Indonesia Sector Update

17 April 2020 |

Indonesia Banks Overweight (Maintained)

Stocks Covered 12 Working Against Gravity; Still OVERWEIGHT Rating (Buy/Neutral/Sell): 8/4/0

 Maintain OVERWEIGHT, as Indonesia’s banking sector is a proxy to Top Picks Target Price the domestic equities market. The COVID-19 pandemic has brought Central Asia (BBCA IJ) IDR32,500 about heightened risks on asset quality and loan growth. However, we (BBRI IJ) IDR3,600 believe government stimulus measures may provide a buffer against the (BMRI IJ) IDR6,000 negative impact. Despite a lacklustre outlook, we make no change to our sector weighting, and prefer the bigger-cap picks. Our pecking order is: Bank Permata (BNLI IJ) IDR1,450 BBCA>BBRI>BMRI, and BNLI for the small/mid-cap pick.  Loan growth has been decelerating. The COVID-19 pandemic ramped Analyst up in the midst of slower loan growth. In 3Q18 (when loan growth started Christopher Andre Benas slowing down), loans increased by 13% YoY, marking the highest increase +6221 5093 9847 since 2016. 3Q18 was a turning point, and loan growth declined thereafter [email protected] to 6.1% YoY in 4Q19. As COVID-19 continues its global rampage, we believe loan growth may decelerate to below 5-5.5% YoY, ie half of peak Indonesia Research Team levels. This will be the lowest increase ever recorded for Indonesia, after +6221 5093 9888 the 2008 global financial crisis. That said, we expect system NII growth to [email protected] trend lower as loan growth decelerates, while loan yields should be under

constant pressure due to the lower interest rate environment.

 Different banks, different interpretations on stimulus measures. The Loan growth has been decelerating since 3Q18 Financial Services Authority (OJK) and (BI) have taken steps to help banks. These include OJK relaxing asset quality assessment 30%

and restructuring standards to buffer against asset quality deterioration, and 25% BI paring down policy rates to stimulate loan growth. Additionally, when BI 20% maintained the 7-day repo rate, it also lowered the reserve requirement by 200bps to 3.5%, and loosened its financing-to-funding ratio to improve 15% liquidity. The policy takes effect on 1 May. BI also expects to see liquidity 10% improve (with an extra IDR117trn) after that. As such, we do not expect a 5%

liquidity squeeze this time around, compared to the previous financial crisis. 0%

3Q11 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19  Downgrading forecasts on decelerating loan growth and asset quality 1Q08

uncertainties. For the banks, the IFRS 9 adjustment this year came with Big 4 Banks (LHS) Industry (LHS) perfect timing – an additional adjustment on capital might help ease pressure from rising CoC. Hence, we expect a mild increase in NPL and Source: Financial Services Authority (OJK), RHB CoC. We do not expect any pressure on capital, as most of the banks in Indonesia are well-capitalised (most banks under our coverage have CAR of >20%, which is much higher than that of their regional peers. With the pandemic, we cut FY20-21F loan growth to 5.3% and 8.1%, from 9.4% and 10.6%, which lowers our NII estimates by 7% and 10%. We also increase impairment charges by 10% for 2020F, which pares down net profit estimates by 12% and 11% for FY20-21F.  Changes to our stock calls are on BBRI (now BUY, from Neutral), BBTN (upgraded to NEUTRAL, from Sell), BNGA (downgraded to NEUTRAL, from Buy), and BTPS (cut to NEUTRAL, from Buy).

% Upside P/E (x) P/BV (x) Yield (%) Company Rating Price Target (Downside) Dec-20F Dec-20F Dec-20F Bank BJB Buy 910 1,200 31.9 5.3 0.7 10.7 Buy 26,200 32,500 24.0 22.1 3.4 1.1 Buy 3,980 5,300 33.2 4.9 0.6 7.3 Bank Mandiri Buy 4,210 6,000 42.5 7.1 1.0 6.3 Buy 3,980 5,300 33.2 4.9 0.6 7.3 Bank Jawa Timur Buy 535 820 53.3 4.7 0.8 9.3 Bank Permata Buy 1,220 1,450 18.9 21.8 1.4 0.0 Bank Rakyat Indonesia Buy 2,610 3,600 37.9 9.1 1.4 4.3 Bank CIMB Niaga Neutral 700 710 1.4 5.5 0.4 8.3 Bank Pan Indonesia Neutral 745 830 11.4 6.7 0.4 0.0 Neutral 900 950 5.6 17.0 0.6 0.4 BTPN Syariah Neutral 2,220 3,000 35.1 12.3 2.7 3.3

Source: Company data, RHB

See important disclosures at the end of this report 1

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

Loan growth has been decelerating since 3Q18 In Figure 1, loan growth peaked in 3Q18, before descending. In 4Q19, loans grew by only 6.1% YoY, marking the slowest increase since 3Q16 despite the expectation of a modest recovery in FY20 – but this was before COVID-19 struck in January. We believe the COVID- 19 pandemic has added pressure on loan growth. Even during the global financial crisis (GFC) in 2008, industry loans grew 9-10% YoY. In 2008, the growth was marked by an increase in demand for commodities – oil prices shot up to above USD100.00 per barrel, and we were at the brink of a coal and CPO boom.

Figure 1: Historical loan growth Figure 2: Historical loan growth by segment (% YoY) 30% 40% 25% 35% 20% 30% 25% 15% 20% 10% 15% 5% 10% 5%

0% 0%

1Q08 3Q08 1Q15 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19

Mar-08 Mar-09 Mar-11 Mar-12 Mar-14 Mar-15 Mar-17 Mar-18 Mar-10 Mar-13 Mar-16 Mar-19 Mar-20

Sep-08 Sep-10 Sep-11 Sep-14 Sep-17 Sep-18 Sep-09 Sep-12 Sep-13 Sep-15 Sep-16 Sep-19

Big 4 Banks (LHS) Industry (LHS) Working Capital Investment Micro

Source: OJK , Bloomberg, RHB Source: OJK, Bloomberg, RHB

Figure 3: Loan growth in relation to GDP growth

35.0% 6.22% 7.0% 6.34% 6.18% 31% 6.03% 30.0% 5.70% 5.56% 6.0% 5.50% 5.2% 5.1% 5.2% 26% 4.63% 5.1% 4.9% 5.0% 25.0% 6.01% 25% 5.0%  Loan growth during 2019 24% 23% 23% 22% decelerated to a low 6% as banks 20.0% 4.0% were also troubled by limited liquidity, with LDR rising >95% 15.0% 14% 3.0% 12% 12% 10% 10%  In 2020F, we believe loan growth 10.0% 8% 8% 2.0% 6% 1.0% will decelerate further but this 5.0% 1.0% should be supported by abundant 5% liquidity 0.0% 0.0%

Loan Growth % Real GDP Growth %

Source: OJK, BI, RHB

Loan growth in 2019 decelerated to a low 6.1% (from 12% in FY18), despite GDP growth being kept near 5% YoY, as banks were also troubled by limited liquidity, with LDR rising >95%. As COVID-19 continues its global rampage, we believe loan growth may decelerate to below 5-5.5% YoY, ie half of peak levels. This will be the lowest increase ever recorded for Indonesia, after the 2008 GFC. However, loan growth will also be supported by stimulus measures from the Government, including the IDR117trn additional liquidity to the system from lower reserve requirements. Excluding the extra liquidity, loan growth may go down as low as 1-3%.

See important disclosures at the end of this report 2

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

What is different now? In 2019, uncertainty over the US-China trade war cast a shadow on the global economy, which led to shocks in the emerging markets. This created a multiplier effect that affected Indonesia, as China is one of its major trading partners. Decelerating economic growth in China pulled down commodity prices – ie oil, coal, nickel, and CPO. This impacted Indonesia’s economy, as GDP growth is dependent on commodity prices. Just when we thought the trade war was easing and the political situation was stabilising, COVID-19 struck – and impacted most countries across the world. With economic activities largely shut down across the globe, we should see a decline in working capital loans ahead, followed by a sharp drop in investment loans. During the 2008 global financial crisis, working capital loans did not drop as sharply following the month of the subprime mortgage crisis – there was 30-40% YoY growth in 2H18. Working capital loan growth peaked at 39% in Nov 2008, before falling to -3.1% YoY a year later. In this current cycle, working capital loans grew by 16.9% YoY last December, vs 13-14% a few months before. Additionally, we saw some pick-up in investment loans from 3Q19, before it hit 9.1% YoY in Dec 2019 – a recovery after a period of uncertainty during the presidential election in 1Q-2Q. Although working capital loans are expected to see a V- shaped recovery, we think that it will take a few quarters before the economy can be jumpstarted.

Figure 4: China’s YoY loan growth

35%

30%  V-shaped recovery post-2008 GFC due to strong commodity prices 25%  A rather U-shaped recovery post 20% 1997-1998 Asian financial crisis

15%  2019 loan growth still did not reach levels recorded prior to the US- 10% China trade war, despite massive +6% stimulus measures implemented by 5% local governments to boost the economy 0%

Source: EIU, RHB

From our analysis of what happened with China in the 1997 crisis and 2008 GFC, the recovery in 1997 for China was much tougher than the case in 2008. Post-2008 crisis, China underwent a V-shaped recovery in 2009, with credit growth reaching 33% YoY. In the past three years, China’s loan growth has been greatly muted. Much of this was due to the trade war, as China’s loan growth was only at 1% YoY in 2018, before picking up to 6% YoY in 2019. Last December – just as COVID-19 broke out in China – we believed that the recovery would be U-shaped, rather than V-shaped. As such, loan growth may only pick up later in 4Q20, if the pandemic is brought under control by the end of the year.

See important disclosures at the end of this report 3

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

What has the Government done to support the banking industry? BI and the Ministry of Finance are proactively supporting the industry by making policy changes promptly, to mitigate the impact of the pandemic on the banking system. The policy measures from both parties now are much more than what was done in 2008.

Figure 5: Government stimulus packages for Indonesian banks in 2020 Institution Stimulus measures Expected impact Modest increase in NPL and SML Relaxation in asset quality assessment, allowing banks to recognise loans as a ratios, as emerging asset quality Financial Services Authority pass for debtors affected by the COVID-19 pandemic (loan size is capped at problems due to COVID-19 may still be IDR10bn) recorded as collectibles. However, CoC is expected to increase Relaxation in loan restructuring, allowing debtors to receive the following: i. Renegotiated rates for debtors; ii. Extension of loan terms; i. Potentially lower yields; iii. Lower outstanding principal amount; ii. Liquidity maintained, with lower iv. Lower outstanding interest amount; loan growth; v. Additional loan/financing facility; iii. Lower NII; vi. Conversion of loan/financing to temporary capital ownership iv. Change in loan amounts Bank Indonesia BI ‘s 7DRR cut by a total of 175bps since last year to 4.25%; Lower CoF but also lower yields Lower reserve requirement for general banks and syariah banks by 200 bps and 50 bps as of 1 May. The total minimum reserve requirement as of now will be 3.5% and 3% on a daily basis Better liquidity for the system

Source: OJK, BI, RHB

Figure 6: Government stimulus packages for banks in 2008

Institution Stimulus packages Bank Indonesia BI maintained the fixed rate (Jan 2008-Apr 2009) BI increased its BI rate (May-Oct 2008) from 8.0% from 9.5% Stabilising IDR through various programmes, ie lowered the reserve requirement ratio for FX, regulation on structured finance. Limit daily FX loans Source: OJK, BI, RHB

In comparing the current stimulus measures to those implemented in 2008, the measures for this year are more extensive and more supportive of the sector. In 2008, measures leaned more towards the monetary policy and stabilising the IDR. This year, we expect BI to go all out to defend the IDR and bolster the sector – since the COVID-19 pandemic is expected to have a more severe impact on the economy than the 2008 GFC. 2019’s rate cuts were very effective for the economy, as seen in the improvement in government bond yields. The current policy, in our view, has not yet had a significant impact on Indonesian government bond yields. We have still seen outflows in the bond market, reflecting the depreciation of the IDR. That said, although the market has stabilised slightly since two months ago, we are not out of woods just yet.

Figure 7: Bond yield and policy rate trend in 2008 Figure 8: Bond yield and policy rate trend in 2020

Source: Bloomberg, RHB Source: Bloomberg, RHB

See important disclosures at the end of this report 4

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

As seen in Figure 6, after BI implemented measures to stabilise the market, it took two corrections before the bond yield stabilised. As of now, there has been only one correction in bond yields after BI implemented the rate cut last month. Thus, we should see another correction in bond yields, before the market – especially that for bonds – is stabilised.

How about deposits? We do not think Indonesia will see a liquidity crisis like the one in 1998. This year, deposits look stronger – as there has been no public unrest and the current government is more stable compared to the one in 1998. Deposits grew at double digits YoY in 2008, for most banks. This year, deposit growth may mirror what happened in 2008, since we do not expect riots and we have a stable government. On the rate of change, last year, deposit growth peaked at 11% YoY in 1Q19 before decelerating to 9% YoY in 4Q19. Although there is not so much economic activity at the moment, deposits should increase – as people are liquidating, to turn risky assets into cash. When we talked to the banks’ management teams, almost all the banks were not concerned about deposit growth this year. They do not expect any rush in the system, despite the limited operation banking hours and many people having to work from home. Therefore, deposit growth this year may outpace that of 2019, despite the limited economic activities. The downside of higher deposit growth this year, though, would be the impact on system NII – since loan growth is expected to be muted. BI already reduced its 7DRR, but many banks still have not cut their time deposit interest rates to the lowest level – as there is no reason to reduce CoF to increase NII. Rather than focus on lowering the CoF, in our view, banks would be more focused on maintaining their market shares in deposits. From Figure 8, we see that the big-4 banks continued to gain market share from the smaller mid-cap banks since last year, despite a slowdown in deposit growth. Therefore, we do not expect the small- and mid-cap banks to gain any advantage from the pick-up in deposits growth, as these would flow through to the big-4 banks.

Figure 9: Indonesia banks – deposit growth trend

% YoY 60% 50% 40% 30% 20% 10% 0% -10%

BIG 4 YOY Small Mid Banks YOY All Banks YOY

Source: RHB, Bloomberg

How will this affect liquidity? As banks will lower loan growth targets to focus more on asset quality and avoid unnecessary risks in challenging times, a huge increase in deposits is unlikely. We believe the pressure on liquidity should ease in the near term. This is also supported by the lower reserve requirements set by BI. However, we believe the near-term abundance is necessary, especially when debtors affected by the COVID-19 pandemic start to file for loan restructuring and rescheduling principal payments. From our talks with several banks, some are saying that the Government will substitute the delayed principle payments, to make up for the banks’ lost liquidity – but we think this is unlikely to happen. Driven by the shift to safety, the ample liquidity in bigger banks will still persist compared to their smaller peers. As customers shift their assets to more secure banks (ie big-4 banks), smaller competitors that are paying a higher cost of funds will lose market share, along with

See important disclosures at the end of this report 5

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

liquidity. This is especially so for BUKU I & BUKU II banks, but might also impact BUKU III banks.

Figure 10: Sector LDR trend

Loan to Deposit Ratio (%) 110%

105% BUKU III 103.7%

100% Industry 95% 93.6% BUKU IV 90.7% 90% 90.4% BUKU II 89.1% 85% BUKU I

80%

75%

70%

65%

60%

Oct-16 Oct-18 Apr-16 Apr-17 Oct-17 Apr-18 Apr-19 Oct-19

Jun-16 Jun-18 Jun-17 Jun-19

Feb-17 Feb-18 Feb-19

Dec-19 Dec-16 Dec-17 Dec-18

Aug-17 Aug-19 Aug-16 Aug-18

BUKU IV BUKU III BUKU II BUKU I Industry

Source: OJK, RHB

When BI announced that it will relax the reserve requirement by another 200bps on 1 May, it also believed that there will be another extra c.IDR117trn for the banking system. Therefore, we do not expect any liquidity squeeze at the moment that will disrupt the banks’ business.

What are we expecting in terms of asset quality? Most segments will likely be impacted by the pandemic. Based on internal assessments conducted by various banks, as expected, tourism, aviation companies as well as restaurants will likely be impacted. In 2019, wholesale and retail trade, eating and drinking, and transportation contributed 24% to Indonesia’s banking system. If we break down NPL for each segment, wholesale and retail trade NPL in FY19 stood at 3.5%, provision of eating and drinking at 5.6%, and transportation at 1.6%, whereas industry NPL in 2019 was at 2.5%. Note that the numbers in end-2019 were much better than that of 1H19 and 2018, as NPL for retail and trade, as well as for eating and drinking peaked in 2018, due to US-China trade tensions.

