BBTN - Flat 1H23 earnings; expects stronger 2H23

Despite noted flattish growth, 1H23 earnings is in line with both KBVS and cons. expectation. Ceteris paribus, to reach ours and street 2023 PATMI expectation, BBTN need to book 2H23 earnings growth of 5.5% yoy (KBVS) and 8.8% yoy (consensus) or likely to remain inline as it equal to 51.3%/52.1% compared to 5yr historical average of 53.3%. We expect stronger result in the following month backed by continuing focus on high yield, low-cost funding and steady healthy loan growth, aside from our expectation on continuing AQ improvement and lower provisions as well as manageable CoC. Maintain BUY, with target price of IDR1,770 pegged at 0.7x ‘23F P/B (cons. IDR1,800), while it is currently trading at 0.5x ‘23F P/B, or below its -1SD of 5-yr hist. mean of 0.6x. Flattish earnings growth, prompted by mounting 1H23 CoF Taking at a glance look, BBTN’s 1H23 earnings considerably weak. Yet, net income in 1H23 is inline with KBVs and consensus expectation at 46%/45% (versus excl. pandemic era historical avg. of 47%). PATMI arrives at IDR1.47tn, or grew by only 0.23% yoy, mainly driven by mounting CoF by 42.59% yoy as transmission on benchmark rate increased remain in place. The flattish growth was also helped by 70.26% yoy growth in other operating income and lower provisions by 6.18% yoy to IDR1.94tn. Inline 2Q23 with KBVS and below consensus On quarterly basis, lower interest expenses (1.9% qoq) have made net interest income grew much better vs year on year basis, with PPOP noted a double-digit growth (16.9% qoq) to IDR2.1tn. In the same period, rising provisions has made earnings tanked to IDR673bn. Yet, the figure is inline with our 2Q23F for BBTN amounting IDR680bn and below consensus expectation of IDR733bn. Ceteris paribus, to achieve ours and consensus expectation for 2023 earnings, BBTN need to book 2H23 earnings growth of 5.5% yoy (KBVS) and 8.8% yoy (consensus) or likely to remain inline as it equal to 51.3%/52.1% compared to 5yr historical average of 53.3%. Healthy loan growth with 23.84% growth in CASA Loan continues to grow well in 1H23 (7.52% yoy, 2.6% qoq) to IDR307.6tn helped by subsidized mortgage and non-housing loan which grew by 10.9% yoy and 23.15% yoy, respectively. TPF stood at IDR313.25tn, with CASA grew strongly by 23.8% yoy (2.0% qoq). We also like wholesale funding steady amount and we expect will remain motionless in the following quarter as it will overall benefit BBTN’s interest expense. Worth noting that wholesale funding CoF has softened by 16bps to 6.23% from 6.39% in the previous quarter. Mixed key metrics result NIM contracted by 0.96% yoy to 3.62% in 1H23, yet improving on quarterly basis by around 28bps to 3.8% (2Q23). Cost of fund surged by 1.2% yoy to 3.58%, yet improves vs 1Q23 of 3.62%. CoC improves yoy from 1.48% to 1.29% in 1Q23. Meanwhile, NPL increased by 11bps yoy to 3.66% and by 12bps qoq from 3.54% (1Q23) caused by a downgrade on several debtors which categorized as high-risk profile. We like BBTN step to strengthened its NPL by forming a special task force which focus on what so called with early bucket, to overcome with potential reclassing coll. to NPL as earliest as possible. Tier-1 CAR remain strong at 17.14% (440bps yoy), while cov. ratio continues solid at 140%. Expect weakening risk to remain intact LAR continue to improves to IDR71.2tn, backed by better consistent decrease both in LAR BAU and Covid restructured loans. As of 1H23 LAR (inc. Covid) is around 23.1% from total BBTN’s loan, or 321bps better yoy and 105bps on qoq basis. Aside from LAR, going forward we expect asset quality to remain on its improvement track and thus will overall underpinned NPL to remain well behaved. Maintain BUY with target price of IDR1,770 Our target price is based on Gordon Growth Model-derived fair P/B of 0.7x. BBTN is currently trading at 0.5x ‘23F P/B, or below its -1SD of 5-year historical mean at 0.6x. 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.