BBTN - Solid 3Q23 earnings growth; In-line 9M23

BBTN recorded flattish 9M23 earnings growth, yet increasing sharply on quarterly basis. In all, 9M23 results arrives in-line with our projection while below street forecast at a run rate of 72%/70% (5yr hist. average excl. covid: 74%). Loan growth arrives within BBTN’s guidance, while key metrics are reported better qoq. We believe asset bulk sales will play key role to NPL improvement in 4Q23, while latest VAT incentives could positively impact to non-subsidized loan performance. BBTN’s plan to acquire one of major sharia bank in Indonesia is expected to turn into reality soon. Maintain BUY with GGM-based TP of IDR1,770, pegged at 0.6x ‘24F P/B, while it trades at 0.4x ’24F P/B or slightly above -2SD hist mean. Flat 9M23 earnings growth, yet sturdy quarterly performance BBTN’s 9M23 earnings grew flat at 1.7% yoy to IDR2.3 tn, amid mounting cost of funds which translated to 43.9% yoy rise on interest expenses. Soaring non-interest income by 67.4% yoy and improving cost to income does not help much as provisioning rose 12.3% yoy. Yet, on quarterly basis, the bank booked a solid result, whereas PATMI surged 24.5% qoq on the back of soft increase in cost of fund and better NIM qoq as well as a sharp drop in provision expenses by 17.4% qoq. In all, 9M23 results arrives in-line with our projection yet below street forecast at a run rate of 72%/70% compared to 5yr historical average (excl. covid) of 74%. Loan growth beats industry yet within guidance range Loan and financing growth stood at 10% yoy to IDR318.3 tn, arriving above industry loan growth and within management range expectation of 10-11% yoy. The growth was mainly driven by subsidized-mortgages (11.9% yoy) which outpaced the non-subsidized mortgage (6.7% yoy). Worth noting that corporate loan grew very strong at 39% yoy, with total non-housing loan growth at 23.1% yoy and improve significantly from the previous cumulative period in 1H23 of only 11.5% yoy. On the liability side, third party fund poor growth was acceptable in our view, as the industry and several banks are booked around the same figure amid the tight liquidity situation. We like BBTN’s CASA which remain solid, growing by 11.6% yoy. Better key metrics on quarterly basis Key performance metrics struggling on yoy, yet recorded much better result on quarterly basis. NIM inched up by 14bps qoq to 3.76% while NPL slightly better from 3.66% to 3.53% and closed to ‘23F BBTN’s guidance of <3.5%. CIR also showed an improvement by 170bp yoy and to 46.7% Asset bulk sales execution to reduce NPL We expect an immediate impact on lower NPL following the execution of BBTN’s bulk asset sales in 4Q23 amounting IDR900 bn with all of the NPL has been fully provisioned and green-light from various stakeholders have been pocketed. BBTN also aim for another round of bulk asset sales next year which will significantly drive NPL improvement. Expecting VAT incentive to boost non-subsidizes mortgage We think BBTN will become as one of the beneficiaries of latest government VAT incentives for houses tag price between IDR2-5 bn, given its non-subsidized mortgage segment accounted around 30% of the total loan and financing. BBTN has introduced sales centre to serve customer demand and supports its double digit nonsubsidized mortgage growth. We like these initiatives as better loan yield will overall underpin the bank to record a better NIM. Worth noting that the segment growth has been improving (127 bps) from 5.37% yoy in 1Q23 to 6.64% yoy in 9M23. Sharia bank acquisition BBTN plans to acquire one of major sharia bank in Indonesia and has reportedly received the green light from Ministry of SOE, hence we expect this corporate action will be turned into reality soon. The bank recorded a continuing improvement on its sharia business unit, with earnings frog leaped by 70.4% yoy or nearly doubled vs 1Q23 growth of 39% yoy and total asset growth of 17.3% yoy to IDR48.4 tn. Maintain BUY with target price of IDR1,770 Our target price is based on Gordon Growth Model with fair 2023F P/B of 0.6x. The bank is trading at 0.3x ’24F P/B, or slightly above its -2SD of hist mean of 0.3x. Risks to our call are: a) lower-than-expected subsidized, non-subsidized growth and total loan growth, NIM and loan yield, b) mounting CoF and CoC c) higher inflation, and d) deteriorating asset quality.