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EQUITY RESEARCHCIPTADANA SEKURITAS ASIA

Please see analyst certification and other important disclosures at the back of this report 2

BNGA - Initiation Report -16 October 2017

BUY Bank CIMB NiagaTP: 1,705 (+44.5%) Much to get excited about

NPL has peaked, tailwind for earningsWe initiate our coverage on Bank CIMB Niaga (BNGA) with a BUY rating and target price ofRp1,705/share. BNGA is the second largest private bank in Indonesia, with strongpresence in both individual and business banking. During the last NPL cycle, BNGA’s ROEwas dragged down heavily and the bank focus has been on loan consolidation and assetquality improvement rather than growing the loan aggressively. At the moment, assetquality has shown improvement with NPL ratio declining to 3.9% in 2Q17 from 4.3% in3Q16 and restructured loan down to 5.5% in 2Q17 from 7.6% in 3Q16. Most importantly,BNGA has managed to slow down the exposure from the main source of problem loan, i.e.commercial loan, micro, commodity-related corporate loan, and auto loan. Currently,BNGA has started to grow certain segments focusing on its core, i.e. SME and consumersegments, which we believe to contribute better earnings with better asset quality goingforward.

Better liabilities management with improving CASABNGA has marked significant improvement on its funding structure in the past few years.Low cost deposit or CASA ratio improved significantly to 51% of total deposit in 2016 from44% in 2013 due to strong growth of saving balance (10% CAGR in 2013-2016) anddecreasing time deposit. Going forward, the bank plans to further improve its fundingfranchise by putting more emphasis on digital banking and cross selling with the lendingcostumers. We expect CASA to continue its uptrend to 55% by 2019F which help the bankto hold NIM against asset yield pressure. We expect NIM to expand slightly to 6.0% in2017F (vs. 5.9% in 2016) and narrow down gradually by 10 bps annually to 5.8-5.9% in2018-2019F.

Great cost controlBNGA has done major efficiencies in the past with its early retirement program andcutback of branches. BNGA’s operational expense only grew at 4.6% annually during 2013-2016 vs. industry average of 19%. We believe the trend of low opex growth will continue asBNGA tries to maintain its discipline in opex control and its leverage on digital or non-branch channel to acquire new customer which should save some physical branch cost.We expect this good cost control to continue with operational expense growing at 5-7%annually in 2017-2019F and cost to income ratio to stay at below 50%.

Compelling valuation at 0.8x 2018F PBVBNGA currently trades at 0.8x 2018F PBV, 20% discount to its historical average at 1.0xforward PBV, and 33% discount to non-big four average at 1.15x. Our target price ofRp1,705 implies a fair 2018F PBV of 1.1x, representing 44.5% upside. We believe ourtarget price is justified given the potential for ROE trending up to double digit by 2018F.Key risks to our fundamental call include longer economic slowdown and worse thanexpected NIM compression due to sharp increase in interest rates or tightening liquidity.

Sector Banking

Bloomberg Ticker BNGA IJ

Share Price Performance

Last Price(Rp) 1,180

Avg. Daily T/O(Rpbn/USDmn) 10.6/0.8

3m 6m 12m

Absolute (%) -3.6 -4.0 35.4

Relative to JCI (%) -5.3 -8.6 25.9

52w High/Low price(Rp) 1,440/765

Outstanding Shrs (mn) 25,132

Mkt. Cap (Rpbn/USDmn) 30,284/2,249

Estimated Free Float (%) n/a

Major Shareholders

CIMB Group Sdn Bhd 91.5%

EPS Consensus

Ciptadana Cons. % Diff

2017F 101.2 105.8 -4.3

2018F 152.1 123.0 23.6

2019F 177.6 141.0 25.9

Erni Marsella Siahaan, CFA+62 21 2557 4800 ext. 919

[email protected]

http://www.ciptadana.com

-20%

-10%

0%

10%

20%

30%

40%

50%

0

200

400

600

800

1,000

1,200

1,400

1,600

Oct

-16

Nov

-16

Dec

-16

Jan-

17Fe

b-17

Mar

-17

Apr-

17M

ay-1

7Ju

n-17

Jul-1

7Au

g-17

Sep-

17O

ct-1

7

BNGA 1yr Rel. to JCI (RHS)

