BBCA - Leveraging recovery momentum

• BBCA’s 1Q22 net profit rose 14.6% YoY to Rp8.06tn, representing 23.3% of our FY estimate 

• We expect BBCA’s loans to grow 8% YoY in 2022, supported by corporate, commercial & SME, and consumer segments. Furthermore, we anticipate NIM to stand at 5.5% and CIR at 38%. We also estimate credit cost and NPL to hover around 1.5% and 2.3%, respectively 

• Reiterate BUY with 10.5% upside potential on a 12‐month view, backed by 1) growing loans following economic recovery; 2) robust liquidity and capital; 3) prudent lending practices with solid coverage ratio; 4) improving fee based income and CASA through digital banking 

In line with expectations BBCA’s net profit grew 14.6% YoY to Rp8.06tn in 1Q22, accounting for 23.3%/22.2% of our/consensus FY forecasts. Net interest income edged up 2.6% YoY to Rp14.42tn in 1Q22, supported by higher earning assets coupled with lower cost of funds following robust CASA growth. In the midst of monetary easing, NIM declined 40bps YoY to 4.9% in 1Q22 on the back of reduced earning assets yield in line with competitive loan pricing. Furthermore, fees and commissions surged 15.8% YoY to Rp3.98tn in 1Q22, mainly came from CASA related transactions. Trading income escalated 17.4% YoY to Rp614bn in 1Q22. Moreover, operating expenses increased 7.0% YoY to Rp7.78tn with manageable cost to income ratio (CIR) at 35.8% in 1Q22, thanks to digitalization and efficiency optimization. In addition, provision declined 13.4% YoY to Rp2.82tn in 1Q22 amid economic recovery. Solid loan growth with high LAR coverage BBCA’s loans increased 8.5% YoY to Rp621.1tn in 1Q22, driven by corporate, commercial & SME, as well as consumer that rose 9.2% YoY, 8.2% YoY, and 7.6% YoY, respectively. Consumer loan growth was mainly derived from mortgage. However, NPL went up from 1.8% in 1Q21 to 2.3% in 1Q22, following a downgrade of debtor in textile sector. As of March 2022, current restructured loans decreased to Rp58.6tn or 9.5% of total loans, with LAR declining to 13.8% from 19.4% in 1Q21. Provision was relatively solid as NPL coverage ratio stood at 224.8% in 1Q22 to anticipate deteriorating asset quality. LAR coverage including off balance sheet rose from 29.7% in 1Q21 to 44.7% in 1Q22. Meanwhile, liquidity was ample with LDR down from 67.9% in 1Q21 to 62.7% in 1Q22. Furthermore, CASA ratio expanded from 77.5% in 1Q21 to 80.3% in 1Q22, reflecting strong transaction banking franchise amid higher mobile and internet banking from digital transactions as well as customer base. Moreover, capital remained robust with CAR stood at 23.9% in 1Q22. Strong CASA and ample liquidity as competitive advantages We maintain our BBCA’s loan growth assumption of 8% YoY in 2022, bolstered by corporate following economic recovery as well as consumer segments particularly from mortgage and credit cards. In addition, management expects use of existing credit limit in commercial and SME to increase as mobility improves. The bank will stay focused on high quality growth by applying prudent risk management. Furthermore, we estimate NIM to stand at c.5.5% by the end of this year in the midst of loan repricing. We anticipate that cost of funds will be manageable despite tight monetary policy given its superior CASA ratio coupled with ample liquidity, thus keeping time deposit rates low. Moreover, we see that fee based income will grow further following digital banking development. We also expect cost to income ratio to be at 38% in 2022 amid improving economy. In addition, we forecast that cost of credit will be at 1.5% with NPL to hover around 2.3% this year. Management anticipates that LAR will improve to c.12% by the end of 2022. Meanwhile, we view that capital will remain robust to support its business expansions and higher dividend payments in the future. Reiterate BUY on the back of prudent risk management and robust capital We maintain our BUY call with a higher GGM‐based price target of Rp8,700/share, assuming ROE of 16.2% and cost of equity of 10.0%. Note that at our price target, the stock would trade at a 2022F PER of 30.9x and PBV of 4.8x. We remain sanguine on BBCA’s outlook, driven by 1) growing loans following economic recovery and soaring commodity prices as well as government’s commitment on infrastructure and investment; 2) robust liquidity and capital to cater loan demands; 3) prudent lending practices reflected by lower NPL compared to its peers coupled with solid coverage ratio that put the bank as our top pick during any unexpected headwinds; as well as 4) improving fee based income, efficiency, and CASA through digital banking development. However, we note several downside risks to our recommendation, namely 1) lower loan growth and yields than expected; 2) weak purchasing power pertaining to higher inflation, Rupiah depreciation, and sluggish commodity prices; as well as 3) further NIM and asset quality deterioration.