Bank Central Asia, Tbk (BBCA)

Facing Profitability Challenge

Company Update 1Q 17 | April 27, 2017

Net Profit Backed by Other Operational Income

BBCAs net profit increased by 10.5% from the net profit of IDR4.5 trillion in
Q1 2016 into the net profit of IDR5.0 trillion in Q1 2017. The hike in the net
Hold
profit stemmed from the growth in other operational revenue increasing by Dec 2017 TP (IDR) 18,500
11.5% into IDR13.5 trillion. Consensus Price (IDR) 17,897
TP to Consensus Price +3.4%
Continuous Increase in NPL
vs. Last Price +6.5%
Although BBCA was capable of booking profit growth, the loan distribution
quality in Q1 2017 still troubled. It was mirrored in non performing loan
(NPL) ratio continuously increasing from 1.3% in the end of 2016 to 1.5% Shares data
in Q1 2017. Last Price (IDR) 17,375
Price date as of April 26, 2017
The hike in NPL was mainly contributed by commercial loan and small
52 wk range (Hi/Lo) 12,775/16,250
medium enterprises (UKM) divisions. Debtors in coal and transportation
Free float (%) 50.8
sectors gave significant contribution for BBCAs NPL ratio. In particular,
Outstanding sh.(mn) 24,655
there was one taxi company contributing IDR500 billion for BBCAs NPL.
Market Cap (IDR bn) 428,381
Lowered NIM Market Cap (USD mn) 32,245
From the margin outlook, BBCA booked the net interest margin (NIM) of Avg. Trd Vol - 3M (mn) 17.7
6.3% in Q1 2017. This position was lower by 70 bps from the position of Avg. Trd Val - 3M (bn) 287.0
7.0% in Q1 2016 than 50 bps from the position of 6.8% in Q4 2016. Foreign Ownership 99.4%
We oversee that the lowered NIM was caused by the change of
management strategy increasing the volume of low rate loan distribution. Finance
Thus, we estimate that BBCA will face difficulty if it is dependable only to Bank
interest income in order to boost its net profit. Bloomberg BBCA IJ
Target Price of IDR18,500 Reuters BBCA.JK
We apply an estimate of forward P/B at 3.2x (the 3-year average) as our
basis of valuation method. This obtained target price implies 2017E P/B at
3.5x. Now, BBCA is traded at 2017E P/B at 3.3x.
Bima Setiaji
+62 21 797 6202, ext:114
bima@nhsec.co.id
Bank Central Asia , Tbk | Summary (IDR bn)
2015/12A 2016/12A 2017/12E 2018/12E
Revenue 47,081 50,425 54,993 60,206
Revenue growth 7.6% 7.1% 9.1% 9.5% Share Price Performance
Operating Profit 22,660 25,841 28,361 31,370
Net profit 18,036 20,634 22,574 25,050
EPS (IDR) 733.2 838.8 917.6 1,018.3
EPS growth 9.2% 14.4% 9.4% 11.0%
BVPS (IDR) 3,643 4,582 5,205 5,772
NIM 6.7% 6.8% 6.7% 6.6%
NPL 0.7% 1.3% 1.5% 1.2%
ROE 20.1% 18.3% 17.6% 17.6%
ROA 3.0% 3.0% 3.1% 3.0%
LDR 80% 76% 75% 74%
P/BV 3.6x 2.9x 3.3x 3.0x
P/E 18.0x 15.8x 18.9x 17.1x YTD 1M 3M 12M
DPS (IDR) 153 175 210 222 Abs. Ret. 10.1% 5.0% 13.6% 34.2%
Dividend yield 1.2% 1.3% 1.2% 1.3% Rel. Ret. 2.2% 2.3% 6.5% 15.9%
Source: Company Data, Bloomberg, NHKS Research
Please see the last page for rating criteria & important disclaimer