See important disclosures at the end of this report 6

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

Figure 11: NPLs related to retail and trade, food and beverage NPL% 7%

7%

6%

6%

5%

5%

4%

4%

3%

Jul-18 Jul-19

Apr-18 Apr-19

Jan-18 Jun-18 Jan-19 Jun-19

Mar-18 Mar-19

Feb-18 Feb-19

Sep-18 Nov-18 Sep-19 Nov-19

Okt-18 Okt-19

Mei-18 Mei-19

Ags-18 Ags-19

Des-19 Des-18 Wholesale and Retail Wholesale and Retail

Provision of accomodation and theprovision of eating and drinking Provision of accomodation and theprovision of eating and drinking Capital

Source: RHB, OJK

Figure 12: NPLs related to working capital, investment and consumption NPL% 4%

4%

3%

3%

2%

2%

1%

Jul-18 Jul-19

Apr-19 Apr-18

Jan-18 Jun-18 Jan-19 Jun-19

Feb-18 Mar-19 Mar-18 Feb-19

Sep-18 Nov-19 Nov-18 Sep-19

Okt-19 Okt-18

Mei-19 Mei-18

Ags-18 Ags-19

Des-19 Des-18 Investment Investment Working Capital Working Capital Consumption

Source: RHB, OJK

In terms of use, NPL from working capital loans were also still relatively above the industry average. In 2019, working capital NPL did not move much from 3.2-3.4%, and has been trending up since the end of 2018. When we talked to the banks, the management teams also mentioned the probability of rising NPLs from this segment. Working capital loans account for about 46% of total system loans, but growth in this segment has been sluggish. In 2019, working capital loans ticked up by just 3%, vs 13% in the previous year. Another segment worth mentioning is investment loans, which picked up in 2019, since many companies have been investing since 2017. In 2019, investment loans grew 6% YoY, from only 3% in 2018. With the pandemic spreading across countries, we believe this growth should decrease this year, after a high base of 2019. When we spoke to industrial estate companies, their management teams said that investments may shift into 2H20. Many investors are hoping for the omnibus law to be approved this year.

See important disclosures at the end of this report 7

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

Figure 13: NPLs related to export, import, and other sectors

NPL%

4%

4%

3%

3%

2%

2%

1%

Jul-19 Jul-18

Apr-19 Apr-18

Jun-18 Jan-18 Jan-19 Jun-19

Mar-18 Mar-19

Feb-18 Feb-19

Sep-18 Nov-18 Sep-19 Nov-19

Okt-19 Okt-18

Mei-18 Mei-19

Ags-18 Ags-19

Des-18 Des-19 Import Import Export Export Others

Source: RHB, OJK

Meanwhile, export/import loans declined last year, by 2% YoY, vs +8% YoY in 2018. Export loans account for just 2% of total loans. However, with a number of countries in a lockdown, we expect this segment to chart negative growth again. Additionally, fee income generated from this segment may plunge, as there will be less trade financing taken during the lockdown period. Segmental NPL was at 1.9% last year, vs total NPL of 2.5%. Other sectors that could be affected by the pandemic are tourism and hospitality. We believe the NPL trend for these industries will go up.

Which bank would be more vulnerable to a downturn? Based on discussions held with representatives from a few banks, we learned that most expect the pandemic to be brought under control by July. However, it would take 4-5 months before the situation returns to normal. Most banks expect NPL to increase moderately, and not for levels to be severe. The implementation of IFRS 9 standards in end-4Q19 created a buffer for some banks to prepare for such a downturn. Almost all banks have exposure to the pandemic – in particular, the big-4 banks have exposure to risks from the SME, corporate, and commercial segments.

Figure 14: Banks’ exposure to SME, corporate & commercial, and consumer segments Exposure in the corporate and Bank Exposure in SME segment Exposure in the consumer segment commercial segments BBCA 33.6% 39.2% 26.2% BBRI 16.3% 36.5% 52.1% BMRI 8.0% 64.0% 28.0% BBNI 26.7% 51.8% 15.4% BNGA 20.0% 52.0% 28.0% BDMN 22.0% 30.0% 47.0% PNBN 30.3% 24.7% 19.4%

Source: Company data, RHB

Although many banks are reluctant to disclose the expected real impact of the pandemic on their businesses, we expect to see a downgrading of loans from the SME, corporate and

See important disclosures at the end of this report 8

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

commercial segments. Bank Mandiri (BMRI) expects 5.3% of corporate and commercial loans to be restructured, as well as a moderate increase in NPL. For the consumer sector, it does not expect NPL to rise above single digits. Bank Negara Indonesia (BBNI) estimates NPL from hotels and restaurants to amount to about IDR20trn, out of its total loan book of IDR556trn in FY19 (or around 4% of total loans). While there is no guidance on NPL outlook from this sector, the bank expects the relaxation of regulations to ease pressure on its NPL. In the meantime, Bank Rakyat Indonesia (BBRI) thinks NPL will rise, but has not set an estimate for this metric in 1Q20. That said, it believes that micro lending is more resilient, and that this segment should see a faster recovery. Bank Central Asia (BBCA), meanwhile, has the most conservative guidance – and so is reluctant to give any indications on the impact to loans. As such, we will need to wait until it announces 1Q20 results, to better determine how it adjusts its NPL estimates.

Figure 15: NPL coverage

Bank LLC BBCA 242.2 BBRI 233.4 BMRI 260.0 BBNI 239.6 BNGA 197.0 BBTN 116.5 BDMN 113.7 PNBN 150.9

Source: Company data, RHB

Conservative coverage is preferable As we expect NPL to worsen, we prefer banks with higher loan loss coverage ratios – BBCA, BMRI, BBRI, BBNI – as these have above-industry coverage, and may likely increase this ahead. In the months ahead, we expect banks to focus more on provisioning than on growth. If banks manage credit cost well during this pandemic, in the next six months, we may see them charting a V-shaped recovery. However, CoC pressure may also be eased by making further adjustments in accordance to IFRS 9 standards. BMRI has added an additional IDR2.2trn adjustment from capital, and is increasing coverage to 260%. BBNI plans to do the same, as well. We believe this is the right move, and other banks might follow suit to ease pressure on CoC and help preserve earnings growth.

No concerns over capital Despite the additional adjustments (made in January), we are not concerned about the banks’ CARs – especially for the bigger players. CARs remain ample, at 16-24% (BBTN’s is the lowest at 16%, while BBCA’s is the highest at 24%). This is well above the 14% minimum set by regulators. The banks still have room to add an additional allowance from capital. Note that industry CAR still stood at 22.8% and only reduced by 0.6ppt from 23.4% in December, pre-IFRS 9 adjustment. With the additional liquidity coming into the market, and tapered-down loan growth, we should not be overly concerned about capital. If banks cannot invest in good-quality loans, they will invest in government bonds to improve asset earnings. We believe that, by making banks invest in government bonds, this will also help BI stabilise the IDR. As such, this would be a win-win situation for both the banks and the Government.

See important disclosures at the end of this report 9

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

Figure 16: IND Banks – key assumptions and forecasts of core earnings Changes to our forecasts New forecasts 2019 (vs 2019 2020F 2021F 2022F 2020F 2021F (IDRbn) actual) Net interest income 303,174 316,115 339,736 367,116 -3% -7% -10% Net-II growth (%) 6.0% 4.3% 7.5% 8.1% Loan growth (%) 10.3% 5.3% 8.1% 8.3% Net interest margin (%) 5.7% 5.5% 5.4% 5.4%

Fee income 69,661 75,312 82,472 90,490 0% -2% -1% Other income 45,943 50,481 54,511 59,193 -5% -4% -5% Non-II 115,604 125,793 136,983 149,683 -2% -3% -3% Non-II growth (%) 13.5% 8.8% 8.9% 9.3%

Total operating income 418,778 441,908 476,719 516,799 -2% -6% -8% Op income growth (%) 8.0% 5.5% 7.9% 8.4% Non-II/Total income (%) 27.6% 28.5% 28.7% 29.0%

Operating costs (194,559) (202,820) (215,947) (231,133) 0% -4% -5% Op cost growth (%) 9.8% 4.2% 6.5% 7.0% CIR (%) 46.5% 45.9% 45.3% 44.7%

PIOP 224,219 239,088 260,772 285,666 -4% -7% -11% PIOP growth (%) 6.4% 6.6% 9.1% 9.5% -4.1% -3.9% -3.9%

Impairment charges (64,137) (72,678) (69,362) (72,393) 1% 10% -3% Credit costs (%) 1.6% 1.7% 1.5% 1.5% NPL ratio (%) 2.1% 2.3% 2.2% 2.1% Loan loss coverage (%) 156% 203% 199% 208%

Associates & others 2,847 401 419 437 16% -53% -55% Pre-tax profit 162,929 166,810 191,828 213,710 -6% -14% -13% Taxation (35,586) (36,725) (42,291) (47,098) -10% -20% -19% Minority interests (1,445) (1,647) (1,812) (1,996) -15% -12% -11% Net profit 125,898 128,438 147,726 164,617 -4% -12% -11% Net profit growth (%) 6.9% 2.0% 15.0% 11.4%

Source: Company data, RHB

Changes to our estimates To reflect the changing circumstances, we cut our loan growth forecasts to 5.3% and 8.1% for FY20 and FY21, from 9.4% and 10.6%. This lowers our NII estimates by 7% and 10%, and non-II projections by 3% - the latter from lower wholesale fee income (trade-related fees from disrupted businesses), while retail-related fees are expected to be steady from business-as-usual transactions like internet banking fees, bank transfers, etc. Opex will likely be controlled more by banks, as they save as much as possible to maintain profitability. However, impairment charges are likely to increase, to accommodate potential downgrades in asset quality. We lift our impairment charges by 10% for 2020F. This decreases earnings estimates by 12% and 11% for FY20 and FY21.

Stocks we prefer We prefer the big-4 banks, as they are more stable and should benefit from deposits shifting from the smaller banks. Our pecking order for this quartet is: BBCA > BBRI > BMRI > BBNI. Most of the banks are still relatively cheaply valued. We believe the market has already priced in muted loan growth, as well as higher NPL and credit costs. We also believe that the market is pricing in c.5-6% loan growth, so any upside in loan growth in the next nine months will be a positive catalyst for the sector. However, in terms of NPL, we believe that the market is already pricing NPL estimates that are higher than the 2.5% in the industry – so we are still unsure about the limit that would be acceptable to investors. In the past 3-4 years, system NPL peaked at 2.9% in 2016. At that time, the JCI was trading at similar levels as today – but fundamentals were different, ie earnings growth, commodity prices, and other macroeconomic factors. We believe the market is expecting 2.9% NPL, so if this metric exceeds 3%, there could be another correction across the sector. That said, for BUKU IV banks, we do not expect NPL to reach 2.6%, which is the level recorded in 2016.

See important disclosures at the end of this report 10

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

As the banks are scheduled to report their 1Q20 results by the end of the month, there is a small chance that they will record 2.6% NPLs still, since the financial period would be too early for the COVID-19 pandemic effect to be reflected in their books. We also expect most banks to lift their LLC, due to the anticipated increase in NPL as a result of the pandemic. We have assumed an average LLC of 202% this year, which is much higher than 2019’s 156%. As such, we forecast sector earnings to grow by just 3.2% YoY (2019F: +6.9% YoY). At the moment, we do not prefer smaller BUKU III banks, as we think that they will be more adversely impacted by the pandemic – since their liquidity may decline as customers shift deposits to bigger banks. Also, their exposure to SME loans is higher, compared to the larger banks. At the moment, we prefer Bank Permata (BNLI) for the smaller banks, as the stock offers a more guaranteed return due to the imminent tender offer (which may likely happen in 3Q).

Focus on asset quality rather than growth In the time of the COVID-19 pandemic, we believe banks will be more focused on asset quality than growth. Banks with prudent risk management practices will likely come out ahead in the long run. Increasing provisions is key to fortifying their balance sheets – so this may be a major factor in determining profitability over the next 12 months. Relaxing the regulations would also help banks weather this storm, and potentially ease their NPL increase. In this pandemic, ROE and ROA would be deprioritised, as profitability will be dampened by higher provisioning. Therefore, we still like BBCA > BBRI > BMRI (in this pecking order), as all are leaders in deposits, risk management, and digital banking. All banks are very cheaply valued, and we have BUY calls on most counters. As such, we maintain our OVERWEIGHT rating on the sector. The performance of the big-4 banks will be a bellwether for the JCI in the next 12 months. As sector earnings are expected to grow 3% YoY this year, this would still be better than other sectors. For small/mid-cap banks, we like BNLI, for its additional catalyst in the form of the tender offer, which is expected to happen in 3Q20.

Figure 17: Peer comparison – Indonesia banks Upside Mkt EPS Chg (%) P/E (x) P/BV (x) ROE (%) Yield (%) Price TP Downside Cap (IDR) (IDR) FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 Company Rating (%) (USDm) Bank Central Asia Buy 26,200 32,500 24 41,055 2.1 12.8 22.1 24.3 3.4 3.0 15.9 16.0 1.1 1.1 Bank Rakyat Indonesia Buy 2,610 3,600 38 20,461 2.5 11.1 9.1 11.3 1.4 1.3 16.2 16.3 4.3 4.4 Bank Mandiri Buy 4,210 6,000 43 12,487 1.4 17.4 7.1 8.6 1.0 0.9 2.1 2.3 6.3 6.4 Bank Negara Indonesia Buy 3,980 5,300 33 4,717 - 1.0 18.6 4.9 5.5 0.6 0.5 12.5 14.0 7.3 7.2 Bank Danamon Buy 2,090 3,900 87 1,298 - 17.9 2.6 6.0 10.9 0.4 0.4 7.2 6.9 7.1 7.5 Bank Tabungan Negara Neutral 900 950 6 606 165.0 164.2 17.0 6.8 0.6 0.5 2.8 8.6 0.4 1.2 Bank Panin Neutral 745 830 11 1,141 - 18.8 19.6 6.7 6.2 0.4 0.4 6.3 7.1 - - Bank CIMB Niaga Neutral 700 710 1 1,118 - 12.3 19.5 5.5 4.6 0.4 0.4 7.7 9.3 8.3 7.3 Bank Jabar Buy 910 1,200 32 569 6.2 24.0 5.3 5.7 0.7 0.6 13.6 15.7 10.7 11.3 Bank Permata Buy 1,220 1,450 19 2,174 3.7 10.7 21.8 23.4 1.4 1.3 6.4 6.8 - - Bank Jawa Timur Buy 535 820 53 511 23.9 26.3 4.7 5.7 0.8 0.7 17.7 20.0 9.3 11.6 BTPN Syariah Neutral 2,220 3,000 35 1,087 - 1.1 35.0 12.3 12.3 2.7 2.2 23.8 26.9 3.3 2.8 Weighted average 87,224 2.4 14.9 14.9 16.8 2.2 1.9 13.2 13.5 3.2 3.3 Big-4 banks 78,720 1.9 13.5 15.3 17.3 2.3 2.0 13.6 13.8 3.1 3.2 Mid-small banks* 7,417 8.8 26.6 11.4 11.8 0.8 0.7 7.8 9.0 4.0 4.2

Note: Data is as at 16 Apr 2020; *=excluding BTPS Source: RHB, Bloomberg

See important disclosures at the end of this report 11

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks Appendix

Figure 18: Big-4 banks – key assumptions and forecasts Changes to our forecast New Forecasts 2019 (vs 2019 2020F 2021F 2022F 2020F 2021F (IDRbn) actual) Net interest income 228,574 237,086 254,986 275,927 -3% -8% -12% Net-II growth (%) 7.3% 3.7% 7.5% 8.2% Loan growth (%) 9.6% 5.4% 8.5% 8.6% Net interest margin (%) 5.8% 5.6% 5.5% 5.5%

Fee income 61,209 66,272 72,710 80,237 2% 0% 1% Other income 34,117 38,028 41,099 44,848 -5% -3% -4% Non-II 95,326 104,300 113,809 125,085 0% -1% -1% Non-II growth (%) 10.2% 9.4% 9.1% 9.9%

Total operating income 323,899 341,386 368,795 401,012 -2% -6% -9% Op income growth (%) 8.1% 5.4% 8.0% 8.7% Non-II/Total income (%) 29.4% 30.6% 30.9% 31.2%

Operating costs (139,965) (145,338) (154,967) (167,090) 0% -5% -6% Op cost growth (%) 8.5% 3.8% 6.6% 7.8% CIR (%) 43.2% 42.6% 42.0% 41.7%

PIOP 183,934 196,048 213,828 233,923 -4% -7% -11% PIOP growth (%) 7.9% 6.6% 9.1% 9.4%