Exhibit 1 : Financial Highlights

Year to 31 Dec 2015A 2016A 2017F 2018F 2019F

Net Interest Income (Rpbn) 11,386 12,094 12,451 12,919 13,681

Net Profit (Rpbn) 428 2,082 2,544 3,822 4,463

EPS (Rp) 17.0 82.8 101.2 152.1 177.6

EPS growth (%) -81.7 386.7 22.2 50.2 16.8

BVPS (Rp) 1,140.9 1,361.1 1,443.9 1,545.2 1,697.2

PER (x) 70.8 14.5 11.9 7.9 6.8

PBV (x) 1.1 0.9 0.8 0.8 0.7

ROA (%) 0.2 0.9 1.0 1.5 1.6

ROE (%) 1.5 6.6 7.2 10.2 11.0

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0

Source : BNGA, Ciptadana Estimates




Big player in Indonesia marketWe initiate our coverage on Bank CIMB Niaga (BNGA) with a BUY rating and Rp1,705/sharetarget price. The bank is a local subsidiary of Malaysia-based investment bank CIMB GroupHoldings Berhad, and has operated since 1955 under the name of Bank Niaga. Bank Niagawas later merged with Lippobank to submit to Single Presence Policy and became BankCIMB Niaga. CIMB Group is the majority shareholder of BNGA with 91.48% ownership,followed by PT Commerce Capital (1.02%) and public (7.50%) as at end of June-17.

BNGA offers a range of product to both individual and business banking. Its loan bookcurrently consists of corporate (36% of total loan), commercial (17%), MSME (20%), andconsumer (28%), and has already grown to a sizeable amount of Rp175 tn as of 2Q17. In termof asset, BNGA is the second largest private bank after Bank Central Asia (BBCA) or the fifthlargest overall in Indonesia. Recently the bank is also upgraded to BUKU IV category as itscore capital has exceeds Rp30 tn. Thus it sits with other big banks (BBRI, BMRI, BBCA, andBBNI) and receives the same treatment with them such as deposit rate cap and ability tomarket wider range of product.

However, as the smallest bank in the BUKU IV category, the bank has relatively fewerinfrastructure network compared to its peers. Realizing this downside, the bank put moreemphasis on digital banking. Many of major innovations in digital banking in the past waspioneered by BNGA, namely the internet banking ‘CIMB Clicks’ (2010), ‘Go Mobile’ or mobilebanking applications (2012), ‘Rekening Ponsel’ or e-wallet based account (2013), and ‘Wave nGo’ or virtual credit card (2015). BNGA also continue to expand its transaction bankingplatform supported by 3.9k ATMs, 32k EDCs, and >500 branches. In 2016, the bank added500 ATMs (15% of total ATM) to support its transactional banking activities.

Exhibit 2: BNGA loan mix as of 1H17

Source : Company and Ciptadana Sekuritas

36%

17%20%

28%

Corporate

Commercial

MSME

Consumer




NPL has peaked, tailwind for earningsBNGA was very aggressive to expand its loan during Indonesia commodity boom in 2011-2013. However, due to weak economy and commodity market down cycle in 2014-2016, NPLshot up to 4.4% in 2Q15 from 2.3% in 4Q13. This condition pulled down BNGA’s ROE to only1.5% in 2015 from 20.7% in 2012.To tackle the issue, management focused on asset qualityrecovery. New CEO, Mr. Tigor Siahaan, entered the company in 2015, and performed majorclean up on BNGA loan portfolio within these last three years. About Rp3.5 tn of loan hasbeen written off annually, more than Rp2 tn of loan has been sold out to third parties, andRp16 tn of loan has been restructured during 2014-2016. As the result, BNGA has seenimprovement in asset quality. NPL has come down to 3.9% of total loan as of 2Q17 from thepeak of 4.4% in 2Q15. Another indicator such as special mention loan also decreasedsignificantly from 9.8% in 1Q16 to 6.6% in 2Q17. The credit cost, as the impact, has alreadyeased to 2.1% of total earnings asset in 1H17 vs. 2.2-4.0% in 2014-2016.

