Overall, management guided for 8-10% loan growth for 2019.
ANZ potential divestment; M&A to unlock value at 1-1.5x P/BV. In line with recent M&A trend in Indonesia, ANZ was also reportedly planning to divest its 39% stake and is currently seeking approval from regulators. Panin, with total assets of IDR207trn in FY18, is the only bank among Top 10 banks that is available for sale (outside Bank Permata) in our view. Potential buyers could possibly be foreign (ie Japanese), private equity or majority shareholder. Regardless, ANZ would need to either divest or increase its stake in Panin due to the single presence policy in Indonesia, although we think the former is more plausible. Note, ANZ purchased Panin for a total of c.IDR1.3trn (~USD114m) for 8% stake, which it bought in 2009, translating to c.2x trailing P/BV while the remaining c.30% was bought in 1999-2004. Hence, the valuation could be 1-1.5x P/BV, given Panin’s ROE of c.9-10%, and still within average of recent M&As ie MUFG-BDMN at 2-2.3x P/BV at c.10-11% ROE, and SMBC-BTPN at 1.4-1.5x P/BV at c.11-12% ROE.