BBCA - Solid results underpinned by recovery momentum

 3Q22 net profit surpassing ours and consensus forecasts amid strong loan growth and solid CASA.

  Management forecasts 2022F loan growth at 8%-10% while 2023F figure will be similar to 9M12 growth rate.

  Despite solid 9M22 result and NIM should continue to strengthen in 4Q22, valuation is already stretched at 4.3x ‘23F PBV hence limit the upside. Downgrade to HOLD, with target price of IDR8,700/share. 

3Q22 earnings beats on NIM expansion and lower provisioning BBCA’s 3Q22 net profit reached IDR10.9 tn or surged by 24.7% yoy (9.2% qoq) and translated into 9M22 earnings of IDR28.9 tn (+24.8% yoy) to IDR10.9 tn, beating ours and consensus’ forecasts at (83%/82% of ours and consensus’ vs 3yr average: 74%). 3Q22 net interest income grew 6.7% qoq and 17.6% yoy to IDR16.3t and brought 9M22 figure at IDR46.1 tn (+9.3% yoy) amid NIM expansion solid loan growth. 3Q22 bottom line was also boosted by a sharp drop in provisions to only IDR191 bn from IDR909 bn (-79.0% qoq). Robust 3Q22 loan growth of 12.6% yoy, surpassing ours and management's guidance 3Q22 loans reached IDR681.9 tn implying a robust growth of 12.6% yoy (+7.1% ytd), mainly driven by corporate segment loans which surged by 13.4% yoy (+6.8% ytd). The consumer segment also saw solid loan growth at 10.4% yoy (+7.6% ytd), supported by the continuing recovery from mortgage loans which increased by 10.4% yoy (+7.7% ytd) to IDR105.0 tn. We believe that the strong growth in mortgage was the result of its initiative in conducting housing expo (new bookings in 3Q22 grew 10.4% yoy to IDR10.5 tn vs. 3Q21 of only 6.5% yoy). We expect robust loan growth to continue as business momentum recovery remains intact and underpin loan demand. We maintain our FY22F loan growth for BBCA at 10% or within the range of management guidance at 8%-10%. 3Q22 NIM expanded by 40bps qoq with solid asset quality NIM was expanded by 40bps qoq to 5.4% and brought the 9M22 figure to 5.1%, thanks to strong loan growth and expanded CASA ratio (81% in 9M22 vs 78.1% in 9M21). We expect NIM to improve further in 4Q22 and maintain our 2022F forecast at 5.3%, still within FY22F management guidance of 5.2%-5.3%. BBCA continue to record solid asset quality with improving gross NPL to 2.2% in 3Q22 from 2.4% in 3Q21 and stronger coverage ratio from 246.4% to 247.9% in 3Q22. LAR inc. covid also improving, stood at 11.7% in Sept ‘22 (-5.4% yoy, -0.6% qoq), with better restructured loans at approximately 7.7% (Sept ‘22) of total loans compared to 8.1% in Jun ‘22 and 12% in Sept ‘21. Maintaining 2022 solid outlook The management forecasts 2022 loan growth to hover within the range of 8%-10% and expect 2023 figure to arrive at around the similar rate of 9M12 result. Despite the continuing macroeconomic challenge and high interest rate environment, we still believe that loan growth could reach management’s upper 2022 guidance. We forecast BBCA’s loan growth to reach 10% in 2022F and 10.5% in 2023F. We also expect BBCA to continuously reporting solid asset quality with 2022F gross NPL at 2.2% (9M21 2.4%), or within the range of management guidance at 2.2%-2.4%. Risk to our call Risks to our call are: a) lower-than-expected loan growth, NIM and loan yield, b) higher-than expected credit cost.