Impairment charges (48,275) (54,680) (52,561) (55,728) 2% 13% -2% Credit costs (%) 1.7% (1,330) (1,463) (1,609) 113% 103% 103% NPL ratio (%) 1.7% (56,010) (54,024) (57,338) 3% 14% -1% Loan loss coverage (%) 205% 1.8% 1.6% 1.6% 2.1% 2.1% 2.1% Associates & others (195) 237% 207% 189% Pre-tax profit 135,464 Taxation (28,516) (201) (217) (235) -172% -167% -166% Minority interests (1,143) 139,838 159,588 176,350 -6% -14% -14% Net profit 105,805 (29,830) (34,062) (37,619) -13% -21% -20% Net profit growth (%) 7.7% (1,258) (1,384) (1,523) 6% 6% 6%

Source: Company data, RHB

See important disclosures at the end of this report 12

Indonesia Banks Sector Update

17 April 2020 Financial Services | Banks

Figure 19: Small/Mid-cap banks – key assumptions and forecasts Changes to our forecast New Forecasts 2019 2020F 2021F 2022F 2019 (vs actual) 2020F 2021F (IDRbn) Net interest income 74,600 79,029 84,750 91,189 -2% -5% -6% Net-II growth (%) 2.1% 5.9% 7.2% 7.6% Loan growth (%) 12.2% 4.8% 7.1% 7.4% Net interest margin (%) 5.3% 5.2% 5.2% 5.2%

Fee income 8,453 9,040 9,762 10,252 -13% -14% -15% Other income 11,826 12,453 13,411 14,345 -4% -6% -6% Non-II 20,279 21,493 23,173 24,598 -8% -10% -10% Non-II growth (%) 32.1% 6.0% 7.8% 6.1%

Total operating income 94,879 100,522 107,923 115,787 -3% -6% -7% Op income growth (%) 7.3% 5.9% 7.4% 7.3% Non-II/Total income (%) 21.4% 21.4% 21.5% 21.2%

Operating costs (54,594) (57,482) (60,980) (64,043) -1% -2% -3% Op cost growth (%) 13.1% 5.3% 6.1% 5.0% CIR (%) 57.5% 57.2% 56.5% 55.3%

PIOP 40,285 43,040 46,943 51,743 -6% -10% -11% PIOP growth (%) 0.3% 6.8% 9.1% 10.2%

Impairment charges (15,862) (16,707) (15,373) (15,088) -3% 0% -10% Credit costs (%) 1.5% 39 34 33 -131% -124% -121% NPL ratio (%) 3.0% (16,669) (15,339) (15,055) -4% -1% -11% Loan loss coverage (%) 83% 1.4% 1.2% 1.1% 2.9% 2.6% 2.2% Associates & others 3,042 138% 183% 256% Pre-tax profit 27,464 Taxation (7,070) 601 636 672 39% 8% 4% Minority interests (302) 26,973 32,241 37,360 -4% -15% -10% Net profit 20,093 (6,895) (8,229) (9,478) 0% -17% -13% Net profit growth (%) 2.6% (389) (428) (473) -52% -43% -42%

Source: Company data, RHB

See important disclosures at the end of this report 13

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank Central Asia (BBCA IJ) Buy (Maintained)

Navigating Through a Storm; Stay BUY Target Price (Return): IDR32,500 (+24%) Price: IDR26,200 Market Cap: USD41,474m Avg Daily Turnover (IDR/USD) 720,359m/48.8m

 BUY, new TP of IDR32,500 from IDR36,000, 24% upside with c.1% Analyst FY20F yield, as demand for loans slows down. We recently tweaked estimates, factoring in the impact COVID-19 will have on the sector. Despite Christopher Andre Benas its strong brand and reputation for underwriting good-quality credit, we +6221 5093 9847 believe that even Bank Central Asia may not be able to avoid this downturn. [email protected] We cut loan growth estimates and adjust NPL forecasts, resulting in lower expected earnings growth for this year.  Loan growth could slump below 5% YoY. Previously, we forecasted BBCA’s loan growth at c.7% YoY by end-2020, on the expectation of rising

SME loans as well as higher mortgage demand due to an anticipated

recovery in the property sector this year. However, we now believe that loan Share Performance (%) growth of >5% for FY20 may be unattainable. With Feb 2020 loans only YTD 1m 3m 6m 12m growing 8.6% YoY (prior to the COVID-19 pandemic), loan growth after 1Q20 will be more challenging. Absolute (21.6) (4.8) (23.5) (15.7) (4.7)  Too early to assess the damage from COVID-19. Recently, we talked to Relative 5.0 (3.4) 2.9 9.3 23.9 management on the impact the pandemic could have on BBCA’s balance 52-wk Price low/high (IDR) 22,150 – 34,375 sheet. It said that it is too early to comment on the impact on asset quality.

While the bank has exposure to sectors that are highly sensitive to the Bank Central Asia (BBCA IJ) pandemic’s effect – restaurants and hospitality – they only account for 0.7% Price Close Relative to Composite Index (RHS) 36,000 136 of its loan book. Based on the last discussion, collectability is still current. 34,000 131

 Fee income will be highly affected. BBCA has recorded very strong fee 32,000 126

income growth in the past, due to its robust customer base. In FY19, non- 30,000 121

interest income (non-II) grew 17% YoY to IDR20.8trn. With most economic 28,000 116

activities shut down – despite customers shifting online – growth may now 26,000 111

be very limited. As most people stay home and loan growth declines, we 24,000 106 expect fee income to grow in the mid-single digits YoY, since loan-related 22,000 101 fees will decrease. On expectations of modest growth in both net interest 20,000 96

income and non-II due to COVID-19, we expect operating income to grow

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jun-19 Jun-19 Jan-20 Jan-20

Feb-20 Mar-20 Mar-20

Aug-19 Aug-19 Sep-19 Nov-19 Nov-19 Dec-19 Dec-19 May-19 by only 5% YoY in FY20. May-19  Asset quality expected to worsen, but this should be better than that Source: Bloomberg of peers as BBCA has strong risk management in underwriting loans. We believe that even a big name like BBCA will be affected by the pandemic. Despite its superior underwriting quality, we expect NPLs to worsen, as the bank has some exposure to hotels and restaurants, as well as the big

corporate and commercial segments, which have also been affected by COVID-19. There is no indication from management on how it will proceed on the Financial Services Authority's (OJK) relaxation of loan restructuring requirements under its stimulus measures. We revise our TP from IDR36,000 to IDR32,500.  Downside risks to our call are a further slowdown in loan growth, and worse-than-expected NPLs.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 25,855 28,565 29,170 32,908 37,559 Net profit growth (%) 10.9 10.5 2.1 12.8 14.1 Recurring net profit (IDRb) 25,855 28,565 29,170 32,908 37,559 Recurring EPS (IDR) 1,048.68 1,158.59 1,183.11 1,334.74 1,523.39 BVPS (IDR) 6,151.27 7,059.13 7,813.97 8,865.07 10,068.74 DPS (IDR) 260.00 262.17 289.65 295.78 333.69 Recurring P/E (x) 24.98 22.61 22.15 19.63 17.20 P/B (x) 4.26 3.71 3.35 2.96 2.60 Dividend Yield (%) 1.0 1.0 1.1 1.1 1.3 Return on average assetsequity (%)(%) 18.3 3.3 17.5 3.3 15.9 3.0 16.0 3.1 16.1 3.2

Source: Company data, RHB

See important disclosures at the end of this report 14

Bank Central Asia Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 1,048.68 1,158.59 1,183.11 1,334.74 1,523.39 Financial Services Recurring EPS 1,048.68 1,158.59 1,183.11 1,334.74 1,523.39 Bank Central Asia DPS 260.00 262.17 289.65 295.78 333.69 BBCA IJ BVPS 6,151.27 7,059.13 7,813.97 8,865.07 10,068.74 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 24.98 22.61 22.15 19.63 17.20 GGM-backed P/BV P/B (x) 4.3 3.7 3.4 3.0 2.6 Dividend Yield (%) 1.0 1.0 1.1 1.1 1.3

Key drivers i. Better-than-expected loan growth; Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F ii. Better-than-expected NIM; Interest income 56,767 64,352 64,511 70,637 76,596 iii. Lower-than-expected credit cost on better asset Interest expense (11,476) (13,528) (11,473) (13,962) (15,089) quality. Net interest income 45,291 50,824 53,037 56,674 61,507 Key risks Non interest income 17,744 20,800 22,064 24,485 26,934 i. Lower-than-expected GDP growth that could Total operating income 63,034 71,624 75,101 81,160 88,441 slow down loan growth; Overheads (27,652) (30,743) (31,972) (34,217) (36,624) ii. NIM pressure from competition; Pre-provision operating profit 35,383 40,880 43,129 46,942 51,817 iii. Worsening asset quality. Loan impairment allow ances (2,677) (4,591) (6,218) (5,301) (4,291) Pre-tax profit 32,706 36,289 36,910 41,641 47,526 Company Profile Taxation (6,854) (7,719) (7,736) (8,727) (9,960) Bank Central Asia is Indonesia's third largest bank by Minority interests 3 (5) (5) (6) (7) asset, and the leading consumer bank due to its unrivalled transactional banking franchise. Reported net profit 25,855 28,565 29,170 32,908 37,559 Recurring net profit 25,855 28,565 29,170 32,908 37,559

Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Return on average assets (%) 3.3 3.3 3.0 3.1 3.2 Return on average equity (%) 18.3 17.5 15.9 16.0 16.1 Return on IEAs (%) 7.6 7.8 7.1 7.2 7.2 Cost of funds (%) 1.8 1.9 1.5 1.6 1.6 Net interest spread (%) 5.8 5.9 5.6 5.6 5.6 Net interest margin (%) 6.1 6.2 5.9 5.8 5.8

Non-interest income / total income (%) 28.1 29.0 29.4 30.2 30.5 Cost to income ratio (%) 43.9 42.9 42.6 42.2 41.4 Credit cost (bps) 53.2 81.6 101.6 80.0 60.0

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 621,848 676,709 735,403 794,844 859,147 Other interest earning assets 240,832 281,583 306,639 334,242 364,509 Total gross IEAs 778,932 868,523 944,073 1,022,137 1,106,870 Total provisions (14,392) (15,769) (23,993) (25,250) (26,663) Net loans to customers 524,530 572,034 614,305 663,509 716,561 Total net IEAs 764,540 852,754 920,081 996,887 1,080,207 Total non-IEAs 60,248 66,235 88,290 115,234 147,078 Total assets 824,788 918,989 1,008,370 1,112,121 1,227,285 Customer deposits 629,812 698,980 765,353 838,202 918,170 Other interest-bearing liabilities 43,223 45,866 50,253 55,230 60,737 Total IBLs 673,035 744,846 815,607 893,432 978,907 Total liabilities 673,035 744,846 815,607 893,432 978,907 Share capital 7,090 7,090 7,090 7,090 7,090 Shareholders' equity 151,660 174,043 192,654 218,568 248,245 Minority interests 94 100 110 121 133

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported NPLs / gross cust loans (%) 1.4 1.4 1.5 1.5 1.5 Total provisions / reported NPLs (%) 178.7 190.9 241.9 0.0 0.0 CET-1 ratio (%) 22.9 23.0 23.8 25.8 27.0 Tier-1 ratio (%) 22.9 23.0 23.8 25.8 27.0 Total capital ratio (%) 24.0 24.0 24.8 26.7 28.0

Source: Company data, RHB

See important disclosures at the end of this report 15

Bank Central Asia Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BBCA’s monthly loans balance Figure 2: BBCA’s monthly deposits balance

(IDRbn) (IDRbn) 600,000 25.0% 800,000 14.0% 550,000 700,000 12.0% 500,000 20.0% 600,000 450,000 10.0% 500,000 400,000 15.0% 8.0% 350,000 400,000 6.0% 300,000 10.0% 300,000 250,000 4.0% 200,000 200,000 5.0% 2.0% 150,000 100,000

100,000 0.0% 0 0.0%

1M18 3M18 5M18 7M18 9M18 2M19 4M19 6M19 8M19 1M20 2M18 4M18 6M18 8M18 1M19 3M19 5M19 7M19 9M19 2M20

10M18 11M18 12M18 10M19 11M19 12M19

2M18 3M18 5M18 6M18 8M18 9M18 1M19 3M19 4M19 7M19 8M19 2M20 1M18 4M18 7M18 2M19 5M19 6M19 9M19 1M20

12M18 10M19 11M19 10M18 11M18 12M19 Loan (LHS) YoY (RHS) Deposits (LHS) YoY (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: BBCA’s LDR

86%  Loan growth started to pick up in end-4Q19, and will be decelerating 84% further post 1Q20  Deposits continue to rise, and we 82% expect BBCA to gain market share from smaller BUKU III and II banks, 80% as people rush to safer banks on expectations of crisis 78%  However, due to BBCA’s conservative stance on liquidity, 76% LDR has always been kept below

90%

1M18 3M18 4M18 6M18 8M18 2M19 3M19 5M19 7M19 9M19 1M20 2M20 2M18 5M18 7M18 9M18 1M19 4M19 6M19 8M19

10M18 12M18 11M19 12M19 11M18 10M19

Source: Company data, RHB

Figure 4: BBCA’s loans-at-risk trend

IDRbn 35,000 30,000

25,000 20,000  BBCA’s loans-at-risk trend has been creeping up since 4Q17 15,000

10,000

5,000

-

2Q2016 1Q2017 2Q2017 4Q2017 1Q2018 3Q2018 4Q2018 2Q2019 3Q2019 1Q2016 3Q2016 4Q2016 3Q2017 2Q2018 1Q2019 4Q2019

Source: Company data, RHB

See important disclosures at the end of this report 16

Bank Central Asia Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 5: Our vs Street estimates RHB Street RHB/Street 2020E 2021E 2020E 2021E 2020E 2021E Net Interest Income 53,037 56,674 54,712 59,955 97% 95% Operating Income 75,101 81,160 77,493 85,161 97% 95% PPOP 43,129 46,942 45,563 49,712 95% 94% Provision 6,218 5,301 5,708 5,591 109% 95% Net Income 29,170 32,908 30,648 34,305 95% 96%

Loans 637,434 687,895 632,499 708,074 101% 97% Loans Growth 5.1% 7.9% 7.2% 11.9%

EPS 1,183 1,335 1,244 1,390 95% 96% EPS Growth 2.1% 12.8% 5.4% 11.7%

BVPS 7,814 8,865 7,898 8,833 99% 100% DPS 290 296 401 463 72% 64% ROE 15.9% 16.0% 16.8% 16.7% 95% 96%

Source: RHB

Figure 6: Changes to our estimates RHB (Prior) RHB (New) Change (%) 2020E 2021E 2020E 2021E 2020E 2021E Net Interest Income 55,361 60,675 53,037 56,674 -4% -7% Operating Income 78,019 85,820 75,101 81,160 -4% -5% PPOP 45,564 50,545 43,129 46,942 -5% -7% Provision 4,393 4,730 6,218 5,301 42% 12% Net Income 32,537 36,208 29,170 32,908 -10% -9%

Loans 648,853 702,433 637,434 687,895 -2% -2% Loans Growth 7.0% 8.3% 5.1% 7.9%

EPS 1,320 1,469 1,183 1,335 -10% -9% EPS Growth 13.9% 11.3% 2.1% 12.8%

BVPS 7,951 9,101 7,814 8,865 -2% -3% DPS 290 330 290 296 0% -10% ROE 17.6% 17.2% 15.9% 16.0% -10% -7%

Source: RHB

Figure 7: GGM valuation Cost of equity calculation Sustainable ROE (%) 18.5 Risk free rate (%) 7.5 COE (%) 8.0 Equity premium (%) 0.5 Long-term growth (g%) 4.7 Beta (x) 1.0 Implied P/BV (x) 4.2 COE (CAPM) 8.0 FY20F BVPS (IDR) 7,814 TP (IDR) 32,457 Rounded 32,500

Source: Bloomberg, RHB

See important disclosures at the end of this report 17

Bank Central Asia Indonesia Company Update

17 April 2020 Financial Services | Banks

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-03-10 Buy 36,000 29,625 39,500

Recommendations & Target Price 2020-02-21 Buy 40,000 33,075 na

2020-02-21 Buy 40,000 33,075

23,700 23,700 28,400 36,000 40,000 40,000 34,500 32,500 2019-10-29 Buy 40,000 31,100 29,500 2019-10-09 Buy 40,000 30,350 2019-09-17 Buy 40,000 30,150 24,500 2019-07-25 Neutral 32,500 31,250 19,500 2019-04-26 Neutral 28,400 28,100 2019-04-08 Neutral 28,400 27,575 14,500 Source: RHB, Bloomberg 9,500 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 18

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank Rakyat Indonesia (BBRI IJ) Buy (from Neutral)

In Micro We Trust; Upgrade To BUY Target Price (Return): IDR3,600 (+38%) Price: IDR2,610 Market Cap: USD20,670m Avg Daily Turnover (IDR/USD) 659,889m/44.3m

 Upgrade to BUY from Neutral, new IDR3,600 TP from IDR4,400, 38% Analyst upside with c.4% FY20F yield, as we readjust earnings forecasts. We recently spoke with management about COVID-19’s impact on Bank Rakyat Christopher Andre Benas Indonesia’s balance sheet and its FY20-21 outlook. It believes the horizon +6221 5093 9847 after this year’s pandemic should remain challenging, as loan growth will [email protected] decline. There is also a potential for higher NPL, due to the pandemic’s impact on Indonesia. As such, we adjust earnings estimates, and tweak our call and TP.

