BBTN - Expecting stronger results in the following quarters

Flattish 1Q23 earnings growth (+3.4% yoy) still acceptable in our view. On the positive side, mounting CoF (1Q23: 43.5% yoy) could overall cushioned BBTN’s 2023 top line growth. Assuming it has peaked in 1Q23 and focus on high yield loans continue, we expect to witness ‘23F earnings to grow stronger (KBVS: 6.3% yoy and consensus 7.3% yoy). As one of the largest subsidized mortgage bank providers, loan channeling likely to arrive within similar figure with 2022. We also like BBTN’s sturdier capital position, which could translate into a bigger loan capacity. Maintain BUY, with target price of IDR1,770 (0.6x ‘23F P/B) while it is currently trading at 0.5x ‘23F P/B, or slightly above its -2SD of 10-year historical mean of 0.4x. 1Q23 earnings surpassing KBVs and in line with cons expectation BBTN 1Q23 earnings stood at IDR801 bn, or +3.42% yoy as transmission of benchmark rate hikes takes place and made CoF came 121bps higher to IDR3.5tn (43.48% yoy). Manageable opex (+5.45% yoy) and well managed provisions expenses (-4.69% yoy) are main drivers for 1Q23 PATMI growth. Despite recorded soft growth, in quarterly basis, 1Q23 net profit surpassing KBVs 1Q23F for BBTN by 2.36% and above our forecast by 1.29%, whereas historically 1Q23 contributes around 23.5% to its full year figures (consensus was in line at 0.90%). Expecting 2023 PATMI growth to remain solid Following low based earnings effect which made prior growth looks stunning, we view ‘23F earnings could remain arrived higher year-on-year at +6.3% yoy. Our forecast for BBTN ‘23F PATMI will be supported by 10.6% yoy growth in net interest income and manageable opex, aside from provisions expenses which we expect to continue lower year-on-year (1Q23: -4.69% yoy). Should BBTN need to make another CoF adjustment, we view the continuing loan growth momentum; coupled with pick up in loan yield could overall cushions net interest income growth to remain positives. Ceteris paribus, assuming CoF have peaked in 1Q23, we expect to witness BBTN’s earnings to grow stronger than our assumption. Worth noting that consensus expecting BBTN ‘23F earnings to grow by 7.9% yoy, or approximately 160bps higher than KBVs. Healthy solid loan growth with TPF remain ample Loans grew by 8.2% yoy to IDR299.74 bn, inched up by 0.5% qoq and arrives closed to FY22 growth at 8.5% yoy. Subsidized mortgage grew by 10.9% yoy and contributes almost half to total loan, while as a total for housing loan was 6.4% yoy higher (contributes 88.3%). 1Q23 loan growth also supported by total non-housing loans which grew 23.1% yoy and made up around 11.7% of BBTN’s total loans. On liabilities side, TPF noted a healthy growth at 10.1% yoy, with 8.04% yoy higher (3.7% qoq) CASA from 44.2% in 1Q22, thanks to CA strong growth and a 5.8% yoy drop in TD funds. Manageable key performance metrics BBTN saw another well-managed key performance metrics. NPL remain well behaves, 6bps better to 3.54% from 3.60% in 1Q22 with coverage ratio at 145.90% (1Q23). Likewise for LAR coverage which recorded solid figures at 40.13%, sharply improves from 38.38% a year earlier. NIM slightly contracted by 78bps yoy to 3.51%. We expect NIM to recover in the following quarters backed by stable earnings assets growth tied with stronger net interest income as we assumed soften CoF hikes in the following quarters and BBTN will continue to focus on high yield loan. Stronger loan capacity BBTN also booked healthier and stronger capital, with Tier-1 CAR stood at 137bps higher on quarterly basis and surged 427bps yoy to 17.5%. With such stronger capital we view BBTN could increase its capacity in channeling loans and thus providing a better room for growth going forward. Maintain BUY with target price of IDR1,770 Our target price is based on Gordon Growth Model-derived fair P/B of 0.6x. BBTN is currently trading at 0.5x ‘23F P/B, or slightly above its -2SD of 10-year historical mean at 0.4x. Risks to our call are: a) lower-than-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.