Exhibit3: BNGA NPL ratio Exhibit4: BNGA’s special mention loan ratio

Source : Company and Ciptadana Sekuritas Source : Company and Ciptadana Sekuritas

Exhibit5: BNGA credit cost quarterly Exhibit6: BNGA write offs


2.8% 2.7% 2.5% 2.4%2.3% 2.3%

3.1%

4.0%4.4%

3.2%

4.1%4.3%

3.9% 3.9%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

4.1%4.6%

3.8%

5.2%4.6%

5.3%

6.4%

4.3%

5.9%

8.3%

9.8%

7.9%

6.7%5.9%

5.2%

6.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

20

71

66

22

12

41

42

02

29

18

03

13

28

61

84

37

53

58

20

13

65

94

11

,95

91

,44

61

,32

51

,18

81

,38

51

,33

01

,20

41

,13

51

,30

41

,07

91

,04

9

0.60.50.60.7

1.1

0.60.50.70.6

0.4

0.80.80.4

0.8

2.0

4.0

2.82.5

2.3

2.72.62.4

2.22.5

2.12.1

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

500

1,000

1,500

2,000

2,500

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

%Rp bn Credit cost (LHS) Credit cost (%of IEA) (RHS)

744520

7261,023

3,4503,709

4,101

2,890

1,724

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Rp bn




Solving the main issues of NPLHowever, aside from the significantly improved asset quality ratios, the most important thingis whether the current loan expansion will contribute to lower overall credit risk in thefuture. The largest contributors of BNGA’s NPL at the moment are commercial, micro, andauto loan segments. We believe more limitation on those segments should ensure betteroverall asset quality going forward. And this is what has been done by the bank. Commercialloan was the largest contributor of NPL at the moment with 7.8% NPL ratio as of 2Q17 andcontribute to more than one third of total BNGA’s NPL. BNGA has manage to slow down thecommercial (-1% YoY as of 2Q17) and narrow down the exposure from 22% in 2013 to only17% of total loan in 2Q17. Micro loan also reduced to only Rp0.5 tn as of 2Q17 from thehighest Rp3.2 tn as of 1Q15 with all 350 ‘Mikro Laju’ branches in 2015 has been closed. BNGAnow distribute the micro loan indirectly through rural banks and cooperatives which act asmarketing and collection agent. We believe this indirect approach, instead of the directapproach under ‘Mikro Laju’, is a better way to obtain micro exposure in a sense that itensured more effective loan underwriting and monitoring. The auto loan segment is alsobeing recalibrated and decreased by 33% YoY as of 2Q17. The bank is now target a morepremium segment in auto with tighter underwriting standard.

With that said, we believe the worst of asset quality has already behind. We expect NPL ratioto decline gradually to 3.8-3.5% by 2017-2019F and credit cost to decline to 2% of averageearnings assets in 2017F (vs. 2.4% in 2016). Loan growth would still slow in the short termdue to consolidation in some segments, to only 4% YoY in 2017F, but should start toaccelerate afterwards to 8-9% in 2018-2019F.

Exhibit7: BNGA NPL estimates Exhibit8: BNGA credit cost estimates


Exhibit 9: BNGA loan growth


3,27

3

3,24

4

3,44

8

6,82

3

6,57

2

6,78

8

6,69

0

6,74

4

6,89

5

2.7%2.3% 2.3%

4.0% 3.8% 3.9%3.7%

3.5%3.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Rp bn NPL amount NPL ratio88

2

1,03

9

966

3,16

0

5,17

0

4,29

3

3,64

6

2,14

8

1,86

2

0.8% 0.8% 0.7%

2.0%

3.0%

2.5%

2.1%

1.1%0.9%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

-

1,000

2,000

3,000

4,000

5,000

6,000

Rp bn Provision expense Credit cost as % of loans

19%

14%

6%

13%

1%2%

4%

8%

10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

%




Succesful restructurization, minimal impact from expiration of NPL relaxationIt was also interesting to note that BNGA has succeeded to reduce its loan restructurizationto 5.5% of total loan in 2Q17 vs. 7.6% in 4Q16. The major improvement came fromrestructured loans that still sit in performing loan category, which has significantly declinedto Rp7.6 tn in 2Q17 from Rp10.9 tn in 2016 (see exhibit 11). Thus BNGA restructured loanratio has now better than the three SOE banks. Hence we believe the risk of rising NPL fromthe impact of recent expiration of NPL relaxation by Financial Services Authority (OJK) shouldbe lesser as BNGA has proven successful to restructure its loan.