 Muted loan growth due to COVID-19. We believe loan growth will be much

smaller than what management guided for during the previous quarter, ie FY20F: >8%. It guided for new loans growth of c.5-6% for this period as the Share Performance (%) base case scenario. This assumes that the pandemic will end in 1H20, and YTD 1m 3m 6m 12m micro loans will see a faster recovery vs corporate or commercial loans. In Absolute (40.7) (25.4) (42.9) (34.6) (39.9) terms of balance sheet, BBRI’s micro segment contributes 36% to its loan Relative (14.1) (24.0) (16.5) (9.6) (11.3) book. The bank is also downsizing its corporate and commercial loans book. As such, management is quite confident it can restart business activities 52-wk Price low/high (IDR) 2,440 – 4,740

faster than its peers. However, given the current conditions, we believe it will be a slower recovery rather than a faster one, as there is no COVID-19 Bank Rakyat Indonesia (BBRI IJ) Price Close Relative to Jakarta Composite Index (RHS) vaccine yet. This may cause people to slow down activities to prevent the 5,200 119 virus from spreading. We expect loan growth to be capped at 5% for FY20, before picking up in FY21. 4,700 114

4,200 109  Asset earnings to be flat, lower loan yields are expected. As there will not be much loan growth this year – coupled with expectations of a 3,700 104

government stimulus for the banking industry – management is not 3,200 99 expecting earnings from assets to grow in 2020. With more loan repayment structuring and NPL relaxation, BBRI believes that asset earnings should 2,700 94

not be affected that much. Additionally, with the reserve requirements 2,200 89

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jan-20 Jan-20 Jun-19

having been relaxed, the unused reserves can be utilised more Jun-19

Mar-20 Feb-20 Mar-20

Aug-19 Nov-19 Dec-19 Aug-19 Sep-19 Nov-19 Dec-19

May-19 May-19 productively, ie subscribing for government bonds or more productive Source: Bloomberg lending. However, it will be offset with lower yields, as Bank Indonesia recently made more rate cuts, as well as pared down lending activities in the coming quarters.  Bad news almost all priced in. We believe that all the bad news – such as muted loan growth, and higher NPL and credit costs – has been priced by the market. However, a V-shaped recovery has yet to be confirmed by 1Q20’s and 2Q20’s numbers. We believe that, with 5.5% YoY loan growth and higher NPL and a credit cost of 2.6%, BBRI should still be able to make IDR35.1trn in FY20 – this translates into 2.2% earnings growth for this period.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 32,351 34,373 35,144 39,069 42,032 Net profit growth (%) 11.6 6.2 2.2 11.2 7.6 Recurring net profit (IDRb) 32,330 34,426 35,199 39,127 42,093 Recurring EPS (IDR) 330.59 281.64 287.96 320.10 344.36 BVPS (IDR) 1,496.83 1,687.90 1,856.75 2,070.83 2,280.38 DPS (IDR) 106.92 13.86 112.48 115.00 127.85 Recurring P/E (x) 7.89 9.27 9.06 8.15 7.58 P/B (x) 1.74 1.55 1.41 1.26 1.14 Dividend Yield (%) 4.1 0.5 4.3 4.4 4.9 Return on average assetsequity (%)(%) 18.5 2.7 17.7 2.5 16.2 2.4 16.3 2.4 15.8 2.3

Source: Company data, RHB

See important disclosures at the end of this report 19

Bank Rakyat Indonesia Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 330.81 281.20 287.50 319.62 343.86 Financial Services Recurring EPS 330.59 281.64 287.96 320.10 344.36 Bank Rakyat Indonesia DPS 106.92 13.86 112.48 115.00 127.85 BBRI IJ BVPS 1,496.83 1,687.90 1,856.75 2,070.83 2,280.38 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 7.89 9.27 9.06 8.15 7.58 P/BV backed by GGM. Assumptions include: P/B (x) 1.7 1.5 1.4 1.3 1.1 i. COE of 12.1%; Dividend Yield (%) 4.1 0.5 4.3 4.4 4.9 ii. ROE of 15%; iii. 9% long-term growth. Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Interest income 111,583 121,756 126,484 134,717 145,433 Key drivers Interest expense (33,917) (40,049) (41,623) (45,571) (50,989) i. Faster-than-expected loan growth; Net interest income 77,666 81,707 84,861 89,146 94,444 ii. Lower cost of funds; Non interest income 24,371 29,450 32,853 36,751 41,113 iii. Improvements in asset quality Total operating income 102,037 111,157 117,714 125,897 135,557

Overheads (41,990) (44,966) (46,764) (50,038) (53,540)

Pre-provision operating profit 60,047 66,192 70,949 75,859 82,017 Key risks Loan impairment allow ances (17,780) (21,493) (24,226) (23,937) (26,123) i. Faster-than-expected loan growth; ii. Lower cost of funds; Other impairment allow ances (541) (1,267) (1,330) (1,463) (1,609) iii. Improvements in asset quality Other exceptional items 28 (68) (71) (75) (79) Pre-tax profit 41,754 43,364 45,322 50,384 54,207 Taxation (9,335) (8,950) (10,133) (11,265) (12,119) Company Profile Minority interests (67) (41) (45) (50) (55) Bank Rakyat Indonesia is the largest bank in Indonesia, Reported net profit 32,351 34,373 35,144 39,069 42,032 with assets amounting to IDR1,418trn. It focuses on Recurring net profit 32,330 34,426 35,199 39,127 42,093 loans in the micro and small enterprises segment.

Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Return on average assets (%) 2.7 2.5 2.4 2.4 2.3 Return on average equity (%) 18.5 17.7 16.2 16.3 15.8 Return on IEAs (%) 11.5 11.6 11.4 11.4 11.4 Cost of funds (%) 3.8 4.0 3.8 3.8 3.8 Net interest spread (%) 7.7 7.6 7.5 7.6 7.6 Net interest margin (%) 8.0 7.8 7.6 7.5 7.4 Non-interest income / total income (%) 23.9 26.5 27.9 29.2 30.3 Cost to income ratio (%) 41.2 40.5 39.7 39.7 39.5

Credit cost (bps) 226 247 261 240 240

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 839,710 903,197 954,686 1,040,088 1,136,791 Other interest earning assets 176,529 180,818 185,210 189,710 194,318 Total gross IEAs 1,016,239 1,084,015 1,139,896 1,229,798 1,331,109 Total provisions (35,019) (39,229) (58,390) (53,970) (53,882) Net loans to customers 804,691 863,968 896,296 986,118 1,082,909 Total net IEAs 981,220 1,044,786 1,081,506 1,175,827 1,277,227 Total non-IEAs 315,678 371,973 451,763 523,641 630,378 Total assets 1,296,898 1,416,759 1,533,270 1,699,468 1,907,605 Customer deposits 944,269 1,021,197 1,092,680 1,191,022 1,298,214 Other interest-bearing liabilities 9,131 17,970 35,364 69,595 136,961 Total IBLs 953,400 1,039,166 1,128,044 1,260,617 1,435,175 Total non-IBLs 158,223 168,808 175,554 182,742 190,408 Total liabilities 1,111,623 1,207,975 1,303,599 1,443,359 1,625,583 Share capital 6,167 6,167 6,167 6,167 6,167 Shareholders' equity 182,968 206,323 226,964 253,132 278,747 Minority interests 2,308 2,461 2,707 2,978 3,275

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported NPLs / gross cust loans (%) 97.7 97.1 100.0 100.0 100.0 CET-1 ratio (%) 20.2 21.1 20.8 23.2 23.8 Tier-1 ratio (%) 21.4 22.6 22.3 24.6 25.2 Total capital ratio (%) 22.6 23.7 23.4 25.8 26.3

Source: Company data, RHB

See important disclosures at the end of this report 20

Bank Rakyat Indonesia Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BBRI’s monthly loans balance Figure 2: BBRI’s monthly deposits balance

(IDRbn) (IDRbn)

600,000 25.0% 800,000 14.0% 550,000 700,000 12.0% 500,000 20.0% 600,000 450,000 10.0% 500,000 400,000 15.0% 8.0% 350,000 400,000 6.0% 300,000 10.0% 300,000 250,000 4.0% 200,000 200,000 5.0% 100,000 2.0% 150,000

100,000 0.0% 0 0.0%

1M18 3M18 5M18 7M18 9M18 2M19 4M19 6M19 8M19 1M20 2M18 4M18 6M18 8M18 1M19 3M19 5M19 7M19 9M19 2M20

2M18 3M18 5M18 6M18 8M18 9M18 1M19 3M19 4M19 7M19 8M19 2M20 1M18 4M18 7M18 2M19 5M19 6M19 9M19 1M20

10M18 11M18 12M18 10M19 11M19 12M19

12M18 10M19 11M19 10M18 11M18 12M19 Deposits (LHS) YoY (RHS) Loan (LHS) YoY (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: Our vs Street estimates RHB Street RHB vs Street 2020E 2021E 2020E 2021E 2020E 2021E NII 84,861 89,146 91,732 101,600 93% 88% Operating income 117,714 125,897 118,097 130,102 100% 97% PPOP 70,949 75,859 69,674 77,314 102% 98% Provision 25,556 25,400 19,757 21,223 129% 120% Net income 35,144 39,069 39,021 44,034 90% 89%

Loans 954,686 1,040,088 974,593 1,087,793 98% 96% Loans growth 5.0% 8.9% 7.2% 11.6%

EPS 288 320 317 358 91% 89% EPS growth 3.0% 11.2% 13.6% 13.0%

BVPS 1,857 2,071 1,789 1,997 104% 104% DPS 112 115 144 158 78% 73% ROE 16.2% 16.3% 18.4% 19.0% 88% 86%

Source: RHB

Figure 4: Changes to our estimates Prior New Old vs new 2020E 2021E 2020E 2021E 2020E 2021E NII 87,317 98,247 84,861 89,146 -3% -9% Operating income 119,378 133,513 117,714 125,897 -1% -6% PPOP 69,353 77,939 70,949 75,859 2% -3% Provision 19,853 21,025 25,556 25,400 29% 21% Net income 38,375 44,125 35,144 39,069 -8% -11%

Loans 1,010,995 1,126,391 954,686 1,040,088 -6% -8% Loans growth 11.2% 11.4% 5.0% 8.9%

EPS 314 361 288 320 -8% -11% EPS growth 12.5% 15.0% 3.0% 11.2%

BVPS 1,765 2,022 1,857 2,071 5% 2% DPS 113 126 112 115 0% -8% ROE 18.1% 19.1% 16.2% 16.3% -10% -15%

Source: RHB

We trim FY20-21 loan growth forecasts to 5.5% and 10.1% YoY from 11.2%, which lowers our NII estimates. We also increased our provision expenses forecasts by 29% and 21% for the same period, taking into account potential rises in special mention loans and NPLs during the pandemic. FY20-21 earnings forecasts are now lower by 8% and 11%.

See important disclosures at the end of this report 21

Bank Rakyat Indonesia Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 6: GGM valuation Cost of equity calculation Sustainable ROE (%) 15.0 Risk free rate (%) 7.2 COE (%) 12.1 Equity premium (%) 3.8 Long-term growth (g%) 9.0 Beta (x) 1.3 Implied P/BV (x) 1.9 COE (CAPM) 12.1 FY20F BVPS (IDR) 1,863 TP (IDR) 3,599 Rounded 3,600

Source: Bloomberg, RHB

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-03-11 Neutral 4,400 3,910 5,400 Recommendations & Target Price 2020-01-24 Neutral 5,000 4,740

4,900 na

4,000 4,000 5,000 5,000 4,400 4,400 4,750 4,750 2019-11-14 Buy 5,000 3,940 4,400 2019-10-25 Buy 5,000 4,230 3,900 2019-08-15 Buy 5,000 4,250 2019-07-08 Buy 5,000 4,400 3,400 2019-04-25 Buy 5,000 4,330 2,900 2019-04-08 Buy 5,000 4,290 2019-01-31 Buy 4,750 3,850 2,400 1,900 Source: RHB, Bloomberg 1,400 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 22

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank Mandiri (BMRI IJ) Buy (Maintained)

Managing The Pandemic Risk; Keep BUY Target Price (Return): IDR6,000 (+42%) Price: IDR4,210 Market Cap: USD12,614m Avg Daily Turnover (IDR/USD) 405,946m/27.8m

 BUY, new IDR6,000 TP from IDR9,300, 42% upside with c.6% yield. In Analyst assessing COVID-19’s impact, Bank Mandiri seems more conservative, recognising IDR299trn of its total loans portfolio (33%) at risk. However, it Christopher Andre Benas is fully equipped with provisions for worsening asset quality – adding an +6221 5093 9847 additional IDR2.2trn to its IFRS 9 adjustments and increasing NPL [email protected] coverage to 260% – the highest among the banks. Loan growth guidance may be lowered by this month to as low as 5%, as growth becomes less of a priority.

 Stress tests reveal IDR27trn in corporate loans exposed to pandemic

risk. Assuming a 12-month break, BMRI is recognising IDR27trn from its corporate portfolio as impacted by COVID-19. Across sectors, this means Share Performance (%) the CPO, coal, hotel & restaurant, airline, and machinery & equipment YTD 1m 3m 6m 12m wholesaler industries. Meanwhile for the total of IDR272trn of its retail Absolute (45.2) (29.0) (44.2) (36.5) (44.8) segment – SMEs, micro, consumer, and credit cards – during this same Relative (18.6) (27.6) (17.8) (11.5) (16.2) period, BMRI expects a moderate increase in special mention loans (SML) and NPL. Despite the potential rise in NPL and SML, the bank is fully 52-wk Price low/high (IDR) 3,860 – 8,150

equipped with provisions for the potential uptick. It added another IDR2.2trn to its IFRS 9 adjustment for provisions and increased NPL coverage to Bank Mandiri (BMRI IJ) Price Close Relative to Jakarta Composite Index (RHS) c.260% (Feb 2020: 251%, Dec 2019: 144%). 8,400 118

7,900 115

 Asset quality over growth. Although loan growth was guided at 8-10% 7,400 111 earlier this year, management is likely to lower its target, given the changing 6,900 108 circumstances – it might be as low as 5%. Loan growth is not the main 6,400 104 priority this year, asset quality is. In February, loan growth was still at 10.7% 5,900 101 YoY – but slowed down in March. This is also because BMRI has urged 5,400 97 4,900 94

customers to take a breather from taking new loans, except where 4,400 90 necessary, eg working capital loans for operations. 3,900 87 3,400 83

 In discussions on stimulus implementation. On the Financial Services

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jan-20 Jan-20 Jun-19 Jun-19

Mar-20 Feb-20 Mar-20

Aug-19 Nov-19 Dec-19 Aug-19 Sep-19 Nov-19 Dec-19 May-19 Authority Regulation 11 (POJK 11) – which allows for relaxation of the May-19 restructuring process and the moratorium for debtors impacted by COVID- Source: Bloomberg 19 – BMRI is still assessing the repayment scheme (if any) and debtor classification from the Government.  Liquidity is well covered. Despite the restructuring schemes planned, BMRI is confident of maintaining its liquidity – with its liquidity coverage ratio remaining at 160-170% in Dec 2019 through Mar 2020. The bank may even increase market share from deposits shifting over from smaller banks.  Lowering estimates and TP. We cut FY20-21F loans growth to 6% and