NH Korindo Sekuritas Indonesia

Company Report
April 27 2017
BBCAs NIM kept decreasing along with
liquidity tightening causing lower NIM
of banking industry.
BBCA Profitability | Q1 2015 - Q1 2017
Source: Company
Hike in total deposit of 19.4% y-y will
increase interest expense.
PT NH Korindo Sekuritas Indonesia Company Research | www.nhsec.co.id
Potency of Profit Performance Constrained by lowering NIM
Although the trend in the net profit increase still continued in Q1 2017, we
estimate that BBCA will face challenge stemmed from downturn in net
interest margin (NIM). Banking industry also suffered from decrease in
NIM in Q1 2017.
5 big cap banks such as BBRI, BBCA, BBNI, BNLI, and BBTN publishing their
NIM performance in Q1 2017 decreased by 39.8 bps y-y into 5.56%. We
oversee that the decrease in NIM in Q1 2017 stemmed from banking
liquidity tightening triggering banks to increase deposits interest rate and
consequently resulting in higher interest expense.
Industry Interest Rate | Q1 2016 - Q1 2017
Source: Company
Tight Liquidity Forcing BBCA to Increase Deposits Interest Rate
We oversee that the lack of liquidity troubled BBCA in Q1 2017. The downturn
in domestic economy triggered intense competition for obtaining public fund
and consequently made a number of banks including BBCA to offer higher
deposits' interest rate to customers having substantial amount of fund.
BBCA increased deposits interest rate with the 6-month tenor from 5.25%
into 6.75%. It caused deposits fund to increase by 19.4% y-y into IDR129.7
trillion in Q1 2017. On the flip side, BBCAs low cost fund or current account
saving account (CASA) only increased by 12.1% y-y; consequently, BBCAs
interest expense inevitably will increase.
BBCA Cost Of Fund | Q4 2015 - Q1 2017
Source: Company
Page 22
Company Report
April 27 2017

Observing NPL Increase in Consumer Division

BBCAs new loan offer in the consumer division, particularly motorcycle
loan and mortgage loan (KPR) was alarming because these two loan
divisions kept showing hike in NPL. Thus, we estimate that in 2017, BBCAs
NPL is 1.5% higher than NPL of 1.3% in 2016.

The NPL ratio in KPR division increased from 0.4% into 0.9% within the 3-
NPL trend in consumer division year last. This continuous NPL increase prevailed as the KPR division
increased amid aggressive loan recorded substantial loan growth. We estimate that BBCA will face
distribution to that division. challenge in controlling hike in NPL amid its best endeavor to boost KPR.

According to Bank Indonesias data, the banking industrys NPL in KPR

division kept showing hike trend since the 4-year last. In the end of 2012,
the KPR divisions NPL ratio reached 2.01% and kept climbing into 2.48%.

Similar to the NPL hike in the KPR division, credit card division also
suffered from NPL hike caused by NPLs cash withdrawal using credit card
increased from 1.9% into 2.1%. We oversee that the NPL hike in BBCAs
credit card from 2014 to March 2016 was caused by the downturn in
domestic economy.

Sluggish Consumer Loan

BBCAs consumer loan increased by 9.4% into IDR111.7 trillion in Q1 2017.
This significant hike prevailed in the credit card product increasing by
10.7% into IDR10.5 trillion. Meanwhile, KPR increased by 10.4% into
IDR66.1 trillion and the motorcycle loan increased by 7.3% into IDR35.1
trillion. However, we analyze that the loan growth in consumer division in
Q2 2017 will be single digit by considering the low demand from the
public.

Bank Indonesias consumers survey revealed that banking loan index until
March 2017 was at the level of 155.6 or lower by 2.32% than banking loan
index settling at the level of 159.3 in February 2017. We oversee that the
consumer loan in Q1 2017 showed no improvement signal from the
deceleration in consumer loan of 2016.

