Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Bank Pembangunan Daerah Jawa Barat dan Banten / Equity Bottom-Up

Bank Pembangunan Daerah Jawa Barat dan Banten (BJBR IJ)

Bank Pembangunan Daerah Jawa Barat dan Banten

We have not written about an Indonesian lender for some time given relative valuations across EM. However, on the back of BJBR’s positive fundamental momentum and relatively attractive valuations versus other Indonesian lenders, we initiate a constructive note. The bank does just pass our theoretical threshold of A FV of 10% and a PBV of &lt;1x. We would attach greater value to Indonesian franchises in theory given elevated Profitability and NIM levels and higher growth potential in conjunction with dynamic Fintech innovations.BI has provided liquidity to the banking system in response to the pandemic and cut its policy rate by a total of 100bp since February 2020 to 4.0%. (Interest Rate in Indonesia averaged 6.84 percent from 2005 until 2020). We expect BI to keep the rate unchanged, provided the economy does not deteriorate further, given a mindful stance on the volatility of the rupiah. Private credit represents only 36.4% of GDP and the banking sector's capital-adequacy ratio remained strong at 22.1% in May 2020.We also see recent corporate activity in the Islamic Banking space as a trigger for improving efficiencies and opportunity moving forward. The proposed merger of 3 state-owned Islamic banking units comes at a time when demand for Shariah-banking is on the rise, especially among the middle class. Despite being home to the largest Muslim population in the world, Indonesia has been arguably trailing behind Malaysia in Shariah-compliant Capital Markets. The size of Indonesia’s Islamic banking business pales into significance vis-à-vis the Persian Gulf, though relatively rapid economic growth in recent years and government initiatives may narrow the gap.PT Bank Pembangunan Dearah Jawa Barat Dan Banten (BJBR) results at Q320 are satisfactory. Our PH Score™ shows that the bank is making moderate headway on Profitability, maintaining elevated NIMs and Interest Spreads, as well as revealing benign trends in Liquidity (LDR and Liquid Asset Ratio), spurred by vibrant deposit expansion, in Provisioning, and in headline Asset Quality. However, Capital Adequacy reveals some erosion. While the top-line shows solid growth, non-interest Income remains subdued. Efficiency could also be a great deal better: maybe increased competition in the sector will act as a catalyst to improve “jaws” and the CIR going forward. The bottom-line was impacted higher by lower Credit Costs, as elsewhere, in part related to lower Problem Loans and much lower Net Charge-offs. Comprehensive Income and Net Profit still showed forceful progression YoY, up 21% and 16%, respectively, YoY. In general, we have a broadly constructive picture though we are mindful of some Balance Sheet risks and look forward to a much better showing on the Efficiency front over the next few quarters.A FV of 10%, a PBV of 0.98x, an Earnings Yield of 14.9%, and a Dividend Yield of 8.5% are certainly not unappealing. A PH Score™ of 7.4 is in the top quartile globally.<div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. </div>

We have not written about an Indonesian lender for some time given relative valuations across EM. However, on the back of BJBR’s positive fundamental momentum and relatively attractive valuations versus other Indonesian lenders, we initiate a constructive note. The bank does just pass our theoretical threshold of A FV of 10% and a PBV of &lt;1x. We would attach greater value to Indonesian franchises in theory given elevated Profitability and NIM levels and higher growth potential in conjunction with dynamic Fintech innovations.BI has provided liquidity to the banking system in response to the pandemic and cut its policy rate by a total of 100bp since February 2020 to 4.0%. (Interest Rate in Indonesia averaged 6.84 percent from 2005 until 2020). We expect BI to keep the rate unchanged, provided the economy does not deteriorate further, given a mindful stance on the volatility of the rupiah. Private credit represents only 36.4% of GDP and the banking sector's capital-adequacy ratio remained strong at 22.1% in May 2020.We also see recent corporate activity in the Islamic Banking space as a trigger for improving efficiencies and opportunity moving forward. The proposed merger of 3 state-owned Islamic banking units comes at a time when demand for Shariah-banking is on the rise, especially among the middle class. Despite being home to the largest Muslim population in the world, Indonesia has been arguably trailing behind Malaysia in Shariah-compliant Capital Markets. The size of Indonesia’s Islamic banking business pales into significance vis-à-vis the Persian Gulf, though relatively rapid economic growth in recent years and government initiatives may narrow the gap.PT Bank Pembangunan Dearah Jawa Barat Dan Banten (BJBR) results at Q320 are satisfactory. Our PH Score™ shows that the bank is making moderate headway on Profitability, maintaining elevated NIMs and Interest Spreads, as well as revealing benign trends in Liquidity (LDR and Liquid Asset Ratio), spurred by vibrant deposit expansion, in Provisioning, and in headline Asset Quality. However, Capital Adequacy reveals some erosion. While the top-line shows solid growth, non-interest Income remains subdued. Efficiency could also be a great deal better: maybe increased competition in the sector will act as a catalyst to improve “jaws” and the CIR going forward. The bottom-line was impacted higher by lower Credit Costs, as elsewhere, in part related to lower Problem Loans and much lower Net Charge-offs. Comprehensive Income and Net Profit still showed forceful progression YoY, up 21% and 16%, respectively, YoY. In general, we have a broadly constructive picture though we are mindful of some Balance Sheet risks and look forward to a much better showing on the Efficiency front over the next few quarters.A FV of 10%, a PBV of 0.98x, an Earnings Yield of 14.9%, and a Dividend Yield of 8.5% are certainly not unappealing. A PH Score™ of 7.4 is in the top quartile globally.The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

