BBTN - Solid base to stand out among the crowd

In all, we like BBTN FY22 result which should become a strong groundwork to kick off 2023 performance. Fresh flush capital post right issue means a better capacity to capture potential robust mortgage demand going forward, while a strategy focusing on high yield loans could maintain NII remain solid and this should be translated to a better NIM, amid the transmission rising policy rate phase. Asset recovery will provide additional support for a healthier capital, saving more on provisions and enhancing NPL further. Maintain BUY, with target price of IDR1,770 (0.7x ‘23F P/B) while it is currently trading at 0.5x ‘23F P/B, or slightly above its -2SD of 10-year historical mean. Both 4Q22 and FY22 beat our’s and street forecast Albeit recorded 4.2% qoq drop, BBTN’s 4Q22 PATMI at IDR770 bn arrives ahead of our and street expectation at IDR595 bn and IDR667 bn, driven mainly by sharp drop in interest expenses by 32.8% qoq. On cumulative basis, FY22 earnings grew strong by 28.2% yoy to IDR3.04 tn, backed by strong net interest income which stood 14.7% yoy higher to IDR15.14 tn and with the help from PPOP solid growth at 19.7% yoy to IDR7.9t tn. FY22 earnings beat KBVs and cons. estimate at 106.1%/105.1%. Solid loan growth with higher optimism in ‘23F Loans grew by 3.0% qoq and 8.5% yoy in 4Q22 to IDR298.28 tn, and arrives closed to ‘22F management guidance at 9%-10% (KBV’s at 9.3% yoy). Housing loans remain as the backbone, which accounted 87.74% of total loan and grew by 6.9% yoy to IDR261.70 tn driven by subsidized mortgage segment growth at 11.61% yoy. Of the total loan board, corporate loan saw the highest at 29.14% yoy, bringing the total non-housing segment loan grew by 21.87% yoy. BBTN is guiding ‘23F loan growth at 10%-11%, which we think achievable as robust FLPP channeling should continue. Continuing cheaper deposits mix In the same period, TPF reached IDR321.93 tn, grew by 2.9% qoq and 8.8% yoy and surpassing our ‘22F TPF for BBTN at IDR308.51 tn. Deposits mix saw another improvement in CASA for the 2 years in a row at 48.52% in 4Q22 vs 44.30% in 4Q21 and 41.11% in 4Q20, thanks to CA solid growth at 43.9% yoy to IDR114.0 tn, while TD portion only inched up by 0.53% yoy. The bank is targeting deposits growth to hover within the range of 10%-11%. Improving key performance metrics BBTN saw better non-performing loan (NPL) by 32 bps to 3.38% on the back of improving collectability 5 by 9.2% yoy. On the segment basis, non-housing saw the highest enhancement to 3.44% vs 5.18% last year. Coverage ratio getting stronger at 155.65% vs 141.82% in FY21. BBTN expect to witness ‘23F NPL to sit below 3% with coverage ratio at more than 160%. On profitability, NIM saw 41 bps higher figure to 4.40%. The bank also booked healthier and stronger capital, with Tier-1 capital reached IDR22.53 tn, grew by 21.59% yoy with solid Tier-1 CAR at 16.13%, or 233 bp yoy higher from 13.80% in FY21 and around 163 bps vs our forecast at 14.5%. On the cost side, BBTN enjoyed another lower CoF from 3.13% to 2.60% in FY22. The 53 bps lower should be a good start to manage the transmission rising policy rate without sacrificing mild NIM contraction, in our view. Stronger capital, bigger loan capacity With a new flush capital received from right issue amounting IDR4.13 tn, BBTN could increase its capacity in loan channeling from 800k units in 5-years period to around 1.32 mn units and this means a momentum for a better room for growth with a stronger capital going forward. Maintain BUY with target price of IDR1,770 Our target price is based on Gordon Growth Model-derived fair P/B of 0.7x. 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.