Contact our analyst Lingga
20% upside. BUY.
3 March, 2020
Target price Rp3810
Higher CASA Growth
CASA in FY19 grew by 7% YoY, up from 3% YoY in FY18. The growth was driven by new mobile accounts and a focus on the consumer and SME segments for funding. There was also inorganic growth through a merger with Bank Nusantara Parahyangan (BNP). We estimate future CASA growth to average 5%.
Loan Growth 3.4%
In 2019, Loan Growth was only 3.4% YoY from 8% in 2018 due mainly to less asset-based financing (ABF) which was intentionally decreased by 43.6% YoY and by -14% in 2018. SME loans although small, still grew by 1.1% and financing through subsidiary Adira Finance (ADMF) grew too by 6.7% even though car industry sales declined 12% and motorcycle sales grew just 1.8%.
Asset Quality improves
In terms of asset quality, Non Performing Loans decreased to Rp 4183bn from Rp 4536bn the previous quarter. Thanks to sufficient reserves and write offs, the Coverage Ratio also increased to 140%.
Enterprise Banking Strategy
BDMN continues to focus on enterprise banking as their growth engine. A collaboration with MUFG is helping to boost Supply Chain financing to distributors with financing and cash management services which can be assimilated into the ecosystem of MUFG's large customers. Customers who receive funding are filtered based on their transaction history with MUFG’s customers. Auto financing through Subsidiary ADMF is still expected to grow above the industry average, aided by an increase in cross-selling to bank customers for multi-purpose loans as well as from repeat customers. SME and Consumer business will continue to be maintained and asset quality improved. This year BDMN will invest in human capital, technology and marketing to strengthen the bank’s competitiveness.
Valuation: 20% Upside, BUY.
Based on our DDM Valuation, we set a target price within one year of IDR 3,810, which means the shares will be traded at 0.7x PBV and gives 20% potential upside. BUY.