BJBR: Positive Fundamental Momentum at a Decent Valuation

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of competition, specialized nature of these banks, an under-penetrated system and excellent demographics. Where recovery metrics are strong across most all regions, banks should seem a meaningful delta in profit, perhaps in 2Q20 or later during 2H20.  One way of considering where the most marginal gains can be made is by looking at where the greatest loss was, where the greatest decline in ROA was.

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of competition, specialized nature of these banks, an under-penetrated system and excellent demographics. Where recovery metrics are strong across most all regions, banks should seem a meaningful delta in profit, perhaps in 2Q20 or later during 2H20.  One way of considering where the most marginal gains can be made is by looking at where the greatest loss was, where the greatest decline in ROA was.

ASEAN (Indo) & China-focused. Ex-Deputy HoR UBS.

Johannes Salim, CFA

<ul>
<li>Excellent opex control reinforces our view on high quality management of <a href="https://www.smartkarma.com/entities/483" target="_blank" data-smartkarma-citation="entities:483:1">Bank Tabungan Pensiunan Nasional (BTPN IJ)</a>.</li>
<li>BTPN has again reinvented itself by rapidly growing SME loans, sharia loans, and consumer financing amid rough patch in micro loans segment.</li>
<li>Recent IPO of sharia subsidiary is value-unlocking for BTPN as this highlights strong fundamentals of sharia business (still consolidated given the latter's 70% ownership)</li>
<li>M&amp;A catalyst could unfold in late 2018 or early 2019 if OJK approval on <a href="https://www.smartkarma.com/entities/135" target="_blank" data-smartkarma-citation="entities:135:1">Bank Danamon Indonesia Tbk (BDMN IJ)</a> acquisition by Bank of Tokyo Mitsubishi is obtained.</li>
<li>BTPN attractively trades at 1.2x/1.08x 2018/19 PB (32-33% discount to Indo banking peers).</li>
</ul>


Excellent opex control reinforces our view on high quality management of Bank Tabungan Pensiunan Nasional (BTPN IJ).
BTPN has again reinvented itself by rapidly growing SME loans, sharia loans, and consumer financing amid rough patch in micro loans segment.
Recent IPO of sharia subsidiary is value-unlocking for BTPN as this highlights strong fundamentals of sharia business (still consolidated given the latter's 70% ownership)
M&amp;A catalyst could unfold in late 2018 or early 2019 if OJK approval on Bank Danamon Indonesia Tbk (BDMN IJ) acquisition by Bank of Tokyo Mitsubishi is obtained.
BTPN attractively trades at 1.2x/1.08x 2018/19 PB (32-33% discount to Indo banking peers).


