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Bank Negara Indonesia (BBNI IJ. IDR3,520 BUY. TP: IDR5,000) - 20 Mei 2020
May 20, 2020 09:05

Bank Negara Indonesia(BBNI IJ)

Managing expectations


Following BBNI’s 1Q20 set of results and new guidance from the management, we cut some of our key assumptions. We assume earnings will fall by 86.5% to IDR2.1tn in FY20F driven by a lower NIM and significantly higher credit costs. We assume the NIM will decline to 3.9% due to lower asset yields. Meanwhile, credit costs are expected to rise to 352bps given the deterioration in assets quality coming from this year’s soft GDP growth outlook also the impact from COVID-19. BUY maintained with a new GGM-derived TP of IDR5,000 (implying 0.86x 2020F PBV).

1Q20 highlights. The 1Q20 net profits of IDR4.2tn (+2.5% yoy) are inline with our forecast due to lower-than-expected provisioning expenses. Loans grew by 11.2% yoy with a 4.9% NIM on the back of a c.40bps drop in the loans yield to 9.0% in 1Q20. Credit costs ticked up to 160bps with the gross NPLs ratio edging up to 2.4% as of March 2020. Looking forward, BBNI’s management shared the new guidance with targets of 2-4% yoy loans growth, 3.7-4% NIM, a 3.7-4.5% gross NPLs ratio and 300-350bps credit costs for this year.

The gross NPLs ratio should reach 4.2%. We expect the gross NPLs ratio to rise to 4.2% by December 2020F given the slowdown in GDP growth due to the COVID-19 outbreak. As of April 2020, BBNI already restructured IDR69.9tn of loans that were mostly dominated by the small segment at IDR27.4tn. For the small segment, almost 80% of the restructured loans are eligible for the government’s interest rate subsidy. We therefore expect credit costs to increase to 350bps in FY20F, resulting in a 195.7% Loan Loss Coverage (LLC) ratio by December 2020F.

Expect a 3.9% NIM this year. Given the new guidance from BBNI’s management, the NIM should fall significantly to 3.9% this year. This is based on our assumption of a lower asset yield at 6.8% as BBNI’s management provided guidance for potentially IDR146.7tn of loans to be restructured due to the impact of COVID-19 (c.27% of its total loans book as of March 2020). In addition, BBNI will only use the cash basis accounting method for those restructured loans. All in all, net profits are forecast to drop by 86.5% to IDR2.1tn based on our model.

Maintain BUY, new TP of IDR5,000. We maintain our BUY call on BBNI with a new GGM-derived TP of IDR5,000 (implying 0.86x 2020F P/BV) assuming a 10.2% CoE, 9.1% sustainable ROAE and 3% long-term growth. Our TP is at its -1.5 standard deviation of its 10-year mean.

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