Exhibit10: BNGA restructured loan ratio vs. peersExhibit11: BNGA’s restructured loan under performingcategory


Exhibit 12: BNGA loan at risk (NPL + special mention loan + restructured current loan)


3.4%

4.4%4.7%4.5%

4.9%4.9%

4.0%4.6%

5.1%

5.8%

7.6%7.6%

6.6%

5.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

BBCA BMRI BBRI BBNI BNGA

47

73

75

39

25

04

33

17

27

22

31

20

30

94

37

30

95

35 2,0

96

1,9

25

2,2

90

2,4

57

2,6

23

92

01

,42

81

,91

51

,73

9 4,2

20 6,7

43

7,8

98

6,8

01

5,4

53

861

1,26

61,

250

1,12

31,

367

602

1,09

51,

114

1,24

41,

112

1,22

61,

909 1,

824

3,72

43,

614

2,09

52,

171

3,35

63,

897

4,40

45,

293

4,04

83,

571 3,04

62,

151

2,13

4

-

2,000

4,000

6,000

8,000

10,000

12,000

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

Rp bn Restructured loan - category 1

Restructured loan - category 2

3,00

7

3,09

1

3,15

3

3,27

3

3,43

9

3,40

2

3,27

1

3,24

4

3,46

5

3,30

0

3,51

1

3,44

8

4,08

0

4,82

8

5,53

2

6,82

3

7,12

1

7,68

1

5,60

1

6,57

2

6,70

7

6,73

7

7,10

4

6,78

8

6,66

7

6,78

74,42

1

5,36

1

5,38

0

5,63

2

5,98

4

5,09

9

5,87

9

6,67

3

7,36

4

6,68

6

7,97

6

7,87

4

8,77

9

10,0

48

9,46

0

7,33

4

10,0

55

10,6

32

14,2

42

13,2

70

16,1

98

13,2

69

11,1

66

10,1

79

8,86

8

11,5

03

1,91

5 1,73

9

4,22

0

6,74

3

7,89

8

6,80

1 5,45

37.2% 7.4%

6.6%7.5%

6.8%7.5%

9.3%

10.4%9.3%

10.5%

11.9%12.7%

15.0%14.3%

13.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

Rp bnNPL (LHS) Special Mention Loan (LHS)

Restructured current loan (LHS) Loan at risk as % of total (RHS)




Play on its strengthAfter major consolidation and given NPL improvement, we think the bank could now focus onits core, most notably SME and consumer segments. SME is BNGA’s niche in the past underLippobank. The bank has large SME customer base in the deposit side, but hasn’t been fullypenetrated yet in term of loan. By delivering end-to-end services to SME segmentcomplemented with value chain lending and trade finance services, we believe BNGA shouldbe able to grab the market and continue growing its SME loan book. SME loan has grown by12.1% YoY in 2Q17 and contributed to 15% of total loan or rose significantly from 12% in2014. Going forward, we expect SME loan to grow further by 11-12% annually in 2017-2019F.

In consumer segment, BNGA has an established mortgage and credit card market share at7% and 14% as of 2Q17, respectively. In mortgage, the bank should grow its book faster byteaming up with big developers and cross selling with saving deposits customers. The bankshould also stay competitive in the digital banking, as it should be the main channel ofcustomer acquisition in the future. We believe BNGA consumer loan will still grow at lowsingle digit in 2017F due to consolidation in auto segment but improve to 9-12% annuallyafterwards in 2018-2019F.

With that said, BNGA portfolio should gradually shift from investment loan toward moreworking capital and consumer loan. We believe this trend should contribute in better overallearnings due to: 1) more low cost deposit (CASA) from value chain financing in SME andaccount transaction in consumer segment, 2) greater fee income from more transaction andtrade finance activities, and 3) lower overall credit risk with less vulnerability to thecommodities price. We expect CASA ratio to reach 55% in 2019F (vs. 51% in 2016) andprovide some room for NIM.

