Expecting in-line FY18F results. Bank Negara Indonesia (BNI) is scheduled to report its FY18 results on January 23, 2019. We are expecting the bank to report a relatively in-line results as indicated by its recent 11M18 unconsolidated performance. Until the eleventh month 2018, BNI booked IDR13,341bn unconsolidated net profit which represents 87% of our FY18F consolidated net profit of IDR15,348bn.
Lending growth at the highest end of the target range… Lending growth is projected to reach the highest end of the target range of between 13% and 15% YoY. At end November 2018, total loans grew by 15.5% YoY and 12.4% YTD to IDR469tn. The lending growth is expected to be driven from the corporate, consumer, and small segment.
… with manageable quality. NPL ratio at end 2018 is estimated to be in line with the management guidance of around 2.2%, compared to 2.3% a year before. At end September 2018, the NPL ratio stood at 2.0%. The improvement would have come from across segments, except medium segment which is projected to still show a relatively high NPL level. With the expected manageable loan quality in addition to its adequate loan loss coverage (9M18: 152%), FY18F credit cost is estimated to be at around 1.4% and 1.5% as targeted by the management. In 11M18, credit cost was stood at 1.4%.
Margin compression to be the major challenge. Margin compression is indicated by lower net interest income growth of just 11.3% YoY in 11M18 vs. loan and deposit growth of around 15% YoY. In 9M18, consolidated NIM (5.3%) decreased by 20bps YoY and 10bps QoQ. While earlier compression was mostly due to declining lending yield, rising funding cost, which in line with rising market rates, would add the pressure to the margin. However, we do not expect the compression to be severe, as BNI’s funding growth was majorly driven by cheap funding, i.e. current accounts which soared by 28.4% YoY, followed by savings by 11.1% YoY, compared to more expensive time deposits growth of 10.1% YoY at end November 2018. The portion of cheap CASA funding dominated total third-party funds at 64% at end November 2018.
Maintain BUY but recommend better entry price. We keep our BUY recommendation on BBNI due to its attractive valuation compared to closest peers in addition to the bank’s healthy expansion and stronger fundamentals. However, due to the share price rally in the past weeks, we recommend waiting for better entry price to accumulate the counter again.