8%, and added provisions by 9%, resulting in 15% and 10% lower earnings estimates. Our new TP implies 1.4x FY20F P/BV. However, asset quality and credit costs remain big risks to our call.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 24,977 27,505 27,852 32,719 35,132 Net profit growth (%) 20.9 10.1 1.3 17.5 7.4 Recurring net profit (IDRb) 24,949 27,513 27,852 32,719 35,132 Recurring EPS (IDR) 534.63 589.57 596.84 701.13 752.84 BVPS (IDR) 3,882.97 4,384.37 4,223.34 4,655.89 5,093.22 DPS (IDR) 199.03 241.22 265.01 268.58 315.51 Recurring P/E (x) 7.87 7.14 7.05 6.00 5.59 P/B (x) 1.08 0.96 1.00 0.90 0.83 Dividend Yield (%) 4.7 5.7 6.3 6.4 7.5 Return on average assetsequity (%)(%) 14.4 2.1 14.3 2.2 13.9 2.1 15.8 2.3 15.4 2.2

Source: Company data, RHB

See important disclosures at the end of this report 23

Bank Mandiri Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 535.24 589.41 596.84 701.13 752.84 Financial Services Recurring EPS 534.63 589.57 596.84 701.13 752.84 Bank Mandiri DPS 199.03 241.22 265.01 268.58 315.51 BMRI IJ BVPS 3,882.97 4,384.37 4,223.34 4,655.89 5,093.22 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 7.87 7.14 7.05 6.00 5.59 Our GGM assumes: P/B (x) 1.1 1.0 1.0 0.9 0.8 i. COE of 13.8%, Dividend Yield (%) 4.7 5.7 6.3 6.4 7.5 ii. ROE of 16%, iii. 8.5% long-term growth. Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Key drivers Interest income 80,993 91,525 92,109 99,759 107,835 Our earnings are most sensitive to changes in: Interest expense (26,370) (32,085) (30,540) (31,785) (34,315) i. Net interest margin; Net interest income 54,623 59,440 61,569 67,974 73,520 ii. Credit cost; Non interest income 31,035 29,667 31,247 33,065 36,202 iii. Non-interest income growth. Total operating income 85,657 89,107 92,815 101,039 109,722

Overheads (37,566) (40,569) (41,786) (44,711) (49,182) Key risks Pre-provision operating profit 48,091 48,538 51,029 56,328 60,540 Downside risks include: Loan impairment allow ances (14,185) (12,086) (13,990) (12,918) (13,889) i. Weaker-than-expected NIMs; ii. Sharper-than-expected deterioration in asset Other exceptional items 38 (10) - - - quality; Pre-tax profit 33,906 36,465 37,040 43,410 46,651 iii. Weaker-than-expected non-interest income. Taxation (8,091) (7,986) (8,117) (9,513) (10,223) The converse of the above represents upside risks. Minority interests (837) (973) (1,071) (1,178) (1,296)

Reported net profit 24,977 27,505 27,852 32,719 35,132 Company Profile Recurring net profit 24,949 27,513 27,852 32,719 35,132 Bank Mandiri is Indonesia’s second largest bank by asset (total assets were valued at IDR1.318trn as of Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F FY19) with diversified lending focus in the corporate (both SOE and non-SOE), SME, retail, micro, and Return on average assets (%) 2.1 2.2 2.1 2.3 2.2 Syariah segments. It was established in 1998 as an Return on average equity (%) 14.4 14.3 13.9 15.8 15.4 effort to restructure the national banking sector, with Return on IEAs (%) 8.0 8.2 7.7 7.8 7.9 four state-owned banks (Bank Bumi Daya, Bank Cost of funds (%) 2.8 3.2 2.8 2.7 2.7 Dagang Negara, Bank Ekspor Impor Indonesia, and Net interest spread (%) 5.2 5.0 4.9 5.1 5.1 Bank Pembangunan Indonesia) merged into Bank Mandiri in 1999. Net interest margin (%) 5.4 5.3 5.2 5.3 5.4 Non-interest income / total income (%) 36.2 33.3 33.7 32.7 33.0 Cost to income ratio (%) 43.9 45.5 45.0 44.3 44.8 Credit cost (bps) 188 143 152 130 130

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 799,557 885,835 957,771 1,029,648 1,107,182 Other interest earning assets 281,083 261,399 277,757 295,262 314,004 Total gross IEAs 1,080,640 1,147,234 1,235,528 1,324,910 1,421,186

Total provisions (34,259) (32,020) (57,697) (48,454) (43,972) Net loans to customers 767,381 855,484 901,909 983,213 1,065,432 Total net IEAs 1,046,380 1,115,214 1,177,831 1,276,456 1,377,215 Total non-IEAs 155,872 203,032 216,078 227,575 244,499 Total assets 1,202,252 1,318,246 1,393,909 1,504,031 1,621,714 Customer deposits 840,914 933,125 1,004,558 1,081,747 1,165,179 Other interest-bearing liabilities 119,938 116,078 126,993 138,966 152,099 Total IBLs 960,852 1,049,202 1,131,551 1,220,713 1,317,278 Total non-IBLs 56,440 60,009 60,394 60,681 60,854 Total liabilities 1,017,292 1,109,212 1,191,945 1,281,394 1,378,132 Share capital 28,983 28,983 28,983 28,983 28,983 Shareholders' equity 181,203 204,601 197,086 217,272 237,680 Minority interests 3,758 4,434 4,877 5,365 5,901

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported NPLs / gross cust loans (%) 2.8 2.3 2.1 2.0 1.9 Total provisions / reported NPLs (%) 142.5 155.6 0.0 0.0 0.0 CET-1 ratio (%) 17.3 16.6 15.9 16.2 16.5 Tier-1 ratio (%) 19.3 18.6 17.4 17.6 17.8 Total capital ratio (%) 20.5 19.7 18.2 18.4 18.6

Source: Company data, RHB

See important disclosures at the end of this report 24

Bank Mandiri Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BMRI’s monthly loans balance Figure 2: BMRI’s monthly deposits balance

(IDRbn) (IDRbn) 900,000 18% 900,000 12% 800,000 16% 800,000 10% 700,000 14% 700,000 600,000 12% 600,000 8% 500,000 10% 500,000 6% 400,000 8% 400,000 300,000 6% 300,000 4% 200,000 4% 200,000 2% 100,000 2% 100,000

- 0% - 0%

1M18 2M18 5M18 6M18 7M18 9M18 2M19 3M19 6M19 7M19 8M19 3M18 4M18 8M18 1M19 4M19 5M19 9M19 1M20 2M20

1M18 2M18 3M18 4M18 5M18 6M18 1M19 2M19 3M19 4M19 1M20 2M20 7M18 8M18 9M18 5M19 6M19 7M19 8M19 9M19

10M18 11M18 11M19 12M19 12M18 10M19

11M18 12M18 10M19 11M19 12M19 10M18

Loan (LHS) Yoy (RHS) Deposit (LHS) Yoy (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: Our vs Street estimates RHB Street RHB/Street 2020E 2021E 2020E 2021E 2020E 2021E NII 61,569 67,974 64,518 70,113 95% 97% Operating income 92,815 101,039 92,640 100,145 100% 101% PPOP 51,029 56,328 53,967 57,214 95% 98% Provision 13,990 12,918 17,270 15,822 81% 82% Net income 27,852 32,719 28,384 31,741 98% 103%

Loans 957,771 1,029,648 949,908 1,059,405 101% 97% Loans growth 5.5% 7.5% 4.7% 11.5%

EPS 597 701 659 741 91% 95% EPS growth 1.4% 17.5% 12.0% 12.3%

BVPS 4,223 4,656 4,370 4,700 97% 99% DPS 265 269 267 335 99% 80% ROE 13.9% 15.8% 15.4% 16.2% 90% 97%

Source: RHB

Figure 4: Changes to our estimates RHB (prior) RHB (new) Change (%) 2020E 2021E 2020E 2021E 2020E 2021E NII 66,243 73,125 61,569 67,974 -7% -7% Operating income 100,771 109,767 92,815 101,039 -8% -8% PPOP 56,556 62,566 51,029 56,328 -10% -10% Provision 12,029 13,186 13,990 12,918 16% -2% Net income 32,900 36,495 27,852 32,719 -15% -10%

Loans 966,374 1,062,224 957,771 1,029,648 -1% -3% Loans growth 9.3% 9.9% 5.5% 7.5%

EPS 705 782 597 701 -15% -10% EPS growth 22.6% 10.9% 1.4% 17.5%

BVPS 4,663 5,128 4,223 4,656 -9% -9% DPS 259 317 265 269 2% -15% ROE 15.9% 16.0% 13.9% 15.8% -13% -1%

Source: RHB

Figure 5: GGM valuation Cost of equity calculation Sustainable ROE (%) 16 Risk free rate (%) 4.8 COE (%) 13.8 Equity premium (%) 3.8 Long-term growth (g%) 8.5 Beta (x) 1.3 Implied P/BV (x) 1.4 COE (CAPM) 13.8 FY20F BVPS (IDR) 4,23` TP (IDR) 6,001 Rounded 6,000

Source: Bloomberg, RHB

See important disclosures at the end of this report 25

Bank Mandiri Indonesia Company Update

17 April 2020 Financial Services | Banks

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-01-27 Buy 9,300 7,725 9,300

Recommendations & Target Price 2020-01-15 Buy 9,300 7,650

na

9,850 9,850 9,300 9,000 9,000 2019-12-10 Buy 9,300 7,375 8,300 10,000 2019-10-29 Buy 10,000 7,100 7,300 2019-09-02 Buy 10,000 7,175 2019-07-18 Buy 10,000 7,850 6,300 2019-04-29 Buy 10,000 7,775 5,300 2019-04-08 Buy 10,000 7,575 2019-01-29 Buy 9,850 7,125 4,300 Source: RHB, Bloomberg 3,300 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 26

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank Negara Indonesia (BBNI IJ) Buy (Maintained)

Undemanding Valuation With Higher Risk; Still BUY Target Price (Return): IDR5,300 (+33%) Price: IDR3,980 Market Cap: USD4,765m Avg Daily Turnover (IDR/USD) 223,417m/15.2m

 BUY, new IDR5,300 TP from IDR8,500, 33% upside with c.7% yield. Analyst Management has recognised the potential effect COVID-19 has on its business, including asset quality across sectors at risk, and decelerating Christopher Andre Benas loan growth. Bank Negara Indonesia might be the most vulnerable to asset +6221 5093 9847 quality downgrades, vs peers. However, management remains optimistic, [email protected] with 239% NPL coverage post IFRS 9 adjustments – and may be adding to this. BBNI is trading at an attractive 0.6x P/BV, ie much lower than its big-4 peers.  Prone to NPL upticks, as it bears higher risks than peers. In its stress

test, management is recognising IDR63trn in total of its portfolio (11% of

total loans) as being potentially impacted by COVID-19. This includes Share Performance (%) debtors from tourism-related sectors and industries like agriculture, YTD 1m 3m 6m 12m manufacturing, trade, oil & gas, and coal. We believe BBNI may be more vulnerable to asset quality problems than its peers due to its larger exposure Absolute (49.3) (17.8) (48.3) (45.1) (59.0) to these impacted sectors. However, for oil & gas, it is quite confident the Relative (22.7) (16.4) (21.9) (20.1) (30.4) NPL uptick will not be that high, as most of the names in this sector are 52-wk Price low/high (IDR) 3,160 – 9,850 government-backed ones. Nevertheless, management is still confident the

bank will ride out this storm, given its now-higher NPL coverage of 239% Bank Negara Indonesia (BBNI IJ) and potential addition from equity through IFRS 9 adjustments. Price Close Relative to Jakarta Composite Index (RHS) 10,400 105

 Quality over growth. During a recent call with management, BBNI said its 9,400 100

loan growth target of 9-11% may be lowered to 4-6% this year, in tandem 8,400 95

with Bank Indonesia’s lower growth estimates. The slowdown may come 7,400 90

from its investment loans portfolio, which accounts for 32% of its total, 6,400 85 especially from the decline in infrastructure loans (19% of loans), among 5,400 80 others. We cut FY20F loan growth to 5.1% from 11%, driving down the NII 4,400 75 ratio to 10%. With new management in place, we believe this new team will 3,400 70 be more conservative, as it needs to set the bar for the next three years. 2,400 65

Therefore, we do not expect BBNI to aggressively grow loans like it did

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jun-19 Jun-19 Jan-20 Jan-20

Feb-20 Mar-20 Mar-20

Aug-19 Aug-19 Sep-19 Nov-19 Nov-19 Dec-19 Dec-19 May-19 before. May-19  Lower trade-related fee income on decreasing fees from export-import Source: Bloomberg loans. As trade transactions drop, with more countries imposing lockdowns, BBNI’s trade-related fee income is also expected to fall. As of FY19, the segment accounts for 11% of total fee income, with a major chunk coming from trade-related loans, ie letters of credit, bank guarantees, etc.

 Vulnerable, but attractive valuation. With the recent sell-off, we think that BBNI is currently trading at cheaper multiples vis-à-vis other big-4 banks, and even smaller mid-cap banks at 0.6x P/BV (40% and 60% discounts to Bank Mandiri (BMRI IJ, BUY, TP: IDR6,000) and Bank Rakyat Indonesia (BBRI IJ, BUY, TP: IDR3,600)) post a 49% YTD drop. However, asset quality and credit costs will remain a bigger risk to our call. Our new TP implies an undemanding 0.8x FY20F P/BV, with 13.4% ROE.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F

Reported net profit (IDRb) 15,015 15,384 15,243 18,078 21,101

Net profit growth (%) 10.3 2.5 (0.9) 18.6 16.7 Recurring net profit (IDRb) 15,015 15,384 15,243 18,078 21,101 Recurring EPS (IDR) 805.16 824.96 817.38 969.40 1,131.49 BVPS (IDR) 5,601.64 6,448.65 6,580.81 7,271.96 8,072.36 DPS (IDR) 255.56 281.81 288.74 286.08 339.29 Recurring P/E (x) 4.94 4.82 4.87 4.11 3.52 P/B (x) 0.71 0.62 0.60 0.55 0.49 Dividend Yield (%) 6.4 7.1 7.3 7.2 8.5 Return on average assetsequity (%)(%) 15.0 2.0 13.7 1.9 12.5 1.6 14.0 1.7 14.7 1.8

Source: Company data, RHB

See important disclosures at the end of this report 27

Bank Negara Indonesia Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 805.16 824.96 817.38 969.40 1,131.49 Financial Services Recurring EPS 805.16 824.96 817.38 969.40 1,131.49 Bank Negara Indonesia DPS 255.56 281.81 288.74 286.08 339.29 BBNI IJ BVPS 5,601.64 6,448.65 6,580.81 7,271.96 8,072.36 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 4.94 4.82 4.87 4.11 3.52 GGM-backed P/BV P/B (x) 0.7 0.6 0.6 0.5 0.5 Dividend Yield (%) 6.4 7.1 7.3 7.2 8.5

Key drivers i. Better-than-expected loan growth; Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F ii. Better-than-expected NIM; Interest income 54,139 58,532 61,244 66,418 73,333 iii. Lower-than-expected credit cost due to better Interest expense (18,692) (21,930) (23,625) (25,226) (26,877) asset quality. Net interest income 35,446 36,602 37,619 41,192 46,456 Key risks Non interest income 13,324 15,409 16,796 18,140 19,452 i. Lower-than-expected GDP growth that could Total operating income 48,771 52,012 54,415 59,332 65,908 slow down loan growth; Overheads (21,783) (23,687) (24,816) (26,001) (27,743) ii. NIM pressure from competition; Pre-provision operating profit 26,988 28,325 29,599 33,331 38,164 iii. Worsening asset quality. Loan impairment allow ances (7,388) (8,838) (10,246) (10,404) (11,426) Other exceptional items 221 (118) (129) (142) (156) Company Profile Pre-tax profit 19,821 19,369 19,224 22,785 26,582 Bank Negara Indonesia is the country’s fourth largest Taxation (4,729) (3,861) (3,845) (4,557) (5,316) bank by asset and is majority controlled by the Government. The bank has strong exposure in Minority interests (77) (124) (137) (150) (165) corporate and SME banking, particularly towards SOE- Reported net profit 15,015 15,384 15,243 18,078 21,101 linked infrastructure projects. Recurring net profit 15,015 15,384 15,243 18,078 21,101

Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Return on average assets (%) 2.0 1.9 1.6 1.7 1.8 Return on average equity (%) 15.0 13.7 12.5 14.0 14.7 Return on IEAs (%) 7.8 7.7 7.5 7.4 7.5 Cost of funds (%) 2.9 3.0 2.9 2.8 2.7 Net interest spread (%) 4.9 4.7 4.5 4.6 4.8 Net interest margin (%) 5.1 4.8 4.6 4.6 4.8

Non-interest income / total income (%) 27.3 29.6 30.9 30.6 29.5 Cost to income ratio (%) 44.7 45.5 45.6 43.8 42.1 Credit cost (bps) 164 175 183 167 169