Exhibit13: BNGA loan to shift gradually toward working capitaland consumer segment

Exhibit14: BNGA CASA trend


21% 23% 23% 21% 22% 23% 24% 24%

44%48% 49% 51% 51% 49% 49% 51%

35% 29% 28% 28% 26% 28% 27% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 1Q17 2Q17

Consumption Working capital Investment

44 43 44 45 4751

53 54 55

0

10

20

30

40

50

60

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

%




Better liabilities management with improving CASABNGA has marked significant improvement on its funding structure in the past few years.Low cost deposit or CASA ratio improved significantly to 51% of total deposit in 2016 from43% in 2013 due to strong saving balance growth (10% CAGR in 2013-2016). This marked astrong liability management where BNGA could consistently grow its CASA and at the sametime reduce its time deposit. It is not surprising that in 1H17, despite the asset yieldpressure, the bank could deliver a striking NIM of 6.2% or increase 50 bps YoY due to itssuperior liability management.

However we expect BNGA’s NIM to came lower in the short term, as the bank LDR has seensome tightening in 3Q17 and touched >100% LDR in its non-consolidated book as of June-2017. The bank could respond by growing back the expensive time deposits, but we think thiscondition is only temporary as the trend of growing CASA is still intact. For the full year, weexpect BNGA’s NIM to expand slightly to 6.0% in 2017F (vs. 5.9% in 2016). In the medium tolong term, we believe the CASA improvement should able to help the bank to hold NIMagainst asset yield pressure. Thus, we expect NIM to narrow down gradually by 10 bpsannually to 5.8-5.9% in 2018-2019F.

Exhibit15: BNGA NIM quarterly Exhibit16: BNGA NIM trend


Exhibit17: BNGA asset yield and cost of fund Exhibit18: BNGA unconsolidated LDR


5.85.85.7

6.16.0

6.56.2

6.0

5.45.45.7

5.65.45.55.5

5.9

5.55.2

5.75.55.6

5.96.06.3

6.06.4

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

%

5.9

6.1

5.7

5.5

5.6

5.96.0

5.9

5.8

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

6.0

6.1

6.2

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

%

10.910.2 10.0

10.8 11.110.4

9.7 9.5 9.3

5.1

4.2 4.4

5.4 5.5

4.64.0 3.8 3.7

3

4

5

6

7

8

9

10

11

12

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

% Asset yield Cost of funds

96.2

92.0

94.0

95.995.7

92.6

94.993.793.3

94.594.595.1

96.8

92.293.0

96.297.5

95.1

100.1

96.6

94.8

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0

102.0

%




Great cost controlBNGA has done major efficiencies in the past with its early retirement program (MSS) andcutback of branches. BNGA’s operational expense only grew at 4.6% annually during 2013-2016 vs. industry average of 19%. Going forward, we believe the trend of low operationalexpense growth will continue as BNGA tries to maintain its discipline in cost control throughinternal efficiency programs, some of the examples are: the usage of conference call,evaluation of business travels, rental optimization, and workspace optimization. Secondly,BNGA also tries to leverage on digital or non-branch channel to acquire new customer, whichshould save some physical branch cost. In 2016, about 30.5% or >300k of the new savingaccount was acquired through digital and telesales activity and the bank plan to furtherincrease the contribution of non-branch channel going forward. We believe this will supportthe bank’s plan to reduce its physical branches. As the impact, we can already see that cost-to-income ratio has improved to 49% in 2016 and asset per employee has increased to Rp19tn/employee vs. Rp15 tn/employee in 2014. We expect this good cost control to continue,operational expense to grow at 5-7% annually in 2017-2019F and CIR to stay at below 50%.