BBCA Consumer Loan NPL Breakdown | Q1 2015Q1 2017 NPL Ratio | 2014 - 2017

Source: Company Source: Company, Bank Indonesia

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Company Report
April 27 2017

Multiple Valuation
Forward P/B band | Last 3 years Dynamic Forward P/B band | Last 3 years

Source: NHKS research Source: NHKS research

Rating and target price update

Target Price
Date Rating Target Price Last Price Consensus vs Last Price vs Consensus
22/11/2016 Buy 17,125 14,725 16,352 +16.3% -9.9%
3/21/2017 Hold 18,500 16,250 16,825 +13.8% +10.0%
4/26/2017 Hold 18,500 17,375 17,897 +6.5% +3.4%
Source: NHKS research, Bloomberg

Analyst Coverage Rating Closing and Target Price

Source: Bloomberg Source: NHKS research

NH Korindo Sekuritas Indonesia (NHKS) stock ratings

1. Period: End of year target price
2. Rating system: Based on stocks absolute return from the date of publication
Strong Buy: high conviction Buy rated stock
Buy: greater than 15%
Hold: between -15% and +15%
Sell: less than -15%

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Company Report
April 27 2017

Financial Summary
BBCA Summary
Last Price (IDR) April 26, 2017 17,375 PROFITABILITY & STABILITY
Target Price (IDR) Dec 2017 18,500 2015/12A 2016/12A 2017/12E 2018/12E
Analyst: Bima Setiaji Rating: Hold ROA 3.0% 3.0% 3.1% 3.0%
ROE 20.1% 18.3% 17.6% 17.6%
NIM 6.7% 6.8% 6.7% 6.6%
INCOME STATEMENT BOPO 52.7% 52.0% 51.4% 51.5%
in IDR bn 2015/12A 2016/12A 2017/12E 2018/12E EBITDA/Equi ty 25% 23% 22% 22%
Interest income 47,081 50,425 54,993 60,206 EBITDA/As s ets 3.8% 3.8% 3.8% 3.8%
Growth (% y/y) 7.6% 7.1% 9.1% 9.5% Ca s h Di vi dend (IDR bn) 3,772 4,314 5,158 5,456
Interes t expens e (11,212) (10,346) (12,313) (12,594) Di vi dend Yi el d (%) 1.2% 1.3% 1.2% 1.3%
Net interest income 35,869 40,079 42,680 47,612 Pa yout Ra ti o (%) 20.9% 20.9% 22.9% 21.8%
Other Opera ti ng Income 12,006 13,698 15,728 17,069 Ca s h Ra ti o 3.0% 2.4% 1.9% 2.0%
Net Revenue 47,876 53,778 58,409 64,682 Common Equi ty/Tota l As s ets 15.1% 16.7% 17.3% 17.2%
Gross Margin 101.7% 106.6% 106.2% 107.4% Book Va l ue per Sha re 3,643 4,582 5,205 5,772
Opera ti ng & Provi s i on Exp (25,217) (27,938) (30,049) (33,313) Provi s i ons for Loa n Los s es (3,505) (4,561) (5,459) (4,844)
Operating Profit 22,660 25,841 28,361 31,370 Ri s k Wei ghted As s et (IDR bn) 483,083 517,789 591,233 659,909
Operating Margin 48.1% 51.2% 51.6% 52.1% Non-Performi ng Loa ns 0.7% 1.3% 1.5% 1.2%
Non-Operating Income - - - - Loa ns to Depos i t Ra ti o 80% 76% 75% 74%
EBT 22,660 25,841 28,361 31,370 CASA 76% 77% 76% 76%
Income Ta x (4,624) (5,207) (5,787) (6,321) Ca pi ta l Adequa cy Ra ti o 19.0% 22.2% 20.4% 20.4%
Non Control l i ng Interes ts - - - - Pa r Va l ue (IDR) 500 500 500 500
Net Profit 18,036 20,634 22,574 25,050 Tota l Sha res (bn) 24.6 24.6 24.6 24.6
Growth (% y/y) 9.2% 14.4% 9.4% 11.0% Sha re Pri ce (IDR) 13,225 13,225 17,375 17,375
Net Profit Margin 38.3% 40.9% 41.0% 41.6% Ma rket Ca p (IDR bn) 325,335 325,335 427,425 427,425

