Download PDFSlowing growth due to lower NIMs
- 9M18 net profit grew 12.6% driven by strong asset growth.
- However, core profit fell in 3Q due to NIM pressure, cost growth.
- Credit cost has normalised, thus unlikely to be key earnings driver.
- Reiterate Buy albeit with lower TP of Rp8,650 (from Rp8,900).
Decent results. reported profit of Rp11.4tn in 9M18 (+12.6%), in-line with our FY18F forecast (Rp15.1tn) and consensus estimate (Rp15.4tn). The bank's modest earnings growth was driven by its strong asset growth (loans: +15.6%; deposits: +14.2%), which was well above industry growth, although its operating cost growth has also accelerated (+12% yoy) while loan provisioning was stable (-2.7% yoy). Quarterly profit grew by 5.6% qoq in 3Q but this was largely due to one-off recovery income of Rp400bn from asset sales related to 's 20-year old legacy NPLs and its lower credit cost of 127bps (2Q: 176bps). Excluding this, 's core profit fell by 9% qoq in 3Q due to NIM pressure and strong operating cost growth.
NIM pressure. 's core profit growth slowed to 6.3% in 9M18 due to lower NIM of 5.43% (-23bps yoy) and challenging financial markets in Indonesia, which led to the bank's lower trading incomes. More importantly, we estimate 's NIM narrowed to 5.19% in 3Q (2Q: 5.66%; 1Q: 5.44%) due to lower asset yields and rising cost of funds. 's loan yields (bank-only) declined to 9.7% in 9M18 (1H18: 9.9%), indicating steeper falls during the third quarter alone. 's NIM squeeze in 3Q is our key concern in light of rising rates in Indonesia and the bank's lower scope for credit cost improvements in the coming years.
Asset quality. 's NPL ratio declined to 2.0% in 3Q (2Q: 2.16%) with the improvements seen across all loan segments except for middle corporate loans, which worsened to 3.0% (from 2.7%), while special mention loans also improved to 150%. In line with this, the bank's credit cost fell to an unusually low of 127bps in 3Q (1H: 167bps) while management is guiding for credit cost of 1.4%-1.7% for 2018, with similar credit costs expected for 2019. As such, with the bank's credit cost already normalising this year, we expect asset quality improvements will no longer be a key earnings growth driver for in the coming years.
Valuation. We trimmed our earnings forecasts by 1-2% and our TP to Rp8,650 (from Rp8,900) due to our lower equity book value forecast arising from declining bond prices in Indonesia, which led to unrealised bond revaluation losses in equity capital of Rp3.9tn for the bank. Our TP is based on GGM-derived FY18F P/B target of 1.5x, assuming LT ROAE of 14.5%, growth of 8.5%, cost of equity of 12.5%. We estimate LT ROAE based on our DuPont analysis, assuming LT ROAA of 1.82% and asset/equity leverage of 8x. Reiterate BUY.
Sumber : IPS RESEARCH
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