Exhibit19: BNGA cost-to income estimates Exhibit20: BNGA efficiency in terms of asset per employee


50%

47%48%

52%

56%

49% 49% 50% 50%

30%

35%

40%

45%

50%

55%

60%

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

%

12,581

14,30315,100

12,915

12

15

19

10

11

12

13

14

15

16

17

18

19

20

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

Rp bn# people # Employees (LHS)

Asset per employee (RHS)




Earnings to grow at high double digit annually in 2017-2019FWe believe BNGA to deliver strong earnings recovery going forward. NIM should be graduallylower as there is some pressure on the asset side. Credit cost should decline byapproximately 19% annually in 2017-2019F and bring the biggest impact to support earningsgrowth. We expect strong cost control with single digit operational expense growth rate in2017-2019F. With improving fundamental backdrop, we believe earnings would grow at highdouble digits with 29% CAGR in 2017-2019F. That said, ROA should revert back to 1.5% from2018-2019F, up from 0.2% in 2015, and ROE should recover to double digits by 2018F, upfrom a low of 1.5% in 2015.

Exhibit 21: BNGA earnings trend


Exhibit 22: BNGA ROE and ROE trend


3,169

4,233 4,282

2,344

428

2,082

2,544

3,822

4,463

-200%

-100%

0%

100%

200%

300%

400%

500%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Rp bnNet profit (LHS) y-o-y growth (RHS)

2.0 2.3 2.11.0

0.20.9 1.0 1.5 1.6

19.820.7

17.7

8.6

1.5

6.67.2

10.211.0

0.00

5.00

10.00

15.00

20.00

25.00

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

%




Compelling valuation at 0.8x 2018F PBVBNGA currently trades at 0.8x 2018F PBV, 20% discount to its historical average at 1.0xforward PBV, and 33% discount to non-big four trading average at 1.15x. Our target price ofRp1,705 implies a fair 2018F PBV of 1.1x, representing 44.5% upside. We believe our targetprice is justified given the potential for ROE trending up to double digit by 2018F.

Key risks to our fundamental call includes longer than expected asset quality problem due tolonger economic slowdown and worse than expected NIM compression due to sharp increasein interest rates or tightening liquidity. Increase in interest rates would result in a larger NIMcompression for BNGA as its funding should re-price faster than the lending rate. Undertighten liquidity condition, BNGA could increase its time deposit portion and this would giveNIM compression for the bank. However the room for sharp increase in cost of fund in thiscase is rather limited in our view, as time deposit rate for BUKU IV banks is capped at 75 bpsabove 12 month benchmark interest rate.

Exhibit 23: BNGA forward PBV Exhibit 24: BNGA forward PE

Source : Bloomberg and Ciptadana Sekuritas Source : Bloomberg and Ciptadana Sekuritas

