BBCA - Solid 1Q23 results, pricey valuations

BBCA’s 1Q23 PATMI grew strong at 43.0%yoy beating both ours and street estimates by 3.7%/3.0%. Loans growth stood at healthy level (12.0%yoy) and came in within the upper range guidance of BBCA’s 23F loan growth (KBVS: 9.7%yoy). Key profitability metrics finished in a solid shape year on year (NIM +110bps) with asset quality improvement remain on track (NPL 50bps higher and LAR 132bps better). In all, BBCA deserves premium valuation, yet traded at its +2SD made the stocks seem have price in its fundamental strength, in our view. Maintain HOLD for BBCA, with TP of IDR8,920 (4.4x ‘23F P/B). BBCA is currently trading at 4.6x ‘23F P/B, or at its +2SD 10-year historical. 1Q23 earnings beating KBV’s and street estimates by 2.7%/3.0%. BBCA’s 1Q23 earnings at IDR11.53tn grew strongly by 43.0%yoy driven mainly by strong net interest income growth (28.0%yoy), solid PPOP which recorded 22.9%yoy higher and coupled with sharp drop in provisions expense by 48.2%yoy. On quarterly basis, top line noted flattish growth as historically 1Q tend to have lower growth than the remaining quarter on the year. Net interest income growth came in at 2.7%qoq with PPOP inched up by 1.3%qoq, while PATMI dropped 2.1%qoq as provisions more than doubled qoq. In all, BBCA’s 1Q23 net profit arrives above KBVs and street forecast at 3.7%/3.0%, whereas in historically first quarter contributes an average (5yr) of 21.8% to its full year. Loans growth surpassing our ‘23F and meets BBCA’s upper guidance BBCA become as one of banking industry recovery momentum beneficiaries. 1Q23 loans grew 12.0% yoy beating industry and (1Q23: 9.9%yoy) our ‘23F loan growth for BBCA at 9.7%yoy. Corporate loans and sharia financing grew strongly by 11.7% yoy and 16.2% yoy, while the highest growth was recorded by consumer segment (automotive) at 15.2%. The bank is guiding loan growth within the range of 10%-12% yoy, or similar to Bank Indonesia expectation for domestic banking industry (KBVS ‘23F at 9.7%yoy). Expecting margin expansion in the remaining quarter On liquidity side, we like BBCA’s TPF growth at 4.1%yoy to IDR1038,75tn supported by strong CA and SA growth by 6.5% yoy and 5.2% yoy, respectively. With strong CASA growth remains (5.7%yoy), we believe liquidity will remain moves within the uphill track and thus will provide enough room for any TPF rate adjustment, aside from it will create better margin expansion. Solid key performance metrics across the boards Aside from continuous CASA improvement, the bank also noted higher NIM to 5.6% from 4.9% in 1Q22, while asset quality also recorded healthier by 50bp to 1.8% in 1Q23 from 2.3% a year earlier with another better cost of credit which declined by 110bps to 0.8% vs 1.9% in 1Q22. Coverage ratio remain strong and surged more than 400bps from 244.8% to 285.4%. We expect to witness BBCA’s 23F NPL to record another better figure (‘23F 1.6%) than FY22 at 1.7%, while on COC, the bank is guiding within the range of 0.70%-0.80% or inline within our forecast for BBCA’s CoC of 0.76%. LAR consistent improvement LAR continue to improves to 9.5% from 13.8% in 1Q22 and 50bps better vs 4Q22 at 10.0% as reopening economy has triggered recovery momentum which led to stronger repayment. Restru loans on Coll.1 even record a stronger amount from 9.5% to 5.8% of total loans in 1Q23 and improves by 31.6%yoy and 12.8%qoq, thanks to consumer, SME and commercial segment. Maintain HOLD, with target price of IDR8,920 In all, BBCA deserved to trade at premium and its solid result signaling the ability to remain resilient in this cautiously optimistic year. Nevertheless, we think at 4.6x ‘23F P/B (5 May 2023 closing price), the stocks seem has price in all its fundamental value. Our GGM Model-derived fair P/B of 4.4x, equal to target price at IDR 8,920, while currently trading at 4.6x ‘23F P/B. Maintain our HOLD stance for BBCA. Risks to our call are: a) lower-than-expected loan growth, NIM and loan yield, b) higher than expected CoC and c) higher inflation, slowing economic activity and d) deteriorating asset quality.