BBNI - Solid start to enter the possible headwind

BBNI’s strong 2022 result become as solid fundamental start. Notwithstanding the global uncertainty, 2023 will be another good year for BBNI, in our view. Transmission policy rate to loan pricing and CoF rate is not our concern, as we believe resilient domestic economy will become the key to loan demand. Mild NIM contraction sounds acceptable and likely would not create much disruption to earnings growth, since asset quality should remain manageable and hence will help provisions to continue steady with a potential low-slung CoC. Maintain BUY for BBNI, with higher TP of IDR11,160 (1.4x 2022F P/B). BBNI is currently trading at 1.3x ‘23F P/B, or slightly above its 10- year historical mean at 1.2x. 2022 earnings beats KBVs and consensus PT Bank Negara Indonesia (Persero) Tbk (BBNI) FY22 net profit surged 68% yoy to IDR18.3tn and beats KBVs and consensus expectations (6.4%/3.2%). The growth was mainly driven by 8.0% yoy higher in net interest income, 10.8% yoy growth in PPOP and a sharp drop in provisions expenses by 37.1% yoy. On a quarterly basis, net profit grew strongly at 46.6% yoy, thanks to solid 16.5% yoy net interest income growth coupled with strong improvement in provisions by 42.5% yoy. Nonetheless, as the bank adjusting its cost of TPF on the back of policy rate hikes, interest expenses has been mounted (35.5% qoq) and impacting to 4Q22 net profit which declined by 5.5%qoq. 4Q22 loans growth came in at 10.9% yoy, 3.8%qoq. Loan growth grew at healthy level (10.9% yoy, 3.8% qoq), arrived around 90 bps above management guidance at 7%-10% and slightly closed to industry loan growth at 11.35% yoy. We like BBNI’s loan growth which mostly came from lower risk segment (corporate private at 28.9% yoy and consumer at 11.2% yoy). Likewise for its business banking on large commercial and KUR segment which recorded solid growth at 29.9% yoy and 19.8% yoy, respectively. The weakening loan channeled, by design, from corporate SoE (-14.4%yoy, -6.1%qoq) could bring more benefit as the bank likely to be more selective, in our view. Management recapped ‘23F loan channeled conservative target at 7%-9%, albeit the industry is eyeing for higher amount at 10%-12%. Vigorous NIM amidst climbing CoF trend On profitability, NIM improve by 15bps to 4.81% in 2022. Mild NIM contraction by 17bps qoq to 4.85% in 4Q22 should become as a good start to enter the 2023 high interest rate environment. Amid the transmission rate momentum which has lifted CoF to 1.75% from 1.40% in 3Q22, NIM continue to resilient at healthy level and remain above 4Q21 level at 4.40%, thanks to loan repricing which in line with BBNI’s strategy (loan yield stood at 7.76% in 4Q22, vs 7.51% in 3Q22 and 7.25% in 4Q21). We expect to witness another round of repricing this year. BBNI guiding NIM at minimum of 4.7%, from 4.5%-4.7% initially. Revising up 2023F NIM and CoC for BBNI We revised up our ‘23F NIM for BBNI from 4.7% to 4.8% (BBNI guidance at minimum of 4.7%, from 4.5%-4.7% initially). Post revisiting our model, we also came with a 20bps higher of loan growth assumption to 9.20% (BBNI’s target at 7%-9%). Given the potential continuing uncertainty which could lead as a headwind for loan demand, we prefer to remain conservative. However, we expect asset quality to remain well managed which will potentially made provisions remain at low level and hence helping earnings growth to hover at double digit level. We also expect to witness lower CoC in 2023 at 1.55%, slightly above BBNI figure which aims to record below 1.5%. Maintain BUY with higher 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 1.3x ‘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