BBTN
Contact our analyst Lingga
6% upside. HOLD.
22 October, 2019
Price Rp1,920
Target price Rp2,030
Sub-debt to increase CAR
- BBTN is planning to issue about IDR. 3-5 trillion of subordinated debt securities in both Rupiah and US Dollars as 2-capital. This debt issue will increase or maintain the CAR at a high ratio in order to comply with the new IFRS 9 accounting.
- Existing CAR is predicted to decline to an average 15% under the new IFRS 9. By increasing their CAR, BBTN can expand more quickly.
- As of 1H19, BBTN’s CAR (tier 1+2) ratio has already decreased to 16.99% compared to 17.42% in 1H18. We are expecting BBTN’s CAR to average 17-18% in 2019F-2020F.
Higher coverage ratio
- As of 1H19, BBTN has a gross NPL of 3.32% compared to 2.78% in 1H18. The higher NPL means the coverage ratio should be higher too. On average the provision coverage ratio is now at 50%. By 2019, we expect an NPL ratio of 3% and provision coverage ratio of 77%.
- By implementing the new IFRS, BBTN plans to increase the coverage ratio to 120% with additional provision coverage coming from IDR. 4 trillion of retained earnings.
Digital Transformation
- Deposit growth in 1H19 increased by 15.89% from 1H18.
- In this digital era of branchless banking, BBTN has collaborated with PT Fintek Karya Nusantara to create an application to provided payments for customers. Delays in capital investment to PT Fintek Karya Nusantara have not impacted deposit growth.
Valuation: 6% Upside, Hold.
- Based on our DDM Valuation, we have a target price within one year of IDR 2030. or trading at 0.8x PBV which gives 6% potential upside, Hold.