BALANCE SHEET VALUATION INDEX

in IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E
Cash & Near Cash Items 17,849 15,944 14,054 16,799 Pri ce /Ea rni ngs 18.0x 15.8x 18.9x 17.1x
Interbanking Assets 102,471 88,425 76,173 102,915 Pri ce /Book Va l ue 3.6x 2.9x 3.3x 3.0x
Investments 51,153 108,709 150,399 152,218 Pri ce/Revenue 6.9x 6.5x 7.8x 7.1x
Net Loans 378,982 403,774 430,201 478,536 PE/EPS Growth 2.0x 1.1x 2.0x 1.6x
Other & Fixed Assets 43,917 59,886 68,215 74,419 EV/EBITDA 14.9x 13.3x 15.8x 14.3x
Total Assets 594,372 676,738 739,041 824,886 EV/EBIT 14.9x 13.3x 15.8x 14.3x
Total Deposits 473,666 530,165 574,896 644,011 EV (IDR bn) 338,567 343,249 449,477 449,506
Demand Deposits 115,653 137,880 146,946 165,373 Revenue CAGR (3-Yr) 63.0% 47.1% 25.6% 27.9%
Saving Deposits 244,608 270,352 290,298 326,703 EPS CAGR (3-Yr) 53.9% 44.7% 36.7% 38.9%
Time Deposits 113,405 121,933 137,652 151,935 Ba s i c EPS (IDR) 733 839 918 1,018
ST & LT Borrowings 31,081 33,858 36,106 38,880 Di l uted EPS (IDR) 733 839 918 1,018
Total Liabilities 504,747 564,023 611,002 682,891 BVPS (IDR) 3,643 4,582 5,205 5,772
Retained Earnings 82,003 98,503 113,473 127,371 Revenue PS (IDR) 1,946 2,186 2,374 2,629
Total Equity 89,624 112,715 128,039 141,995 DPS (IDR) 153 175 210 222

CASH FLOW STATEMENT DCF, RIM & EVA

in IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E
Net Income 26,373 28,350 28,359 31,368 DCF (IDR bn)
Depreci a ti on 8,108 22,998 (315) 3,733 NOPAT 27,284 31,048 34,148 37,692
Oth Non-Ca s h Adj - - - - +Depr./Amor. 8,108 22,998 (315) 3,733
CFO 29,459 45,667 22,257 28,781 -CAPEX 21,460 (57,948) (42,010) (4,013)
Ca pex (2,525) (2,648) (140) (185) -Incr. (Decr.) i n Worki ng Ca p. - - - -
Inves tment 21,460 (57,948) (42,010) (4,013) (Unl evered) FCFF 56,852 (3,902) (8,176) 37,412
CFI 18,935 (60,596) (42,150) (4,198) WACC
Di vi dends Pa i d (3,772) (4,314) (5,158) (5,456) Cos t of Debt (Ta x Adj.) 9.0% 6.9% 8.0% 8.0%
Others (982) 653 (434) (823) Cos t of Equi ty (COE) 10.8% 12.1% 11.5% 11.8%
CFF (4,754) (3,661) (5,593) (6,279) WACC (%) 10.4% 10.6% 10.6% 10.8%
Net Changes in Cash 43,640 (18,590) (25,486) 18,303 RIM
Sprea d (FROE-COE) (%) 136.4% 136.8% 101.2% 111.7%
Res i dua l Income (IDR) 16,710 18,964 20,272 22,658
OWNERSHIP Equi ty Cha rge 1,326 1,670 2,302 2,391
By Geography % Shareholders % EVA
Indones i a 76.3 PT Dwi muri a Indones i a 47.2 Inves ted Ca pi ta l (IDR bn) 120,705 146,573 164,145 180,876
United States 13.1 Anthoni Sa l i m 1.8 ROIC-WACC (%) 12.3% 10.5% 10.2% 10.0%
Luxembourg 4.3 Va ngua rd 1.6 EVA (IDR bn) 14,787 15,456 16,677 18,166

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