Date: October 25, 2024
Broker: UOB Kay Hian
Company Overview
Bank Central Asia (BBCA) is the largest private bank in Indonesia, known for its robust financial performance and strong market presence. The bank’s stock is listed under the Bloomberg ticker “BBCA IJ” and operates within the financial sector. The market capitalization of BBCA is IDR 1,312,879.3 billion (USD 86,801.9 million), with an average daily turnover of USD 43.0 million over three months.
3Q24 Financial Performance
BBCA reported a net profit of IDR 14.2 trillion for the third quarter of 2024, marking a 1.4% quarter-on-quarter (QoQ) increase and a 16.5% year-on-year (YoY) rise. The growth was primarily driven by:
- Net Interest Margin (NIM) Expansion: NIM improved by 10 basis points (bp) QoQ due to better yield management, supported by strong loan growth.
- Increase in Non-Interest Income: Non-interest income rose by 6.9% QoQ, driven by fee and commission income.
9M24 Year-to-Date Highlights
For the nine months ending in September 2024, BBCA achieved a net profit of IDR 41.1 trillion, up 12.9% YoY. This performance was consistent with both the bank’s and market expectations, accounting for 75-76% of the full-year forecasts. Key contributors to this growth included:
- Strong Pre-Provision Operating Profit (PPOP): Up 14.9% YoY.
- Stable Operating Expenses: Operating expenses were well-managed, with a Cost-to-Income Ratio (CIR) at 30.4%, lower than the previous year’s 33.1%.
Loan Growth and Asset Quality
BBCA reported robust loan growth across all segments, prompting an upward revision in its loan growth guidance:
- Overall Loan Growth: Loans grew by 14.5% YoY to IDR 877.2 trillion as of September 2024.
- Segment Performance: Sharia financing saw the highest growth at 32.9% YoY, followed by corporate loans at 15.9%, SME loans at 14.2%, and consumer loans at 13.1%.
- Loan-to-Deposit Ratio (LDR): Increased to 75% in September 2024 from 67.4% in September 2023, reflecting strong lending activity.
- Asset Quality: BBCA maintained asset quality with a Non-Performing Loan (NPL) ratio of 2.1% and Loan-at-Risk (LaR) coverage at 73%. NPL coverage stood at a robust 194%.
Non-Interest Income
BBCA’s non-interest income showed positive growth:
- 9M24 Non-Interest Income: Up 13.5% YoY to IDR 19 trillion, contributing 24% of total operating income.
- Fee and Commission Income: The largest component of non-interest income, increased by 7% YoY, representing 73% of the non-interest income.
- Trading and Treasury Activities: Non-recurring income, including trading income and treasury activities, surged by 36.8% YoY to IDR 5.2 trillion.
Operational Efficiency
- Cost-to-Income Ratio (CIR): Improved to 30.4% for 9M24, supported by effective cost management and digitalization. BBCA’s focus on digital channels has increased operational efficiency, with 60% of branch transactions being conducted via self-assisted machines, reducing transaction times by 30%.
- Operating Expenses: General and administrative expenses rose by 13% QoQ due to IT-related expenditures, which are expected to be booked primarily in the fourth quarter of 2024.
Guidance and Earnings Outlook
- Loan Growth Guidance: Upgraded to 10-12% for 2024, higher than the previous guidance of 9-10%.
- NIM Guidance: Adjusted upwards to 5.7-5.8% from the previous range of 5.5-5.6%.
- Credit Cost (CoC): Although CoC increased to 0.6% QoQ, it remained within the management’s guidance, reflecting strong asset management.
Valuation and Recommendation
- Target Price: BBCA’s stock has a target price of IDR 12,000, indicating a potential upside of 12.1% from the current share price of IDR 10,700.
- Valuation Model: The bank is valued using a fair P/B of 4.98x, based on a Return on Equity (ROE) of 21.5%, growth of 8%, and a cost of equity of 10.7%. Despite the potential for Net Interest Margin (NIM) compression in the event of rate cuts, BBCA’s asset sensitivity and stable lending rates are expected to sustain its earnings performance.
Risks
Potential risks to BBCA’s performance include:
- Adverse macroeconomic developments.
- Changes in regulatory frameworks.
- Deterioration in asset quality.
- Potential declines in NIM.
- Higher than expected operating expenses.
BBCA remains a market leader with robust financial health, well-managed operational efficiency, and a strategic focus on digitalization, which continues to drive its growth trajectory.
