BBCA - Remains prudent amid headwinds

• BBCA’s 1H22 net profit grew 24.9% YoY to Rp18.05tn, representing 51.9% of our FY estimate 

• We raise BBCA’s loan growth assumption to 10% YoY in 2022, supported by corporate, consumer, commercial and SME. The bank stays focused on high quality growth and leverages its ample liquidity and superior CASA ratio. Furthermore, we expect NIM to stand at c.5%, while cost of credit and NPL to hover around 1.5% and 2.2%, respectively 

• Reiterate BUY with 18.4% 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 surged 24.9% YoY to Rp18.05tn in 1H22, accounting for 51.9%/49.0% of our/consensus FY forecasts. Net interest income went up 5.5% YoY to Rp29.67tn in 1H22, helped by higher earning assets and lower cost of funds in line with robust CASA growth. In the midst of loose monetary policy, NIM declined 30bps YoY to 5.0% in 1H22 on the back of lower earning assets yield following competitive loan pricing. Furthermore, fees and commissions grew 15.0% YoY to Rp8.17tn in 1H22, mainly contributed by CASA related transactions. Trading income decreased 55.3% YoY to Rp450bn in 1H22. Moreover, operating expenses increased 6.1% YoY to Rp15.18tn with manageable cost to income ratio at 34.3% in 1H22, thanks to digitalization and efficiency improvement. In addition, provision plunged 43.1% YoY to Rp3.73tn in 1H22 amid economic recovery. Strong loan growth supported by superior CASA Amid rising business activities, BBCA’s loans grew 13.8% YoY to Rp658.9tn in 1H22 as corporate, commercial and SME, as well as consumer escalated 19.1% YoY, 10.9% YoY, and 7.6% YoY, respectively. Asset quality improved with NPL declining from 2.4% in 1H21 to 2.2% in 1H22. As of June 2022, current restructured loans decreased to Rp53.4tn or 8.1% of total loans, with LAR shrinking from 19.1% in 1H21 to 12.3% in 1H22. Provision was solid as NPL coverage ratio stood at 246.4% in 1H22 to anticipate deteriorating asset quality. LAR coverage including off balance sheet rose from 32.0% in 1H21 to 47.9% in 1H22. Meanwhile, liquidity remained ample with LDR at 65.7% in 1H22. Furthermore, CASA ratio expanded from 78.2% in 1H21 to 81.2% in 1H22, reflecting strong transaction banking franchise in line with higher mobile and internet banking transactions as well as customer base. Moreover, capital was robust with CAR stood at 24.7% in 1H22. Riding recovery momentum We revise up our BBCA’s loan growth assumption to 10% YoY in 2022, supported by corporate following improving economy, consumer particularly from mortgage, vehicles, and credit cards, as well as commercial and SME. Investment loans started to recover, while working capital loans have returned to pre‐pandemic level. The bank stays focused on high quality growth by applying prudent risk management. In the midst of tight monetary policy, we believe that BBCA will benefit from its ample liquidity and superior CASA ratio that help maintain NIM at c.5%. However, we deem CoF reduction is already limited. As the nature of consumer loans is price sensitive, the bank will refrain from raising lending rates, unless there are significant hikes in benchmark rate. Moreover, we see that fee based income will grow further in line with rapid digital banking development. In addition, we anticipate cost of credit to hover around 1.5% with NPL at 2.2% this year. Management expects LAR will continue to improve. Meanwhile, we view that capital will remain robust to support business expansions, while providing leeway for 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 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 30.7x and PBV of 4.9x. We remain sanguine on BBCA’s outlook, driven by 1) growing loans following economic recovery and surging 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) aggressive rate hikes; 3) weak purchasing power pertaining to soaring inflation, Rupiah depreciation, and sluggish commodity prices; as well as 4) further NIM and asset quality deterioration.