BBNI IJ - MNC Sekuritas Equity Report 04 February 2021

PT Bank Negara Indonesia (Persero) Tbk (BBNI IJ)

Banking Sector

Potential Reversal as Management Focus on Stronger Asset Quality

Higher Provision drag FY20 Earnings down 78% YoY

• Net profit recorded at IDR3.28 tn (-78.68% YoY) in FY20, slightly below our est., reaching 87%/84% MNCS/cons; due to the 155.6% YoY rise on provisioning to IDR22.59 trillion.
•  Net Interest Income growth came in at 1.50% YoY, while NIM stood at 4.50% (vs 4.90% in FY19).
•  Total Asset grew by 5.40% YoY to IDR891.34 tn in FY20, driven by a 5.30% YoY/10.60% YoY growth from Loan and Third Party Fund respectively in FY20.
•  Loans in FY20 increased to IDR586.21 tn supported by stellar performance in small segment, soaring by 12.30% YoY followed by corporate private segment (+10.30% YoY) and corporate SOE (+2.5% YoY)
•  Third-Party Fund climbed to IDR679.45 tn in FY20 with CASA at a higher level of 68.40% (vs 66.80% in FY19) backed by the increase on Current account and Savings account (+9.90% YoY/+17% YoY).
•  NPL stood at 4.3% level in FY20. Subsequently, BBNI has restructured IDR102.39 tn of loan as of FY20 equals to 18.60% of the total loan.

FY21E Company Guidance: Revenue could stabilize while Balance Sheet close to monitoring

•  Management expects loans to gradually pick up by 6%-9% in FY21E and 10-30 bps targeted margin improvement.
•  NIM expected to come in 4.6%-4.8%.
•  Credit Cost expected to recover at 3.3% - 3.6% while NPL could drop below 4%.
•  Asset quality should need close monitoring with several loans are undergoing restructured; assuming IDR33Tn loans to fall into stage 3 category over two years.
•  We set our NIM target at 4.77% in FY21E supported by stabilizing cost of fund.
•  Earnings could significantly recover starting in 2H21E, with NPL possibly plunge to 3.9%.

Sustainable Portfolio on ESG  standards; retained the ‘BBB rank’ of MSCI’s ESG Ratings

BBNI IJ is now focusing on their digital initiatives to aim for mobile banking to become a dominant banking channel for customers. Moreover, BBNI also focuses on their green portfolio, which equals 25.4% of total loan while implementing ESG with its focus set on renewable energy and social forestry in FY21E.

Maintain BUY with lower TP of IDR7,800

We continue to maintain our recommend BUY for BBNI IJ with a lower target price at IDR7,800 (from IDR8,100) which implied PBV FY21E/FY22F at 1.22x/1.10x. BBNI is currently traded at -1STD PBV (5-years average) at 1.09x level. We believe BBNI's strategy to increase its provision and secure the liquidity is quite decent amidst the difficult time, aligning with their moderate performance guidance for FY21E. Hence, we believe that FY20 performance has already bottomed-out, and earnings should start to bounce back by 163% YoY in FY21E. Potential downside risks include a slower economic recovery amid pandemic. Any recoveries from written-off loans may be a positive surprise.

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