Bank Tabungan Pensiunan Nasional: Nice Share Rally but More to Go

<ul><li>Having revisited <a href="https://www.smartkarma.com/entities/483" target="_blank" data-smartkarma-citation="entities:483:1">Bank Tabungan Pensiunan Nasional Tbk Pt (BTPN IJ)</a>'s fundamentals, we believe that things are not as bad as 2017 headline numbers suggest.</li><li>In fact, efficiency measures that would bear fruits in lowering operating costs are praiseworthy and a testament to solid management quality.</li><li>M&amp;A angle has renewed investor interest in BTPN since recently announced <a href="https://www.smartkarma.com/entities/135" target="_blank" data-smartkarma-citation="entities:135:1">Bank Danamon Indonesia Tbk (BDMN IJ)</a> acquisition is done at a much higher PB multiple (2.0x PB).</li><li>BTPN trades attractively at 1.12x 2018 PB (46% discount to the sector average) and 10.4x 2018 PE (28% discount), the valuation that does not reflect M&amp;A angle/premium at all.</li></ul>

Having revisited Bank Tabungan Pensiunan Nasional Tbk Pt (BTPN IJ)'s fundamentals, we believe that things are not as bad as 2017 headline numbers suggest.In fact, efficiency measures that would bear fruits in lowering operating costs are praiseworthy and a testament to solid management quality.M&amp;A angle has renewed investor interest in BTPN since recently announced Bank Danamon Indonesia Tbk (BDMN IJ) acquisition is done at a much higher PB multiple (2.0x PB).BTPN trades attractively at 1.12x 2018 PB (46% discount to the sector average) and 10.4x 2018 PE (28% discount), the valuation that does not reflect M&amp;A angle/premium at all.

Bank Tabungan Pensiunan Nasional: With Fundamentals Remaining Solid, Further Upside Seen

<ul><li>Conference call with management reveals 2020 vision and 2018 outlook.</li><li>We are disappointed with only modest growth re-acceleration (SD growth rate in 2018E PPOP)</li><li>Meanwhile, better NPL outlook is not a new thing at all.</li><li>Current share price implies ROE of greater than 15%, vs. our expectations of 13.5% in 2018E. </li></ul>

Conference call with management reveals 2020 vision and 2018 outlook.We are disappointed with only modest growth re-acceleration (SD growth rate in 2018E PPOP)Meanwhile, better NPL outlook is not a new thing at all.Current share price implies ROE of greater than 15%, vs. our expectations of 13.5% in 2018E. 

Bank Mandiri: Modest Growth Re-Acceleration Only Amid Share Price Run Up

Indonesia

PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk (bank bjb) is a commercial bank providing conventional and Sharia banking services, including deposits, loans, credit cards, and treasury services. It serves individuals, businesses, and government entities, focusing on economic development in the West Java and Banten regions. The bank is headquartered in Bandung, Indonesia, and was founded on May 20, 1961.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Bank Pembangunan Daerah Jawa Barat dan Banten (BJBR IJ)

BJBR: Positive Fundamental Momentum at a Decent Valuation

BJBR is cheap by Indonesian bank standards but increasingly attractive versus EM banks given the dynamics of the Indonesian market and its own high...

Paul Hollingworth

BCA – Most ROA to Claw Back

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of...

Daniel Tabbush

Bank Tabungan Pensiunan Nasional: With Fundamentals Remaining Solid, Further Upside Seen

Having revisited Bank Tabungan Pensiunan Nasional Tbk Pt (BTPN IJ)'s fundamentals, we believe that things are not as bad as 2017 headline numbers...

Johannes Salim, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

BJBR: Positive Fundamental Momentum at a Decent Valuation

BJBR is cheap by Indonesian bank standards but increasingly attractive versus EM banks given the dynamics of the Indonesian market and its own high...

Paul Hollingworth

BCA – Most ROA to Claw Back

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of...

Daniel Tabbush

Bank Tabungan Pensiunan Nasional: Nice Share Rally but More to Go

Excellent opex control reinforces our view on high quality management of Bank Tabungan Pensiunan Nasional (BTPN IJ). BTPN has again reinvented...

Johannes Salim, CFA

Bank Tabungan Pensiunan Nasional: With Fundamentals Remaining Solid, Further Upside Seen

Having revisited Bank Tabungan Pensiunan Nasional Tbk Pt (BTPN IJ)'s fundamentals, we believe that things are not as bad as 2017 headline numbers...

Johannes Salim, CFA

Bank Mandiri: Modest Growth Re-Acceleration Only Amid Share Price Run Up

Conference call with management reveals 2020 vision and 2018 outlook. We are disappointed with only modest growth re-acceleration (SD growth rate...

Johannes Salim, CFA