Exhibit 25: Banking peers valuation

Source : Bloomberg and Ciptadana Sekuritas

2.1

1.3

0.8

0.4

0.8

-

0.5

1.0

1.5

2.0

2.5

Jan-

11M

ay-1

1A

ug-1

1N

ov-1

1Fe

b-12

May

-12

Aug

-12

Nov

-12

Feb-

13M

ay-1

3A

ug-1

3N

ov-1

3Fe

b-14

May

-14

Aug

-14

Nov

-14

Feb-

15M

ay-1

5A

ug-1

5N

ov-1

5Fe

b-16

May

-16

Aug

-16

Nov

-16

Feb-

17M

ay-1

7A

ug-1

7x

11.5 9.3

38.9

28.4

5.78.1

-

10.0

20.0

30.0

40.0

50.0

60.0

Jan-

11M

ay-1

1A

ug-1

1N

ov-1

1Fe

b-12

May

-12

Aug

-12

Nov

-12

Feb-

13M

ay-1

3A

ug-1

3N

ov-1

3Fe

b-14

May

-14

Aug

-14

Nov

-14

Feb-

15M

ay-1

5A

ug-1

5N

ov-1

5Fe

b-16

May

-16

Aug

-16

Nov

-16

Feb-

17M

ay-1

7A

ug-1

7

x

17F 18F 17F 18F 17F 18F 17F 18F

BBCA 512 22.3 19.9 3.9 3.4 18.8 18.3 1.0 1.2

BBRI 379 13.4 11.8 2.3 2.0 18.2 18.2 2.6 2.7

BMRI 323 16.5 13.3 1.9 1.7 12.5 14.2 2.0 2.5

BBNI 140 10.7 9.3 1.5 1.3 15.0 15.4 2.6 2.9

BDMN 52 13.1 11.6 1.3 1.2 10.6 11.3 2.1 2.9

BBTN 33 10.7 9.3 1.5 1.3 15.6 16.8 1.9 2.3

PNBN 27 10.2 9.0 0.8 0.7 8.6 8.5 - 0.9

BNGA 30 11.9 7.9 0.8 0.8 10.2 11.0 - -

BJBR 25 14.8 13.9 2.4 2.2 17.0 17.0 3.2 3.2

BTPN 15 8.3 7.5 0.8 0.8 11.4 11.0 4.1 4.1

BNLI 20 11.2 13.3 0.8 0.8 7.6 6.0 - 1.0

BJTM 10 9.3 8.0 1.4 1.3 14.8 16.5 6.3 6.5

BBKP 5 4.2 3.6 0.5 0.4 12.0 13.0 6.8 7.6

ROEPBV (x) Div. Yield

CompanyMarket

Cap.(Rp tn)

PER (x)




Exhibit 26 - Income Statement

Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F

Interest income 22,319 21,325 20,305 20,790 21,781

Interest expenses -10,932 -9,231 -7,854 -7,871 -8,100

Net interest income 11,386 12,094 12,451 12,919 13,681

Other non-interest income 2,332 3,065 2,887 3,125 3,436

Total operating income 13,718 15,159 15,338 16,044 17,118

Operating expenses -7,683 -7,433 -7,578 -8,032 -8,514

PPoP 6,035 7,727 7,760 8,012 8,604

Prov. expenses and others -5,343 -4,973 -4,326 -2,828 -2,542

Operating profit 692 2,754 3,434 5,184 6,062

Non-operating income (exp.) -122 97 50 50 50

Pre-tax profit 570 2,851 3,484 5,234 6,112

Income tax -142 -769 -940 -1,412 -1,649

Minority interest 0 0 0 0 0

Net profit 428 2,082 2,544 3,822 4,463

Exhibit 27 - Balance Sheet

Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F

Cash 4,240 3,262 3,262 3,262 3,262

Current acct, with BI 14,605 13,346 13,002 14,156 15,420

Interbank placement 8,247 6,048 6,048 6,048 6,048

Mkt, securities 9,997 9,887 9,887 9,887 9,887

Govt. Bonds 16,050 18,184 18,184 18,184 18,184

Loans 163,683 165,923 171,649 185,933 204,064

Fixed assets 3,362 6,752 6,954 7,163 7,378

Other assets 12,232 12,058 12,058 12,058 12,058

Total Asset 238,849 241,572 246,305 261,952 281,562

Deposits from customer 178,533 180,571 181,191 197,673 215,734

Borrowings 16,127 11,823 13,855 10,476 8,202

Other liabilities 9,855 10,413 10,413 10,413 10,413

Total liabilities 210,170 207,364 210,016 223,118 238,906

Shareholder equity 28,679 34,207 36,288 38,833 42,655

Minority interest 1 1 1 1 1

Total liab + SHE 238,849 241,572 246,305 261,952 281,562

Exhibit 28 - Per Share Data

(Rp) 2015A 2016A 2017F 2018F 2019F

EPS 17.0 82.8 101.2 152.1 177.6

BVPS 1,140.9 1,361.1 1,443.9 1,545.2 1,697.2

DPS 0.0 0.0 0.0 0.0 0.0





Exhibit 29 - Key Ratios

Year to 31 Dec 2015A 2016A 2017F 2018F 2019F

Ratios

ROA (%) 0.2 0.9 1.0 1.5 1.6

ROE (%) 1.5 6.6 7.2 10.2 11.0

Net interest margin (%) 5.6 5.9 6.0 5.9 5.8

Yield on earnings asset (%) 11.1 10.4 9.7 9.5 9.3

Average cost of fund (%) 5.5 4.6 4.0 3.8 3.7

Cost to income ratio (%) 56.0 49.0 49.4 50.1 49.7

Cost of credit (%) 2.6 2.4 2.1 1.3 1.1

Non-performing loan (%) 3.8 3.9 3.7 3.5 3.2

Coverage ratio (%) 107.3 112.9 122.2 123.3 134.2

Loan to deposit ratio (%) 95.6 96.1 99.2 98.3 98.9

CASA ratio (%) 46.8 50.8 53.0 53.9 54.8

Equity to Asset (%) 12.0 14.2 14.7 14.8 15.1

Capital adequacy ratio (%) 20.8 22.2 22.5 22.0 22.0

Tier-1 CAR 14.1 17.0 17.6 17.2 17.3

PER (x) 70.8 14.5 11.9 7.9 6.8

PBV (x) 1.1 0.9 0.8 0.8 0.7

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

Growth (%)

