Bank Tabungan Negara: Positioned for Strong Earnings Recovery Amid Strategic Asset Sales

Date: October 2, 2024
Broker: UOB Kay Hian

Bank Tabungan Negara (BBTN IJ) is a state-owned enterprise (SOE) bank specializing in mortgage loans.

Share Price: Rp1,465
Target Price: Rp1,740
Upside: +18.8%
Market Capitalization: Rp20,560.0 billion (approximately US$1,352.1 million)
Shares Issued: 14,034.4 million
3-Month Average Daily Turnover: US$1.9 million
52-Week High/Low: Rp1,600/Rp1,175

Net Profit: BBTN’s net profit declined by 9.8% year-on-year (yoy) in the first eight months of 2024 (8M24) but is expected to recover strongly in the fourth quarter (4Q24).
Earnings Expectations: Most profits will be booked in 4Q24, with a projection of flat net profit growth for 2024 overall. Management anticipates strong earnings in 4Q24 driven by recovery income and a bulk asset sale of Rp1.5 trillion.

Asset Sales: BBTN plans to complete the sale of Rp1.5 trillion in bad assets in 4Q24. This move is projected to reduce the non-performing loan (NPL) ratio by approximately 49 basis points (bp).
Deposit Rate Cuts: The bank has commenced lowering its deposit rates by 50bp following the Bank Indonesia (BI) rate cut, which is expected to marginally reduce its cost of funds (CoF) in the second half of 2024 (2H24) and more significantly in 2025.
Loan Growth: Loan growth remained strong at 13.3% yoy in August 2024, exceeding management’s 13% growth target for the year.

Non-Interest Income: Non-interest income grew by 26.4% yoy to Rp2.6 trillion in 8M24, accounting for 25% of total operating income, up from 19% in 8M23. Management expects to achieve Rp3 trillion to Rp4 trillion in non-interest income for 2024.
New Housing Program: The newly elected government targets a 3 million housing program with a new scheme for payment, potentially benefiting BBTN.

Earnings Revision: No revisions are made to earnings estimates despite the 8M24 performance being below expectations, as recovery from the asset sales is anticipated.
Risks: Potential risks include adverse macroeconomic developments, rupiah instability, geopolitical uncertainties affecting asset quality, and lower-than-expected loan growth.

Valuation: Maintain a BUY recommendation with an unchanged target price of Rp1,740, based on a fair price-to-book (P/B) ratio of 0.62x.
Catalysts: Newsflow regarding the new housing subsidy scheme is expected to serve as a catalyst for BBTN’s share price, as it could lead to higher net interest margin (NIM) and loan ticket sizes under the new scheme.

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