Indonesia

• Bank Rakyat Indonesia (BBRI IJ) booked strong growth in net profit in FY2021 beating its own guidance on most metrics and growing its exposure to MSMEs significantly.
• Loan growth to micro, ultra-micro & smaller corporate borrowers saw significant growth while its cost of funds came down and the cost of credit improved increasing profitability.
• With the increasing use of digital channels to grow its customer base and huge potential to cross-sell to 137m depositors, Bank Rakyat is a core holding amongst the Indonesian banks.

Set to take-off in 2022

The Future is Streaming

• The confirmation that Jerry Ng, one of the major shareholders of Bank Jago will take a controlling stake in BFI Finance Indonesia should create a win-win combination.
• BFI Finance Indonesia brings best-in-class exposure to multi finance, whilst integration with Bank Jago and GoTo group should help it to accelerate the company’s digitalisation and boost growth.
• The company trades on 2.7x FY21E PBV with a forecast ROE of 14.7% for FY2021E and 18.5% in FY2023E but historically it has generated ROEs of 25% plus.

Anticipating jump in FY22F new contract

This month, we undertake a study of the ratings evolution of all the issuers that have been included in the Lucror Asia HY index (commenced in 2013).

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

Continue to become market leader

• Bank Negara Indonesia (BBNI IJ) released a solid set of FY2021 results last week, with its PPOP coming in above consensus and guidance being met on all fronts. 
• The bank’s loan mix is moving towards lower risk assets but cost of funds has fallen significantly at the same time plus its progress on digital banking is impressive. 
• The bank’s increasingly digital credentials should lead to an upward re-rating of the bank’s valuations, which look attractive given the expected recovery in earnings and higher ROEs beyond 2022.

• Link Net (LINK IJ)’s two largest shareholders (66.03% of the outstanding shares) have signed a SPA to sell their stakes to Axiata Investments and XL Axiata (EXCL IJ) at IDR4,800.
• Post-Completion, Axiata Investments and XL Axiata will then be required to launch a mandatory tender offer to acquire the remaining 33.97% Link Net shares at IDR4,800 per share
• The tender offer is expected to be completed in 3Q2022. At the last close price of IDR4,430, the shares are trading at an 8.4% gross spread to the offer.

• Bank Mandiri (BMRI IJ) booked a strong set of results driven by operational improvements, lower credit costs, and lower cost of funds plus an increasing focus on digitalisation.
• The bank is moving more aggressively into higher-yielding assets plus driving its consumer and wholesale digital strategies to improve returns with significant potential upside. 
• We are more optimistic on the prospects for Bank Mandiri (BMRI IJ) after the recent numbers given its drive towards enhancing future returns supported by a very low-cost funding base. 

• Adi Sarana Armada (ASSA IJ)  has successfully spun off its Auto trading subsidiary Autopedia Sukses Lestari (ASLC IJ) through an IPO reducing debt and raising capital to grow the business.
• Autopedia will focus on growing its online O2O business through Caroline, with a captive supply of used cars from its auction and car leasing businesses plus offline infrastructure in place.
• Adi Sarana Armada (ASSA IJ) also looks attractive for its logistics and last-mile business, which is close to profitability and now more than 50% of its revenues and growing fast.

Expecting earnings recovery back to pre-pandemic level

• BNI posted a poor set of 4Q21 results, given the generally ignored continued credit deterioration;
• Results were heavily reliant on a negative 10.0% tax rate for 4Q21, which goes away in 2022; and
• BNI recently announced a “me too” deal to acquire a 63.9% stake in Bank Mayora at 2x book, at a time when BNI’s own house is a dumpster fire.

• Sirclo, an Indonesia-based ecommerce enabler, has announced that it is set to acquire Warung Pintar
• The value of the deal is undisclosed, but the process is expected to be completed within the first quarter of this year
• Sirclo said that the deal helps its plan to offer more comprehensive online and offline commerce solutions for its clients

Premium valuation justified by the premium profitability and strong earnings growth trajectory