BBNI - Solid start to facing any uncertainty surprise

BBNI’s 1Q23 results came in above ours and consensus forecasts (2.1%/1.2%) and this should become a solid fundamental start. Ceteris paribus, we expect the transmission policy rate to CoF and loan yield could normalize and thus could help the bank to reach its ‘23F NIM guidance (>4.7%), while consistent asset quality improvement will overall underpin BBNI to book lower CoC (‘23F guidance at below 1.5%). Maintain BUY on BBNI with TP of IDR11,160 (1.4x ‘23F P/B), while it’s trading at 1.1x ‘23F P/B, or slightly below its 10-yr historical mean at 1.2x. 1Q23 earnings beats KBVs and street expectations PT Bank Negara Indonesia (Persero) Tbk (BBNI) 1Q23 net profit grew by 31.8% yoy to IDR5.22 tn and surpassed KBVs and street estimates by 2.1%/1.2%, whereas historically first quarter result was contributed an average of 23.6% in the past 5 year. Compared to our banking stocks universe, BBNI as one of our top picks stood at the second strongest earnings growth following BBCA. On quarterly basis, PATMI grew by 13.0% qoq from IDR4.62 tn in 4Q22 and around 2.4% above our 1Q ‘23F earnings for BBNI of IDR5.09 tn. Expecting similar growth driver for 2023 We expect 1Q23 solid earnings growth to continue in the remaining quarter and BBNI’s FY23 PATMI could reach ours and consensus expectations of IDR20.29 tn and IDR21.62 tn, respectively. Our assumption on ‘23F net profit will be driven by 8.0% yoy higher in net interest income, 4.9% yoy growth in PPOP (1Q ‘23 1.4%YoY) and coupled with the help from the drop in provisions expenses by 9.6% yoy (1Q ’23 declined sharply by 40.3% yoy). Worth noting that KBVs FY23F earnings growth for BBNI was considerably more conservative at 10.8% yoy vs consensus at 18.1% yoy. Loan growth managed to arrives within guidance Loan channeled arrived within BBNI’s ‘23F loan target, grew at a healthy level of 7.2% yoy to IDR634.3 tn. The growth was mainly driven by the corporate segment which saw 21.1% yoy higher and coupled with the help from medium enterprises, KUR and personal loan which altogether grew by 12.9% yoy and contributes around 23.1% to total loans. The weakening loan growth by 16.8% yoy reported from the corporate SOE segment which likely by design is in line with our expectation and thus could benefit the overall loan quality as the bank will be more selective in channeling loans. Management maintains ‘23F loan growth conservative target at 7%-9% (KBVS at 9.2% yoy) , albeit the industry is eyeing for a higher amount at 10%-12%. Expecting 2023 NIM to arrive around 2022 level. On profitability key metrics, despite BBNI’s NIM only inched up by around 20bps higher to 4.7%, we think with the stable outlook expectation on loan yield in the remaining quarter and loan growth remain stays on BBNI’s loan growth guidance, NIM could arrived above 1Q23 figures. The bank eyeing its 2023 NIM to arrive above 4.7%. CoF stood at 1.9% or 50bps higher yoy and considerably flattish on quarterly basis from 1.8%. We think that the potential of CoF that likely to peaked in 2Q23 and start to move calmer in the 2H23 could overall support NIM to remain arrives within management expectation. Asset quality likely remain manageable We like BBNI asset quality related metrics which continue to record solid evolution. Cost of credit in 1Q23 reported dropped 110bps to 1.4% from 2.5% in 1Q22 and improved by 20bps qoq from 1.6% in 4Q22. NPL also representing robust asset quality which stood 70bps better from 3.5% to 2.8% in 1Q23, with sturdier NPL coverage by 367bps to 286.8%. Likewise, improving risk profiles was consistently reported, whereas in 1Q23 LAR including Covid record a stunning recovery by 580bps from 22.1% in 1Q22. BBNI is guiding CoC to arrive below 1.5%, while on NPL side we expect BBNI’s continuing better asset quality could beat our ‘23F NPL for BBNI at 2.78% (1Q23 at 2.8%). 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.