Total assets growth 2.4 1.1 2.0 6.4 7.5

Loan growth 0.8 1.7 3.6 8.0 9.8

Deposit growth 2.2 1.1 0.3 9.1 9.1

NPL growth -3.7 3.3 -1.4 0.8 2.2

SHE growth 0.8 19.3 6.1 7.0 9.8

Net interest income growth 6.5 6.2 3.0 3.8 5.9

Non-interest income growth -9.1 31.5 -5.8 8.3 10.0

Provision expense growth 54.2 -6.9 -13.0 -34.6 -10.1

Net profit growth -81.7 386.6 22.2 50.2 16.8





EQUITY RESEARCH

HEAD OF RESEARCH ANALYST ANALYSTArief Budiman Erni Marsella Siahaan, CFA Yasmin SoulisaStrategy, Automotive, Heavy Equipment, Banking Property, PlantationsConstruction, Shipping T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799T +62 21 2557 4800 ext 819 E [email protected] E [email protected] [email protected]

ANALYST ANALYST ANALYSTKurniawan Sudjatmiko Nichelle Ongko Niko MargaronisCoal, Metal Mining, Oil & Gas and Services Media, Retail, Others Telecommunication, Tower, HealthcareT +62 21 2557 4800 ext 739 T +62 21 2557 4800 ext 740 T +62 21 2557 4800 ext 734E [email protected] E [email protected] E [email protected]

JUNIOR ECONOMIST ANALYST TECHNICAL ANALYSTImanuel Reinaldo Fahressi Fahalmesta Trevor GasmanT +62 21 2557 4800 ext 820 Cement, Toll Road, Poultry T +62 21 2557 4800 ext 934E [email protected] T +62 21 2557 4800 ext 735 E [email protected]

E [email protected]

RESEARCH ASSISTANTSumarniT +62 21 2557 4800 ext 920E [email protected]

EQUITY SALES

Co HEAD OF INSTITUTIONAL SALES Co HEAD OF INSTITUTIONAL SALESDadang Mulyana The Fei MingPlaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2Jl. Jend. SudirmanKav. 59 Jl. Jend. SudirmanKav. 59Jakarta - 12190 Jakarta - 12190T +62 21 2557 4800 ext 838 T +62 21 2557 4800 ext 807F +62 21 2557 4900 F +62 21 2557 4900E [email protected] E [email protected]

SURABAYABRANCH OFFICES

SURABAYAJAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYAKomplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower SurabayaRukan Blok C No.10 Jl. PuriKencana Blok M8 No.2E Ground Floor Suite 5 & 6Jl. ManggaDua Raya Kembangan Jl. Panglima Sudirman 101-103Jakarta - 10730 Jakarta - 11610 Surabaya - 60271T +62 21 600 2850 T +62 21 5830 3450 T +62 31 534 3938F +62 21 612 1049 F +62 21 5830 3449 F +62 31 534 3886

SEMARANGGedung Menara Suara Merdeka6th Floor Unit 02Jl. Pandanaran No.30Semarang - 50134T +62 24 7692 8777F +62 24 7692 8778




Analyst Certification

Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about thecompanies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are notand will not be influenced by any part or all of his or her compensation.

Disclaimer

This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into anytransaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should determine,without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume theserisks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting thisreport, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice,(b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualifiedlegal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accountingadvice (and any risks associated with any transaction and our disclaimer as to these matters.

The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate,current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of thedocument and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions andthere can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PTCIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OROTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANYRELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF.

Analyst Certi ficationDisclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securitiesmentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinionscontained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation orwarranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any othermember of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of theinformation contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be noassurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this documentis subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed.

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