Leaving the tough year of 2015 behind
Bank Negara Indonesia (BBNI) recorded 15.9% YoY decline in net profit to Rp9.1 tn in FY15, which is in line with our expectation (at 100.7% of our FY15 net income estimate). Despite the decrease of net income in 2015, it was actually an improvement compares to 9M15 where the bank’s net income declined by 21.2% YoY. Despite decreasing earning, top line was much better during the same period where net interest income rose by 12.3% YoY and PPOP inched up by 9.3% YoY.
The culprit for the weakness in bottom line was provision expense that increased by 96.9% YoY in FY15, and on quarterly basis, provision expense still also increased significantly by 53.1% QoQ although asset quality was better in 4Q15. The decision from the management to fatten the cushion against bad debts was the reason why provision expense kept increasing in 4Q15 despite the apparent improvement of asset quality. During 2015, loans grew robustly by 17.5% YoY to Rp326 tn while deposit grew by 18.0% YoY to Rp370 tn. It is interesting to note that BBNI’s CAR jumped 19.5% in 4Q15 from 17.4% in 3Q15 due to significant gain from asset revaluation which is counted as an addition to Tier II capital. With the current CAR level, we expect BBNI to keep minimum 25% dividend payout in 2016 and 2017.
Asset quality is improving in 4Q15
The bank’s NPL was lower by 10 bps to 2.7% in 4Q15 from 2.8% in 3Q15 (the peak of NPL in 2015 was 3.0% in 2Q15). It is true that the decrease of NPL was mainly helped by the bank’s aggressive restructuring where restructured loans more than tripled from Rp6.4 tn at the end of 2014 to Rp20.7 tn in 2015 thanks to more benign policy of restructuring by OJK that was introduced in 2H15. However, the growth of restructuring loans has slowed to 39.6% QoQ in 4Q15 from 50.4% QoQ in 3Q15. As of 4Q15, only 30.3% of the restructuring loans are still in NPL and special mention category, compared to 43.8% in 2Q15. As of 2015, Rp8.8 tn of loans were downgraded and Rp2.1 tn of loans were upgraded. The management expects that in January 2016 alone, Rp1 tn of loans can be upgraded, a sign of much better asset quality in 2016.
Cautiously optimistic in 2016
We are quite surprised by the management’s very upbeat projection in 2016. BNI targets to grow its loan book by 16-18% while NPL is expected to be below 2.5% in 2016. The bank also expects to maintain its NIM above 6.0% this year, a conservative target for margin since we expect the central bank cut BI rate all the way to 6.75%. We still believe that the main risk for BNI is rupiah stability. Unstable rupiah could worsen the bank’s asset quality condition and stop the central bank from cutting the benchmark rate further.
Maintain BUY and upgrade TP to Rp6,250/share
We maintain our BUY recommendation for BBNI and upgrade our TP to Rp6,250/share (from Rp5,500/share) as we upgrade our BVPS estimate. Our calculation assumes 16.0% sustainable ROE and 14.0% cost of equity. BNI is currently trading at 2016-2017F PBV of 1.1-0.9x