bahana securities (bank jatim target price increase from 420 to 440)Date: 28 january 2014
Key takeaways from local NDR
During our local NDR with BJTM’s management last Friday, two key issues were raised to our attention:
- Venturing into micro financing: On 10 February, BJTM plans to introduce 18 micro units in Surabaya and Sidoarjo (East Java), while 100 “implant” units (located within BJTM’s existing branches, sub-branches and cash outlets) are expected to be established throughout 2014. Under contract basis, for each unit there are four marketing staff, one unit head, one credit analyst and one collector. However, these employees will eventually be upgraded to permanent status upon the end of the contract, subject to their performance in achieving credit targets and asset quality. To ensure focus and operating efficiencies, each unit’s coverage is limited up to 10 km radius. This, combined with BJTM’s strong brand recognition, should provide easy access in this micro segment penetration, targeting to secure minimum IDR600bn in 2014 micro loans, before rising to IDR1tn in 2015. While its micro credit ceiling ranges up to IDR500mn under 3 main product categories (Jatim 50, Jatim 300 and Jatim 500), BJTM aims an average loan size of IDR100-300 with lending rate of 22-24%. Via its “traffic light control” program, BJTM monitors NPLs based on repayment rate-RR (red: 90% RR or less and yellow with RR of 90-97%).
- Solid 4Q13 earnings of IDR236bn to bring FY13 to IDR917bn: BJTM indicated 4Q13 net profit of IDR236bn (-6.6% q-q, +20% y-y), bringing 2013 earnings to IDR917bn (+26.5% y-y), in line with ours (99.7%) but above consensus’ estimate (107.4%). 4Q13 operating income grew 6.2% q-q and 26.6% y-y on improved NIM to 7.8% from 7.6% in 3Q13 and 6.5% a year earlier (exhibit 5). In contrast, higher provisioning charges were caused by increased NPL coverage ratio despite continued improved gross NPL to 2.9%, down from 3.1% in 3Q13 and 3.0% in 4Q12. On the balance-sheet side, loans grew 2.5% q-q, bringing 2013 loan growth to 18.9% y-y while deposits contracted 9.4% q-q, bringing LDR to 85% (from 75% in 3Q13 and 84% in 4Q12).
Outlook: Focus on high-yield loans; Less dependent on time deposits
In 2014, BJTM plans to continue growing its multi-purpose loans, on top of micro financing. These high-yielding loans should prevent margin pressure on expected increase in cost of funding (refer to our BJTM flash 20 January 2014). Additionally, increased deposits from regional government funds should ease pressure in overall funding, providing comfort to investors.
Recommendation: TP upgraded to IDR440; Accumulate on weakness
Recent change in our BI rate assumption to 8.0% (-50 bps) on lower cost of equity has resulted in us upgrading BJTM’s TP to IDR440 (+5%), translating to 2014 P/BV of 1.0x and P/E of 6.5x. HOLD on 7% upside to our new TP, although we would advise investors to accumulate BJTM on any weakness at this stage of the cycle. Downside risk would be worse-than-expected micro loan financing performance that would cause slower earnings growth.