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 572,445 623,968 698,651 761,308 825,669 Other interest earning assets 246,729 260,903 261,774 285,883 314,471 Total gross IEAs 731,122 785,025 857,719 936,269 1,018,127 Total provisions (14,523) (17,018) (19,192) (20,839) (19,760) Net loans to customers 470,320 508,267 577,918 630,712 685,059 Total net IEAs 716,599 768,006 838,527 915,431 998,366 Total non-IEAs 90,616 77,599 170,531 195,913 224,557 Total assets 807,215 845,605 1,009,059 1,111,344 1,222,924 Customer deposits 578,775 640,721 709,351 785,390 863,929 Other interest-bearing liabilities 122,210 111,745 143,054 153,267 167,936 Total IBLs 700,985 752,466 852,405 938,657 1,031,865 Total non-IBLs (2,787) (31,865) 28,948 31,843 35,027 Total liabilities 698,198 720,601 881,353 970,500 1,066,892 Share capital 23,623 23,623 23,623 23,623 23,623 Shareholders' equity 104,463 120,259 122,723 135,612 150,539 Minority interests 4,554 4,745 4,983 5,232 5,493

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported NPLs / gross cust loans (%) 2.1 1.9 2.0 1.8 1.9 Total provisions / reported NPLs (%) (17.7) (3.2) 0.0 0.0 0.0 CET-1 ratio (%) 17.5 16.1 16.7 17.1 15.5 Tier-1 ratio (%) 17.5 16.1 16.7 17.1 15.5 Total capital ratio (%) 18.6 17.1 17.7 18.2 16.5

Source: Company data, RHB

See important disclosures at the end of this report 28

Bank Negara Indonesia Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BBNI’s monthly loans balance Figure 2: BBNI’s monthly deposits balance

(IDRbn) (IDRbn) 550,000 25.0% 550,000 20.0% 18.0% 500,000 20.0% 500,000 16.0% 14.0% 450,000 15.0% 450,000 12.0% 10.0% 400,000 10.0% 400,000 8.0% 6.0% 350,000 5.0% 350,000 4.0% 2.0%

300,000 0.0% 300,000 0.0%

2M18 3M18 5M18 8M18 1M19 2M19 4M19 5M19 7M19 8M19 1M20 1M18 4M18 6M18 7M18 9M18 3M19 6M19 9M19

2M18 4M18 5M18 7M18 8M18 1M19 2M19 4M19 7M19 9M19 1M20 1M18 3M18 6M18 9M18 3M19 5M19 6M19 8M19

10M18 11M18 10M19 11M19 12M18 12M19

10M18 11M18 10M19 12M19 12M18 11M19 Loan (LHS) YoY (RHS) Deposits (LHS) YoY (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: Our vs Street estimates RHB Street RHB vs Street 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E NII 37,619 41,192 46,456 40,086 43,882 46,502 94% 94% 100% Operating income 54,415 59,332 65,908 55,230 60,241 63,089 99% 98% 104% PPOP 29,599 33,331 38,164 29,530 32,560 32,216 100% 102% 118% Provision 10,246 10,404 11,426 9,354 10,156 8,127 110% 102% 141% Net income 15,243 18,078 21,101 15,951 17,571 19,271 96% 103% 109%

Loans 583,439 640,544 703,655 596,115 664,327 727,120 98% 96% 97% Loans growth 5.1% 9.8% 9.9% 3.5% 11.4% 9.5%

EPS 817 969 1,131 852 942 991 96% 103% 114% EPS growth -0.9% 18.6% 16.7% -16.8% 10.6% 5.3%

BVPS 6,581 7,272 8,072 6,612 7,214 7,718 100% 101% 105% DPS 289 286 339 223 232 247 129% 124% 137% ROE 12.5% 14.0% 14.7% 13.2% 13.5% 14.1% 95% 103% 105%

Source: RHB

Figure 4: Changes to our estimates Prior New Old vs new 2020E 2021E 2020E 2021E 2020E 2021E NII 41,883 46,758 37,619 41,192 -10% -12% Operating income 59,076 65,326 54,415 59,332 -8% -9% PPOP 34,734 39,036 29,599 33,331 -15% -15% Provision 9,093 10,072 10,246 10,404 13% 3% Net income 18,895 21,437 15,243 18,078 -19% -16%

Loans 620,945 686,484 583,439 640,544 -6% -7% Loans growth 11.5% 11.9% 5.1% 9.8%

EPS 1,013 1,150 817 969 -19% -16% EPS growth 21.7% 13.5% -0.9% 18.6%

BVPS 5,963 6,766 6,581 7,272 10% 7% DPS 291 355 289 286 -1% -19% ROE 17.0% 18.1% 12.5% 14.0% -26% -23%

Source: RHB

Figure 5: GGM valuation Cost of equity calculation Sustainable ROE (%) 10.5 Risk free rate (%) 7.2 COE (%) 14.9 Equity premium (%) 4.8 Long-term growth (g%) 10.5 Beta (x) 1.6 Implied P/BV (x) 0.8 COE (CAPM) 14.9 FY20F BVPS (IDR) 6,581 TP (IDR) 5,282 Rounded 5,300

Source: Bloomberg, RHB

See important disclosures at the end of this report 29

Bank Negara Indonesia Indonesia Company Update

17 April 2020 Financial Services | Banks

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-03-10 Buy 8,500 5,675 11,000 Recommendations & Target Price 2020-01-23 Buy 9,125 7,650

10,000 na

8,500 8,500 9,125 9,125

8,000 8,000 2020-01-10 Buy 9,125 7,725

11,100 11,100 11,000 11,500 11,500 9,000 2019-10-24 Buy 9,125 7,900 8,000 2019-10-21 Buy 9,125 7,375 2019-09-10 Buy 11,500 7,750 7,000 2019-07-24 Buy 11,500 8,425 6,000 2019-04-25 Buy 11,500 9,600 5,000 2019-04-08 Buy 11,500 9,550 4,000 Source: RHB, Bloomberg 3,000 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 30

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank Danamon (BDMN IJ) Buy (Maintained)

Brace For Challenges; Keep BUY Target Price (Return): IDR3,900 (+87%) Price: IDR2,090 Market Cap: USD1,312m Avg Daily Turnover (IDR/USD) 7,812m/0.53m

 BUY, new IDR3,900 TP from IDR4,700, 87% upside with c.7% yield, as Analyst we adjust our earnings forecasts. We adjust FY20F net income to IDR3.3trn from IDR3.9trn, on lower loan growth as well as expected asset quality Christopher Andre Benas deterioration in FY20 due to the COVID-19 pandemic. Keep BUY, as Bank +6221 5093 9847 Danamon is trading at an attractive valuation after a steep sell-off in the [email protected] past two months. Our TP implies only 0.8x P/BV, or -2SD from its 5-year historical mean.  Adira Dinamika Multi Finance (ADMF IJ, NR) likely impacted by the drop in Indonesia’s economic growth. With FY20F GDP growth at 2.5%,

auto sales should be hurt by fading consumer confidence. As such, ADMF – the largest contributor to BDMN’s loan book – will likely be affected. We Share Performance (%) expect ADMF to print much lower loan yields on higher credit cost due to YTD 1m 3m 6m 12m potentially worsening asset quality in the segment. In FY19, ADMF Absolute (47.1) (3.3) (47.5) (54.9) (77.8) contributed 38% to BDMN’s total loans of IDR144trn. ADMF booked IDR2.1trn in net profit in FY19, accounting for almost 50% of BDMN’s profit. Relative (20.5) (1.9) (21.1) (29.9) (49.2) 52-wk Price low/high (IDR) 1,675 – 8,975  New auto financing has been decelerating since 2019. If we look back

at 2019 results, 11M19 2-wheeler (2W) sales only grew 1.8% YoY while 4- Bank Danamon (BDMN IJ) wheeler (4W) sales growth declined to -11.6% YoY. With the expected weak Price Close Relative to Jakarta Composite Index (RHS) auto sales in FY20, the number could further decline and weaken ADMF’s 9,900 107 new financing growth. In FY19, ADMF’s 4W new financing dropped by 7% 8,900 99 YoY, while it managed to book 7% YoY growth for 2W new financing. 7,900 91 Looking at Feb 2020 results, BDMN should only be able to book 2% YoY 6,900 84 loan growth (pre-pandemic). With low expectations on 1Q20 numbers, we 5,900 76 forecast only 4% loan growth this year as BDMN’s segments are quite 4,900 68 sensitive to downturns in economic activity. 3,900 60 2,900 53  Asset quality still a challenge, but well-provisioned. In FY19, BDMN 1,900 45

faced some challenges in asset quality as its NPL ratio rose to 3.0% from 900 37

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jan-20 Jan-20 Jun-19 Jun-19

Mar-20 Feb-20 Mar-20

Aug-19 Nov-19 Dec-19 Sep-19 Nov-19 Dec-19

2.7% the previous year. With expectations of worsening asset quality, we Aug-19 May-19 May-19 believe the bank’s NPL ratio will not be out of the woods just yet. Source: Bloomberg Nonetheless, being a Japanese-owned bank, BDMN has one of the best risk management compared to smaller BUKU III banks, with a solid LLC ratio of 112.6% in FY19 as well as strong CAR to buffer any significant downside risk from worsening asset quality.  Paying for its ADMF asset. BDMN is currently trading at 0.4x P/BV, and is one of the cheapest banks in Indonesia, with the second largest multi- finance company in the country. In our view, ADMF is the strongest among the multi-finance companies in Indonesia. We maintain our BUY call with a lower TP of IDR3,900, with 87% upside from the current price. Downside risks: lower loan growth and rising credit cost due to high NPLs.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 3,922 4,296 3,341 3,436 3,407 Net profit growth (%) 6.5 9.5 (22.2) 2.8 (0.8) Recurring net profit (IDRb) 3,694 2,235 3,254 3,349 3,321 Recurring EPS (IDR) 385.41 233.16 339.52 349.44 346.49 BVPS (IDR) 4,310.08 4,688.45 5,012.38 5,323.90 5,638.97 DPS (IDR) 134.44 143.22 148.75 156.84 161.30 Recurring P/E (x) 5.42 8.96 6.16 5.98 6.03 P/B (x) 0.48 0.45 0.42 0.39 0.37 Dividend Yield (%) 6.4 6.9 7.1 7.5 7.7 Return on average assetsequity (%)(%) 2.1 9.8 10.0 2.3 1.7 7.2 1.6 6.9 1.5 6.5

Source: Company data, RHB

See important disclosures at the end of this report 31

Bank Danamon Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 409.21 448.22 348.53 358.44 355.49 Financial Services Recurring EPS 385.41 233.16 339.52 349.44 346.49 Bank Danamon DPS 134.44 143.22 148.75 156.84 161.30 BDMN IJ BVPS 4,310.08 4,688.45 5,012.38 5,323.90 5,638.97 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 5.42 8.96 6.16 5.98 6.03 P/BV backed by GGM. Assumptions include: P/B (x) 0.5 0.4 0.4 0.4 0.4 i. COE of 9.8%; Dividend Yield (%) 6.4 6.9 7.1 7.5 7.7 ii. ROE of 8.5 iii. 3.8% long-term growth. Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Interest income 20,172 21,970 20,921 21,687 22,526 Key drivers Interest expense (5,931) (7,391) (5,698) (6,270) (6,754) i. Synergy between MUFG Bank and Danamon; Net interest income 14,241 14,579 15,224 15,417 15,772 ii. Growth from multi-finance Adira Finance; Non interest income 3,696 3,787 3,983 4,381 4,819 iii. Lower interest rate outlook. Total operating income 17,937 18,366 19,206 19,798 20,590

Overheads (9,512) (10,388) (10,590) (11,172) (11,786)

Pre-provision operating profit 8,425 7,979 8,617 8,626 8,804 Key risks Loan impairment allow ances (3,267) (4,705) (4,073) (3,930) (4,118) i. Tightening liquidity to drive cost of funds; ii. Higher credit costs; Other exceptional items 71 5,023 (72) (72) (72) iii. Lower NIMs. Pre-tax profit 5,461 6,083 4,657 4,811 4,800 Taxation (1,354) (1,619) (1,133) (1,173) (1,170) Minority interests (185) (167) (184) (202) (223) Company Profile Reported net profit 3,922 4,296 3,341 3,436 3,407 Bank Danamon is currently one of the Top 10 largest Recurring net profit 3,694 2,235 3,254 3,349 3,321 banks in Indonesia by asset size (5% by market cap). MUFG Bank recently became the majority shareholder Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F in Bank Danamon (c.94%). Subsidiaries – Adira Finance (92%) focuses on 2-wheeler and 4-wheeler Return on average assets (%) 2.1 2.3 1.7 1.6 1.5 financing, as well as consumer goods, while Adira Return on average equity (%) 9.8 10.0 7.2 6.9 6.5 Insurance (90%) focuses on the insurance business. Return on IEAs (%) 10.1 10.7 10.3 10.6 10.4 Cost of funds (%) 4.6 5.5 4.0 4.1 4.1 Net interest spread (%) 5.6 5.3 6.3 6.5 6.3 Net interest margin (%) 7.2 7.1 7.5 7.5 7.3 Non-interest income / total income (%) 20.6 20.6 20.7 22.1 23.4 Cost to income ratio (%) 53.0 56.6 55.1 56.4 57.2 Credit cost (bps) 251 341 274 247 247

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F

Total gross loans 134,519 141,460 155,978 162,551 170,690 Other interest earning assets 66,534 66,532 42,851 47,657 53,417 Total gross IEAs 201,053 207,993 198,829 210,209 224,107 Total provisions (4,408) (4,707) (7,627) (6,177) (6,486) Net loans to customers 130,161 136,790 148,351 156,374 164,203 Total net IEAs 196,645 203,285 191,202 204,032 217,620 Total non-IEAs (9,883) (9,751) 16,567 17,396 18,265 Total assets 186,762 193,534 207,769 221,427 235,886 Customer deposits 107,696 109,792 118,958 127,566 136,833 Other interest-bearing liabilities 24,894 28,354 29,772 31,260 32,823 Total IBLs 132,589 138,146 148,730 158,826 169,657 Total non-IBLs 12,233 9,971 10,470 10,993 11,543 Total liabilities 144,822 148,117 159,199 169,819 181,199 Share capital 13,157 13,982 13,982 13,982 13,982 Shareholders' equity 41,311 44,937 48,042 51,028 54,048 Minority interests 629 480 528 581 639

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F CET-1 ratio (%) 17.8 16.7 18.0 18.5 18.8 Tier-1 ratio (%) 21.4 20.0 21.0 21.3 21.5 Total capital ratio (%) 22.2 20.8 21.9 22.3 22.4

Source: Company data, RHB

See important disclosures at the end of this report 32

Bank Danamon Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BDMN’s monthly loans balance Figure 2: BDMN’s monthly deposits balance

(IDRbn) (IDRbn) 115,000 12.0% 120,000 14.0% 12.0% 110,000 10.0% 115,000 10.0% 105,000 8.0% 110,000 8.0% 100,000 6.0% 105,000 6.0% 4.0% 95,000 4.0% 100,000 2.0% 90,000 2.0% 95,000 0.0%

85,000 0.0% 90,000 -2.0%

2M18 3M18 5M18 6M18 9M18 1M19 3M19 4M19 5M19 7M19 8M19 2M20 1M18 4M18 7M18 8M18 2M19 6M19 9M19 1M20

2M18 3M18 5M18 6M18 8M18 9M18 1M19 3M19 4M19 5M19 7M19 8M19 2M20 1M18 4M18 7M18 2M19 6M19 9M19 1M20

10M18 12M18 10M19 11M19 12M19 11M18

10M18 12M18 10M19 11M19 11M18 12M19 Loan (LHS) Yoy (RHS) Deposit (LHS) Yoy (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: RHB vs Street estimates RHB (New) Street RHB/Street 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E Net Interest Income 15,224 15,417 15,772 15,782 17,192 17,702 96% 90% 89% Operating Income 19,206 19,798 20,590 19,870 21,574 22,085 97% 92% 93% PPOP 8,617 8,626 8,804 8,338 9,008 9,010 103% 96% 98% Provision 4,073 3,930 4,118 3,908 4,174 3,929 104% 94% 105% Net Income 3,341 3,436 3,407 3,145 3,655 4,108 106% 94% 83%

EPS 349 358 355 330 405 463 105% 89% 77% EPS Growth -18.0% 2.8% -0.8% -20.2% 22.6% 14.4%

BVPS 5,012 5,324 5,639 4,698 4,942 5,239 107% 108% 108% DPS 149 157 161 166 122 153 90% 128% 106% ROE 7.2% 6.9% 6.5% 9.9% 10.6% 10.6% 73% 66% 61%

