Stand Still as Defense Strategy
1Q19’s Results: Heavy Loan Disbursement, yet Expected Bottom Line
Based on 1Q19 result, net profit for banks in our coverage are in-line with our estimation with top performers are BMRI and BNGA. Meanwhile, BMRI and BBCA still booked double digit growth in net interest income because they could maintain its NIM, with BBCA and BNGA as the only banks from our universe whose NIM were increased in 1Q19. There was a slightly increased in efficiency ratio for some banks, such as BBRI, BBCA, BNGA, and BBTN. The growth in operating expenses that wasn’t balanced by the growth in net interest income whereas NIM was depressed, became the main factor for this condition. However, frontload loan strategy in 1Q19 will encourage interest income growth for the remaining of FY19E.
Limited Loan Growth Because of Tight Liquidity, Hence Depressed NIM
We consider loan growth in FY19E to be at the level of ~11% based on 1) Economic growth which is predicted to be at 5.2% in FY19E; and 2) Tightening liquidity where 2M19 LDR reached 94.12% as well as LDR in our banking universe that was still in high level from 1Q19 results, and loan disbursement that was quite aggressive in FY18 will limit the room for lending in FY19E. Almost all the banks in our universe have experienced this condition with mounting up LDR level, which BBTN, BMRI, and BNGA aimed its upper limit. NIM pressure was still a challenge in FY19E, as from 1Q19 results showed by mostly banks because of funding competition. We see that NIM will decline furthermore if certain condition such as: 1) Liquidity is still tightening and; 2) Loan interest rate isn’t adjusted with the rising of time deposit rate.
Recommendation: NEUTRAL with Top Picks: BBCA, and BBNI
We remainNEUTRAL for banking sector, consider moderate growth and have been reflected on its valuation, as seen from 1) Stable asset quality; 2) Liquidity tightening; 3) NIM pressure; and 4) relatively moderate bottom-line growth. The positive sentiment that moves banking stocks is capital inflow, related to the application of free-float regulations, and the potential for a limited increase in 7DRR. Our banking stocks recommendations are BBCA (BUY, TP: Rp31,000), BBRI (HOLD, TP: Rp4,400), BMRI (HOLD, TP: Rp7,850), BBNI (BUY, TP: Rp10,000), BBTN (HOLD, TP: Rp2,600), BNGA (BUY, TP: Rp1,375), and AGRO (BUY, TP: Rp480).
