BBNI - Inline earnings, healthier NPL and much lower CoC

Inline 1H23 results as well as improving NPL and stronger coverage should become as a solid base to enter the 2H23. Solid loan growth driven by lower risk segments and supported with stable improvement in CASA to loan will become as additional catalyst. Likewise, the sustainable CoC improvement amid sturdier LLR built up for its construction-related debtors has boost BBNI's defensive asset quality. Maintain BUY with TP of IDR11,160 (1.4x ‘23F P/B), while it’s trading at 1.1x ‘23F P/B, or at its 5-yr hist mean In-line 1H23 earnings BBNI recorded another solid earnings result in 1H23, with earnings grew by 17.0% yoy to IDR10,302bn underpinned by 18.7% yoy growth in interest income and lower provisioning charges by -29.5% yoy as better asset quality remain intact. In all, 1H23 PATMI was in line with street forecast and beating our forecast at 48%/51%. On a quarterly standalone, net profit -2.7% qoq lower on higher provisions by 9.9% qoq and flattish interest income growth. Yet, it arrives above our ‘2Q23F at IDR4,970bn (BBNI 2Q23 earnings at IDR5,081bn), while on cumulative basis 1H23 PATMI came in considerably inline with our 1H23F for BBNI at IDR10,191bn. Growth driver remain from lower risk segments Loan growth at 4.9% yoy was mainly driven by corporate private (16.6% yoy) and we like its SoE segment which by design noted a stable declining growth (-10.2% yoy). Consumer loan saw 11.7% yoy growth and we expect will continue to helped the overall growth in FY ’23, aside from medium segment (enterprise and commercial) which we think will act as additional growth driver. Higher TPF growth with solid CASA to loan We like the overall 1H23 TPF growth at 10.6% yoy (1Q23: 7.4% yoy), surpassing our ‘23F for BBNI’s TPF at 9.1% yoy. Likewise for TD growth, which noted less than a half of CA growth (9.3% yoy vs 20.8%). On low-cost funding, CASA funds also remain solid, grew by 11.1% yoy to IDR532,339bn, with CASA ratio saw 40bps yoy higher and grew stronger on quarterly basis by 70bps qoq to 70%. CASA to loan also continue on its sweet spot and much stronger compared to pre Covid level which stood at 82.2% from 77.3% in 1H22 and continue plays increasing role in financing for loan expansion. That said, a stronger CASA to loan should be translated as a better cushioned on funding cost pressure. Key metrics meet with guidance 1H23 NIM at 4.6% arrives closed to ‘23F management guidance at ≥4.6%, while npl saw continuous improvement to 2.5% (70bps yoy, 30bps qoq), prompted by meaningful drop in corporate segment to 26.4%, from 38.8% in 1H22. A well build NPL coverage at 308.8%, or 455bps yoy higher vs 263.3% in 1H22 (higher by 220bps qoq in 2Q23) should interpreted as a better and healthier position for BBNI going forward. Likewise, BBNI’s CoC which 70bps yoy and 10bps qoq lower at 1.4% (1H23) is within BBNI’s ‘23F expectation at <1.5% (KBVS ‘23F CoC for BBNI: 1.55%). Defensive enough AQ with PATMI potentially arrived higher We keep our ‘23F CoC assumption for BBNI at 1.55%. Other things being equal, our what-if analysis revealed that for every 10bps increase in CoC, PATMI will be squeezed by around 2.2%, vice versa. Assuming BBNI will reach its ‘23F guidance, then 2023 PATMI will be 220bps above our ‘23F base case number at IDR20,295bn (10.8% yoy). On the latest asset quality position update, we think BBNI has an adequate coverage for its watchlist construction debtors. As a total for both WIKA and WSKT which accounted for only 1.43% of total loan in 1H23, LLR ratio has become sturdier with total coverage increased by 690bps to 53.5% from 46.6% in Dec22. Maintain BUY with target price of IDR11,160 Our target price is based on Gordon Growth Model-derived fair P/B of 1.4x. BBNI is currently trading at 1.1x ‘23F P/B, or slightly above its 10-year historical mean at 1.2x. Risks to our call are: a) lowerthan-expected loan growth, NIM and loan yield, b) higher than expected credit cost and c) higher inflation, slowing economic activity and d) deteriorating asset quality.