Source: RHB

Figure 4: Changes to our estimates RHB (Old) RHB (New) Old vs New 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E Net Interest Income 15,564 16,526 17,738 15,224 15,417 15,772 -2% -7% -11% Operating Income 19,479 20,833 22,475 19,206 19,798 20,590 -1% -5% -8% PPOP 8,690 9,450 10,466 8,617 8,626 8,804 -1% -9% -16% Provision 3,838 4,177 4,560 4,073 3,930 4,118 6% -6% -10% Net Income 3,568 3,862 4,311 3,341 3,436 3,407 -6% -11% -21%

Loans 162,506 176,610 193,414 155,978 162,551 170,690 -4% -8% -12% Loan Growth 14.9% 8.7% 9.5% 10.3% 4.2% 5.0%

EPS 372 403 450 349 358 355 -6% -11% -21% EPS Growth -12.4% 8.2% 11.6% -18.0% 2.8% -0.8%

BVPS 4,994 5,339 5,728 5,012 5,324 5,639 0% 0% -2% DPS 191 168 181 149 157 161 -22% -6% -11% ROE 7.7% 7.8% 8.1% 7.2% 6.9% 6.5% -7% -11% -20%

Source: RHB

See important disclosures at the end of this report 33

Bank Danamon Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 5: GGM valuation Cost of equity calculation Sustainable ROE (%) 8.5 Risk free rate (%) 7.8 COE (%) 9.8 Equity premium (%) 2.2 Long-term growth (%) 3.8 Beta (x) 0.9 Implied P/BV (x) 0.78 COE (CAPM) 9.8 FY20F BVPS (IDR) 5,012 TP (IDR) 3,890 Rounded 3,900

Source: Bloomberg, RHB

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-02-20 Buy 4,700 3,740 10,950 Recommendations & Target Price 2020-02-20 Buy 5,300 3,740

9,950 na

6,900 6,900 8,500 5,000 5,300 4,700 4,550 4,550 2019-10-24 Trading Buy 5,300 4,530 8,950 2019-10-09 Neutral 5,000 4,590 7,950 2019-07-25 Neutral 5,000 5,175 6,950 2019-07-03 Neutral 4,550 4,660 5,950 2019-05-17 Neutral 4,550 4,840 4,950 2019-04-24 Neutral 8,500 8,225 3,950 2019-04-23 Neutral 8,500 8,500 2,950 1,950 Source: RHB, Bloomberg 950 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 34

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank Tabungan Negara (BBTN IJ) Neutral (from Sell)

The Struggle Is Not Over; U/G To NEUTRAL Target Price (Return): IDR950 (+5%) Price: IDR900 Market Cap: USD612m Avg Daily Turnover (IDR/USD) 35,713m/2.43m

 Upgrade to NEUTRAL from Sell, new IDR950 TP from IDR1,500, 5% Analyst upside with 0.4% yield. The COVID-19 pandemic happened at a crucial time for Bank Tabungan Negara, just as it was focussing on improving asset Indonesia Research Team quality. However, its subsidised mortgage segment may be buffered by a +6221 5093 9888 relaxation in regulations. Loan growth this year may hit the lower end of its [email protected] now-smaller target of 8-10% YoY. On valuation, the recent sell-off has pulled down its share price by 56% YTD, to reflect 0.5x FY20F P/BV.  Already guiding for all-time low loan growth. BBTN is now expecting 8- 10% YoY loan growth in FY20, as it focuses more on asset quality. Given

the new circumstances, we believe it may record growth at the lower end of

this range, or even less than that. That said, its subsidised mortgage Share Performance (%) business may still be buffered from the impact of the pandemic, as the YTD 1m 3m 6m 12m budget for subsidies has been increased by the Government. Absolute (57.6) (27.7) (57.8) (52.9) (65.1)  Asset quality problem is not over, but may be buffered. Just as Relative (31.0) (26.3) (31.4) (27.9) (36.5) management’s focus shifts to asset quality improvement, the pandemic brings new risks of deterioration in asset quality. Risks also prevail for its 52-wk Price low/high (IDR) 820 – 2,740

construction and commercial segment as a result of decreased economic activities – which also comprise the main sources behind the uptick in NPL Bank Tabung Negara (BBTN IJ) Price Close Relative to Jakarta Composite Index (RHS) and special mention loans (SML). However, worsening asset quality in its 3,120 117 key segment – subsidised mortgages (43% of total loans) – may be buffered by government stimulus measures, in our view. Through POJK-11, released 2,620 105 by the Financial Services Authority (OJK), loans given to debtors affected by the pandemic may be restructured – this includes subsidised mortgage 2,120 93

loans. This also allows the bank to not recognise such borrowings as NPL 1,620 81 or SML. The current situation may not make it easier for the bank to sell off IDR7trn of NPL (57% of current outstanding loans), comprising c.IDR3.5trn 1,120 69 in consumer loan collateral, and c.IDR3.5trn in commercial loans. Hence, 620 57

the NPL ratio will be maintained at close to FY19’s 4.8%, or possibly higher

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jan-20 Jan-20 Jun-19 Jun-19

Mar-20 Feb-20 Mar-20

Aug-19 Nov-19 Dec-19 Aug-19 Sep-19 Nov-19 Dec-19 May-19 (considering new downgrades), vs being lowered to its 3-3.5% target. May-19  However, credit cost needs to be increased. Despite asset quality in its Source: Bloomberg mortgage segment being potentially preserved, fresh downgrades may emerge from other segments. This is why BBTN will still need to increase provision charges this year. Its Feb 2020 annualised CoC figure was surprisingly low, at only 0.6%. Even after the IDR7.8trn provision

adjustment for IFRS 9, its NPL coverage of 109% is still below the peers.  Now a NEUTRAL. BBTN’s share price has plunged by 56% YTD, reflecting an all-time low valuation of 0.5x P/BV. As such, we upgrade our call on the stock. Although downside risks exist from worsening asset quality, pressure on margins, and slowing loan growth, if the new management – with the help of the stimulus measures – can weather the current headwinds, FY20F-21F may bring about a turning point for this bank.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 2,808 209 566 1,487 2,580 Net profit growth (%) (7.3) (92.6) 170.7 162.9 73.5 Recurring net profit (IDRb) 2,795 265 661 1,592 2,695 Recurring EPS (IDR) 263.94 25.05 62.38 150.29 254.53 BVPS (IDR) 2,269.19 2,268.12 1,590.36 1,699.98 1,868.23 DPS (IDR) 57.18 53.03 3.95 10.68 28.09 Recurring P/E (x) 3.41 35.93 14.43 5.99 3.54 P/B (x) 0.40 0.40 0.57 0.53 0.48 Dividend Yield (%) 6.4 5.9 0.4 1.2 3.1 Return on average assetsequity (%)(%) 12.2 1.0 0.1 0.9 0.2 2.8 0.4 8.5 13.7 0.7

Source: Company data, RHB

See important disclosures at the end of this report 35

Bank Tabungan Negara Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 265.15 19.73 53.41 140.43 243.67 Financial Services Recurring EPS 263.94 25.05 62.38 150.29 254.53 Bank Tabungan Negara DPS 57.18 53.03 3.95 10.68 28.09 BBTN IJ BVPS 2,269.19 2,268.12 1,590.36 1,699.98 1,868.23 Neutral Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 3.41 35.93 14.43 5.99 3.54 P/BV backed by GGM. Assumptions include: P/B (x) 0.4 0.4 0.6 0.5 0.5 i. COE of 15.9%; Dividend Yield (%) 6.4 5.9 0.4 1.2 3.1 ii. ROE of 14%; and iii. 10.4% long-term growth. Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Key drivers Interest income 22,852 25,720 27,263 28,392 30,070 i. Better-than-expected loan growth; Interest expense (12,763) (16,758) (18,047) (18,753) (19,585) ii. Better-than-expected operational efficiency; Net interest income 10,089 8,962 9,216 9,640 10,484 iii. Higher-than-expected increase in CASA. Non interest income 2,072 2,110 2,228 2,502 2,798 Total operating income 12,161 11,072 11,444 12,142 13,283 Key risks Overheads (6,853) (7,063) (7,455) (7,870) (8,311) i. Lower loan disbursements from the government Pre-provision operating profit 5,308 4,008 3,989 4,271 4,972 ii. Higher cost of funds; Loan impairment allow ances (1,714) (3,487) (3,142) (2,231) (1,516) iii. Worsening asset quality; Other exceptional items 16 (111) (122) (134) (147) Company Profile Pre-tax profit 3,610 411 725 1,907 3,308 Taxation (802) (202) (160) (419) (728) Bank Tabungan Negara is a SOE bank focussing on housing loans. Nearly 80% of its loan book consists of Reported net profit 2,808 209 566 1,487 2,580 housing related loans such as subsidised and non- Recurring net profit 2,795 265 661 1,592 2,695

subsidised mortgage loans. Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Return on average assets (%) 1.0 0.1 0.2 0.4 0.7 Return on average equity (%) 12.2 0.9 2.8 8.5 13.7 Return on IEAs (%) 8.3 8.6 8.6 8.3 8.1 Cost of funds (%) 5.1 6.1 6.3 6.2 6.1 Net interest spread (%) 3.3 2.5 2.3 2.2 2.1 Net interest margin (%) 3.7 3.0 2.9 2.8 2.8

Non-interest income / total income (%) 17.0 19.1 19.5 20.6 21.1 Cost to income ratio (%) 56.3 63.8 65.1 64.8 62.6 Credit cost (bps) 86.4 155.7 126.0 80.3 50.3

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 215,716 232,213 266,546 289,021 313,658 Other interest earning assets 79,932 72,551 61,885 66,377 69,613 Total gross IEAs 295,648 304,763 328,432 355,398 383,272 Total provisions (3,320) (6,145) (16,327) (25,533) (33,956) Net loans to customers 212,938 226,787 250,251 263,522 279,739 Total net IEAs 292,328 298,618 312,105 329,865 349,316 Total non-IEAs 14,108 13,159 14,475 15,922 17,515 Total assets 306,436 311,777 326,580 345,787 366,831 Customer deposits 229,829 225,383 235,013 247,740 261,172 Other interest-bearing liabilities 43,089 50,322 61,397 65,369 69,716 Total IBLs 272,918 275,705 296,409 313,109 330,888 Total non-IBLs 9,678 12,236 13,459 14,805 16,286 Total liabilities 282,596 287,941 309,869 327,914 347,174 Share capital 7,349 7,349 7,349 7,349 7,349 Shareholders' equity 24,031 24,019 16,842 18,003 19,785

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F CET-1 ratio (%) 11.8 11.7 8.9 9.0 9.7 Tier-1 ratio (%) 16.0 15.6 11.8 11.6 12.1 Total capital ratio (%) 18.2 17.3 17.3 16.6 16.9

Source: Company data, RHB

See important disclosures at the end of this report 36

Bank Tabungan Negara Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BBTN’s monthly loan balance Figure 2: BBTN’s monthly deposit balance

(IDRbn) (IDRbn) 260,000 25% 260,000 25% 240,000 240,000 20% 20% 220,000 220,000 15% 200,000 15% 200,000 180,000 180,000 10% 10% 160,000 160,000 5% 140,000 5% 140,000 0% 120,000 120,000

100,000 0% 100,000 -5%

4M18 5M18 9M18 2M19 3M19 4M19 7M19 8M19 9M19 1M20 1M18 2M18 3M18 6M18 7M18 8M18 1M19 5M19 6M19

1M18

2M18

3M18

4M18

5M18

6M18

7M18

8M18

9M18

1M19

2M19

3M19

4M19

5M19

6M19

7M19

8M19

9M19

1M20

10M18 11M18 12M19 12M18 10M19 11M19

10M18

11M18

12M18

10M19

11M19 12M19 Loan (LHS) YoY (RHS) Deposits (LHS) YoY (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: BBTN’s NPL 6%

4.8% 5%  NPL rose to a high of 4.8% in FY19 4%  The bank initially targeted to lower the ratio to 3-3.5% in FY20 through 3% selling IDR7trn worth of collateral and loans within three years 2%  However, we believe it is unlikely to lower the NPL ratio at this point 1% in time, given the risks related to the pandemic 0%

Source: Company data, RHB

Figure 4: RHB vs Street estimates RHB Street RHB/Street 2020E 2021E 2020E 2021E 2020E 2021E Net Interest Income 9,216 9,640 10,986 11,850 84% 81% Operating Income 11,444 12,142 13,513 14,577 85% 83% PPOP 3,989 4,271 5,146 5,874 78% 73% Provision 3,142 2,231 1,733 1,516 181% 147% Net Income 566 1,487 2,692 3,318 21% 45%

Loans 266,546 289,021 281,677 310,306 95% 93% Loans Growth 4.3% 7.8% 10.3% 10.2%

EPS 53 140 258 307 21% 46% EPS Growth 170.7% 162.9% 1188.0% 19.2%

BVPS 1,578 1,688 2,131 2,426 74% 70% DPS 4 11 37 53 11% 20% ROE 2.8% 8.6% 10.9% 13.4% 25% 64%

Source: RHB

See important disclosures at the end of this report 37

Bank Tabungan Negara Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 5: Changes to our estimates RHB (Old) RHB (New) Change (%) 2020E 2021E 2020E 2021E 2020E 2021E Net Interest Income 10,384 11,321 9,216 9,640 -11% -15% Operating Income 12,612 13,682 11,444 12,142 -9% -11% PPOP 5,157 5,812 3,989 4,271 -23% -27% Provision 2,674 2,322 3,142 2,231 18% -4% Net Income 1,842 2,618 566 1,487 -69% -43%

Loans 277,367 300,981 266,546 289,021 -4% -4% Loans Growth 7.8% 7.8% 4.3% 7.8%

EPS 174 247 53 140 -69% -43% EPS Growth 781.7% 42.1% 170.7% 162.9%

BVPS 1,448 1,388 1,578 1,688 9% 22% DPS 4 35 4 11 0% -69% ROE 9.4% 17.4% 2.8% 8.6% -70% -51%

Source: RHB

Figure 6: GGM valuation Cost of equity calculation Sustainable ROE (%) 14.0 Risk free rate (%) 7.3 COE (%) 15.9 Equity premium (%) 5.7 Long-term growth (g%) 11.2 Beta (x) 1.5 Implied P/BV (x) 0.6 COE (CAPM) 15.9 FY20F BVPS (IDR) 1,594 TP (IDR) 950

Source: Bloomberg, RHB

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-02-18 Sell 1,500 1,895 4,090

Recommendations & Target Price 2020-02-17 Sell 1,500 1,795

na

5,000 5,000 2,700 1,500 2,700 2,700 3,590 2,950 2019-11-15 Sell 1,500 1,920 2019-07-29 Neutral 2,150 2,390 3,090 2,150 2019-07-04 Neutral 2,150 2,450 2,590 2019-04-24 Neutral 2,150 2,550 2,090 2019-04-23 Neutral 2,150 2,630 2019-03-29 Neutral 2,700 2,440 1,590 2019-01-25 Buy 5,000 2,700 1,090 Source: RHB, Bloomberg 590 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 38

Indonesia Company Update

17 April 2020 Financial Services | Banks

Bank CIMB Niaga (BNGA IJ) Neutral (from Buy)

Vulnerable To Worsening Asset Quality; NEUTRAL Target Price (Return): IDR710 (+1%) Price: IDR700 Market Cap: USD1,130m Avg Daily Turnover (IDR/USD) 2,565m/0.17m

 Downgrade to NEUTRAL from Buy, new IDR710 TP from IDR1,240, 1% Analyst upside. This on potentially lower loan growth from decelerating economic growth and possibly worsening asset quality. Bank CIMB Niaga’s Indonesia Research Team commercial and micro, small & medium enterprise (MSME) segments – and +6221 5093 9888 consumer, to an extent – are vulnerable to worsening asset quality, [email protected] especially during tough times currently. Although its share price has fallen 31% YTD to a cheap 0.4x P/BV valuation, downside risks remain, while the limited trading liquidity may not help once the market recovers.

