Indonesia Banking Industry: Mid-sized banks 11M18 earnings: Mixed results
Mixed results... The unconsolidated net profit of five selected midsize banks, namely Bank CIMB Niaga (BNGA IJ), Panin Bank (PNBN IJ), Bank Permata (BNLI IJ), Bank Maybank Indonesia (BNII IJ), and Bank Tabungan Pensiunan Negara (BTPN IJ) grew variably by between 1.8% and 49.1% YoY in 11M18. BTPN had the highest growth due to last year’s low base amid the booking of reorganization costs in November 2017. On the other side, BNLI had the lowest growth due to the absence of last year’s one-time loan sale gain amounted IDR746bn.
...with different earnings drivers. For BNGA, BNLI, and BNII, earnings were mostly driven by lower credit costs. PNBN reported significant jump in net other operational income (+96.1% YoY) which became the major driver for bottom-line earning growth. Meanwhile, operational efficiency, with operating expenses fell 24.4% YoY, after major reorganization program at end 2017, supported BTPN’s earnings this period.
Resilient lending expansion, but funding still sluggish. Total lending in these banks grew at modest pace of between 3.4% and 11.0% YoY at end 11M18. On the other hand, funding grew at lower pace, some even experienced contraction, at between -8.5% and 4.9% YoY. With uneven expansion between lending and funding, LDR rose to between 99% and 120%, with BTPN and BNII at the lowest and highest end of the range, respectively.
Tightening liquidity as near-term challenge. With LDR is on the high side, these banks would face fiercer competition in third-party funding market which consequently would lead to rising funding cost and press the banks margin. Rising rates environment would add the pressure to the margin.
Valuation. The expectation of much less aggressive rate hikes this year help boost some of the banks’ share price recently. BNLI and BNGA are those having the highest share price jump in the past one month at 33% and 25%, respectively. Still, these banks are trading at around 0.6x and 0.7x of their book value at end 9M18, expect BTPN which is trading at 1.1x P/B due to catalyst from the M&A action. In term of P/E, these banks are trading at between 7.3x and 21.2x annualized 9M18 net profit, with BNII and BNLI at the lowest and highest end of the range. BNII lower valuation may be due to its inferior fundamentals, particularly its very tight liquidity position (9M18 LDR 120%) and very low loan loss coverage (9M18: 67.4%). BNLI’s high P/E multiple was mostly due to high credit cost which dragged earnings earlier this year. However, in the past two months, monthly earnings seemed to have normalized back to FY14, the year before it struggled with soaring bad debts. Using the average annualized monthly net profit in Oct 18 and Nov 18, BNLI would be trading at 8.9x P/E.