 Tough times for mid-sized banks. BNGA’s loans have been growing by

low single digits since 2015, as it is tough competing with bigger-sized peers. Having to manage asset quality after an NPL spike during 2015’s Share Performance (%) commodities bust has not helped. February’s loan growth stood at 2.7%, YTD 1m 3m 6m 12m (January: +3.3%), and will continue to decline in March, in our view. Taking Absolute (27.5) 5.3 (25.9) (29.7) (34.0) into account the slowing economic growth, we revise 2020F loan growth to Relative (0.9) 6.7 0.5 (4.7) (5.4) 2.3% from 6.5%, with a potential recovery in 2021. 52-wk Price low/high (IDR) 550 – 1,165  Risks of margin compression, despite repricing in FY19. We believe

NIM might see a 10-20bps compression in FY20. This is despite BNGA’s Bank CIMB Niaga (BNGA IJ) rather outstanding margin expansion in FY19, which came from repricing Price Close Relative to Jakarta Composite Index (RHS) loans. This is in line with the lower Bank Indonesia 7-day reverse repo rate 1,280 116 after cuts totalling 175bps since last year, which should lower loan yields. 1,180 112 1,080 107

 Vulnerable to worsening asset quality. In our view, BNGA may be 980 103

vulnerable to upticks in NPLs and special mention loans, especially in its 880 99

commercial and MSME segments – and consumer loans, to some extent. 780 94

Starting in 2015 during the commodities bust, the commercial wing’s NPL 680 90

surged to a 9% high in 2018, also driven by the uptick in NPLs from the 580 85

restaurants & hotels segment in 2017. With said sectors potentially taking 480 81

a hit in the current pandemic, the bank may struggle with worsening asset

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jan-20 Jan-20 Jun-19 Jun-19

Mar-20 Feb-20 Mar-20

Aug-19 Nov-19 Dec-19 Aug-19 Sep-19 Nov-19 Dec-19 May-19 quality in FY20, despite improvements in FY19. May-19 Source: Bloomberg  We lower FY20F-21F earnings by 17% and 14% on a drop in estimated loans and lower yields, which should drive NII estimates down by 4% and 7% during this period. This is coupled with FY20 credit costs being trimmed by 9%, to reflect the higher asset quality risks.

 Undemanding valuation, but risks remain. We believe that there are still downside risks to BNGA’s share price, especially from asset quality. Our new TP implies 0.44x FY20F P/BV from our GGM valuation, after factoring in a higher risk premium. Its limited trading liquidity will not help when the

market recovers, in our view.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 3,482 3,645 3,197 3,824 4,121 Net profit growth (%) 16.9 4.7 (12.3) 19.6 7.8 Recurring net profit (IDRb) 3,482 3,645 3,197 3,824 4,121 Recurring EPS (IDR) 139.15 146.19 128.22 153.37 165.26 BVPS (IDR) 1,587.29 1,735.78 1,597.74 1,699.57 1,803.22 DPS (IDR) 23.88 27.93 58.48 51.29 61.35 Recurring P/E (x) 5.03 4.79 5.46 4.56 4.24 P/B (x) 0.44 0.40 0.44 0.41 0.39 Dividend Yield (%) 3.4 4.0 8.4 7.3 8.8 Return on average assetsequity (%)(%) 1.3 9.1 1.3 8.8 1.2 7.7 1.3 9.3 1.4 9.4

Source: Company data, RHB

See important disclosures at the end of this report 39

Bank CIMB Niaga Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 139.15 146.19 128.22 153.37 165.26 Financial Services Recurring EPS 139.15 146.19 128.22 153.37 165.26 Bank CIMB Niaga DPS 23.88 27.93 58.48 51.29 61.35 BNGA IJ BVPS 1,587.29 1,735.78 1,597.74 1,699.57 1,803.22 Neutral Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 5.03 4.79 5.46 4.56 4.24 P/BV backed by GGM. Assumptions include: P/B (x) 0.4 0.4 0.4 0.4 0.4 i. COE of 14.7%; Dividend Yield (%) 3.4 4.0 8.4 7.3 8.8 ii. ROE of 9.0%; iii. 4.5% long-term growth. Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Interest income 20,293 21,689 22,142 23,090 24,074 Key drivers Interest expense (8,282) (9,121) (9,316) (9,484) (9,825) i. Improved loan outlook from retail & wholesale Net interest income 12,012 12,568 12,826 13,606 14,249 segments; Non interest income 3,816 4,257 4,588 4,953 4,953 ii. Higher NIM trend; Total operating income 15,828 16,825 17,414 18,559 19,203 iii. Improving asset quality. Overheads (8,004) (8,634) (9,118) (9,634) (9,634)

Pre-provision operating profit 7,824 8,190 8,296 8,926 9,569 Key risks Loan impairment allow ances (3,030) (3,257) (3,881) (3,643) (3,874) i. Lower-than-expected loan growth; Other exceptional items 56 20 22 24 24 ii. Deteriorating asset quality; Pre-tax profit 4,851 4,954 4,437 5,307 5,719 iii. Higher-than-expected cost of funds (CoF). Taxation (1,368) (1,311) (1,242) (1,486) (1,601) Minority interests (0) 2 2 3 3

Reported net profit 3,482 3,645 3,197 3,824 4,121 Company Profile Recurring net profit 3,482 3,645 3,197 3,824 4,121 Bank CIMB Niaga is majority-owned by CIMB Group (91.5%). Its loan book largely comprises corporate and Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F consumer loans. The bank is ramping up the development of its digital channels to improve Return on average assets (%) 1.3 1.3 1.2 1.3 1.4 efficiency. Return on average equity (%) 9.1 8.8 7.7 9.3 9.4 Return on IEAs (%) 8.1 8.7 8.6 8.6 8.5 Cost of funds (%) 3.8 4.2 4.2 4.0 4.0 Net interest spread (%) 4.3 4.5 4.4 4.6 4.5 Net interest margin (%) 4.8 5.0 5.0 5.1 5.1 Non-interest income / total income (%) 24.1 25.3 26.3 26.7 25.8 Cost to income ratio (%) 50.6 51.3 52.4 51.9 50.2 Credit cost (bps) 165 173 199 178 178

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 186,263 190,983 198,502 210,982 224,246 Other interest earning assets 60,283 63,630 63,316 64,029 64,467 Total gross IEAs 246,546 254,613 261,818 275,011 288,713 Total provisions (6,154) (6,127) (10,831) (15,346) (20,150) Net loans to customers 180,311 184,998 187,831 195,816 204,298 Total net IEAs 240,391 248,486 250,987 259,665 268,562 Total non-IEAs 26,390 25,981 29,736 34,036 38,962 Total assets 266,781 274,467 280,723 293,702 307,524 Customer deposits 190,750 195,600 206,008 217,143 229,063 Other interest-bearing liabilities 24,078 23,807 23,330 22,864 22,407 Total IBLs 214,828 219,407 229,338 240,007 251,469 Total non-IBLs 12,373 11,766 11,531 11,300 11,074 Total liabilities 227,201 231,173 240,869 251,307 262,543 Share capital 8,646 8,646 8,646 8,646 8,646 Shareholders' equity 39,580 43,279 39,837 42,376 44,960 Minority interests 1 15 17 18 20

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported NPLs / gross cust loans (%) 3.1 2.8 2.8 2.7 2.5 CET-1 ratio (%) 18.4 18.0 17.8 15.7 15.6 Tier-1 ratio (%) 18.4 18.0 17.8 15.7 15.6 Total capital ratio (%) 19.7 19.2 19.2 17.0 16.9

Source: Company data, RHB

See important disclosures at the end of this report 40

Bank CIMB Niaga Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: BNGA’s monthly loans balance Figure 2: BNGA’s monthly deposits balance

(IDRbn) (IDRbn) 200,000 8% 200,000 14% 195,000 7% 198,000 12% 190,000 196,000 6% 10% 185,000 194,000 8% 180,000 5% 192,000 6% 175,000 4% 190,000 4% 170,000 3% 188,000 165,000 2% 2% 186,000 160,000 184,000 0% 1% 155,000 182,000 -2%

150,000 0% 180,000 -4%

1M18 2M18 3M18 6M18 7M18 3M19 4M19 7M19 8M19 1M20 4M18 5M18 8M18 9M18 1M19 2M19 5M19 6M19 9M19 2M20

1M18 2M18 3M18 6M18 7M18 3M19 4M19 7M19 8M19 1M20 4M18 5M18 8M18 9M18 1M19 2M19 5M19 6M19 9M19 2M20

10M18 11M18 11M19 12M19 12M18 10M19

10M18 11M18 11M19 12M19 12M18 10M19 Loan (LHS) YoY (RHS) Deposits (LHS) YoY (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: Our vs Street estimates RHB (new) Street RHB/Street 2020E 2021E 2020E 2021E 2020E 2021E NII 12,826 13,606 13,490 14,306 95% 95% Operating income 17,414 18,559 18,355 19,587 95% 95% PPOP 8,296 8,926 8,827 9,700 94% 92% Provision 3,881 3,643 3,696 4,066 105% 90% Net income 3,197 3,824 3,756 4,123 85% 93%

Loans 198,502 210,982 212,815 228,627 93% 92% Loans growth 2.2% 6.3% 8.1% 7.4%

EPS 128 153 149 163 86% 94% EPS growth -12.3% 19.6% 3.7% 9.8%

BVPS 1,598 1,700 1,783 1,927 90% 88% DPS 58 51 29 32 205% 162% ROE 7.7% 9.3% 8.6% 8.8% 90% 106%

Source: RHB

Figure 4: Changes to our estimates RHB (prior) RHB (new) Change (%) 2020E 2021E 2020E 2021E 2020E 2021E NII 13,391 14,572 12,826 13,606 -4% -7% Operating income 17,979 19,526 17,414 18,559 -3% -5% PPOP 8,861 9,892 8,296 8,926 -6% -10% Provision 3,559 3,790 3,881 3,643 9% -4% Net income 3,836 4,413 3,197 3,824 -17% -13%

EPS 154 177 128 153 -17% -13% BVPS 1,630 1,746 1,598 1,700 -2% -3% DPS 58 62 58 51 0% -17% ROE 9.1% 10.5% 7.7% 9.3% -16% -11%

Source: RHB

Figure 5: GGM valuation Cost of equity calculation Sustainable ROE (%) 9.0 Risk free rate (%) 7.3 COE (%) 14.7 Equity premium (%) 5.7 Long-term growth (g%) 4.5 Beta (x) 1.3 Implied P/BV (x) 0.44 COE (CAPM) 14.7 FY20F BVPS (IDR) 1,598 TP (IDR) 708 Rounded 710

Source: Bloomberg, RHB

See important disclosures at the end of this report 41

Bank CIMB Niaga Indonesia Company Update

17 April 2020 Financial Services | Banks

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-02-20 Buy 1,240 870 1,730

Recommendations & Target Price 2020-02-20 Buy 1,240 870

na

1,550 1,550 1,240 1,380 1,380 1,530 1,200 2019-11-01 Buy 1,380 975 2019-07-03 Buy 1,550 1,070 1,330 2019-04-26 Buy 1,550 1,075 1,130 2019-04-23 Buy 1,550 1,100 930 2019-03-01 Buy 1,550 1,195 2019-02-21 Buy 1,550 1,265 730 2019-02-12 Buy 1,550 1,190 530 Source: RHB, Bloomberg 330 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 42

Indonesia Company Update

17 April 2020 Financial Services | Banks Bank Panin (PNBN IJ) Neutral (Maintained)

Cheap Valuation But Unexciting Growth Target Price (Return): IDR830 (+11%) Price: IDR745 Market Cap: USD1,152m Avg Daily Turnover (IDR/USD) 4,207m/0.29m

 Keep NEUTRAL, new IDR830 TP from IDR1,400, 11% upside. Given Analyst risks of lower economic growth arising from COVID-19, which will dent FY20’s loan growth outlook, we adjust our estimates for Bank Panin. We Indonesia Research Team cut loan growth estimates, and increase credit cost to reflect the rise in +6221 5093 9888 special mention loans (SML) and NPLs. While it is trading at a low P/BV of [email protected] 0.42x, near 1998’s 0.47x, there are no specific near-term catalysts that would drive a share price recovery.  Slowing loan growth is imminent. Bank Panin closed FY19 with flattish loan growth (-0.4%) as loan demand dried up, especially for small/mid-sized

banks (compared to BUKU IV peers). Based on our last discussion, management is also maintaining liquidity at the current level (LDR: 115%), Share Performance (%) implying no urgency for extra deposits to fund sizeable new loans. Coupled YTD 1m 3m 6m 12m with lower economic growth, we believe the bank will only book low single- Absolute (44.2) (13.9) (39.2) (41.1) (41.3) digit loan growth for FY20, with a potential recovery in FY21 (FY20F: 2.5% Relative (17.6) (12.5) (12.8) (16.1) (12.7) YoY; FY21F: 5.7% YoY). 52-wk Price low/high (IDR) 645 – 1,500  Margin compression to persist. We lowered our loan yield assumption by

20bps, following a total cut of 150bps in Bank Indonesia’s 7-day reverse Bank Panin (PNBN IJ) repo rate. We believe that the bank’s cost of funds peaked in FY19, and Price Close Relative to Jakarta Composite Index (RHS) have started to come down. NIM will still likely be pressured by lower yields, 1,550 125 1,450 121

so we estimate this to contract by 20bps. 1,350 116

1,250 112

 Higher risks in asset quality. As Bank Panin’s SME and commercial 1,150 107 segment is vulnerable to worsening asset quality in difficult times like this, 1,050 103 we expect to see an uptick in NPL and SML. Given its lower cost of credit 950 98 (CoC) charged in FY19, at 1% vs 1.8% and 1.3% in FY18 and FY17, we 850 94 expect CoC to surge again in FY20. As such, we increase our CoC 750 89 650 85

assumption to 1.4%. 550 80

Jul-19 Jul-19

Apr-19 Oct-19 Oct-19 Apr-20

Jan-20 Jan-20 Jun-19 Jun-19

Mar-20 Feb-20 Mar-20

Aug-19 Nov-19 Dec-19 Aug-19 Sep-19 Nov-19 Dec-19 May-19  Lower earnings assumptions by 22% and 12% in FY20-21F. We reduce May-19 our loan growth forecast to 2.5% in FY20, resulting in a lower NII estimate Source: Bloomberg by 6%, combined with lower yields. This brings the operating income estimate lower by 14%, and earnings by 22%.  Maintain NEUTRAL, with a lower TP of IDR830 based on 0.5x FY20F P/BV. Although PNBN is trading at a cheap 0.4x P/BV currently, there are no near-term catalysts that would drive share prices up yet. Loan growth should remain in the low single digits, and credit costs will likely increase, therefore lowering earnings. Nevertheless, a catalyst may emerge if Bank Panin’s owners plan to sell the bank – but they are unlikely to start the

process in the current situation.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported net profit (IDRb) 2,963 2,954 4,559 4,846 5,284 Net profit growth (%) 84.7 (0.3) 54.3 6.3 9.1 Recurring net profit (IDRb) 2,828 2,821 4,408 4,697 5,138 Recurring EPS (IDR) 117.39 117.11 183.01 195.01 213.30 BVPS (IDR) 1,567.75 1,715.22 1,817.05 1,935.69 2,083.99 DPS (IDR) na na na na na Recurring P/E (x) 6.35 6.36 4.07 3.82 3.49 P/B (x) 0.48 0.43 0.41 0.38 0.36 Dividend Yield (%) na na na na na Return on average assetsequity (%)(%) 1.4 8.2 1.4 7.5 10.7 2.1 10.7 2.1 10.9 2.2

Source: Company data, RHB

See important disclosures at the end of this report 43

Bank Panin Indonesia Company Update

17 April 2020 Financial Services | Banks

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia EPS 123.03 122.63 189.27 201.18 219.39 Financial Services Recurring EPS 117.39 117.11 183.01 195.01 213.30 Bank Pan Indonesia BVPS 1,567.75 1,715.22 1,817.05 1,935.69 2,083.99

PNBN IJ Neutral Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Recurring P/E (x) 6.35 6.36 4.07 3.82 3.49 Valuation basis P/B (x) 0.5 0.4 0.4 0.4 0.4 P/BV backed by GGM. Assumptions include: Dividend Yield (%) na na na na na i. COE of 12.8%;

ii. ROE of 8.0%; Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F iii. 3.5% long-term growth. Interest income 16,726 17,265 17,079 17,599 18,471 Interest expense (8,248) (8,756) (8,735) (8,756) (8,932) Key drivers Net interest income 8,478 8,509 8,344 8,844 9,539 i. Better loan outlook from retail & wholesale Non interest income 2,744 2,008 2,111 2,237 2,384 segments; Total operating income 11,223 10,518 10,455 11,081 11,924 ii. Improving liquidity; Overheads (5,048) (4,866) (4,994) (5,128) (5,269) iii. Improving asset quality. Pre-provision operating profit 6,174 5,652 5,461 5,953 6,654 Loan impairment allow ances (1,136) (790) - - - Key risks Other impairment allow ances (813) (809) - - - i. Deteriorating asset quality; Other exceptional items 198 179 181 182 184 ii. Higher-than-expected cost of fund (CoF); Pre-tax profit 4,424 4,233 5,642 6,135 6,838 iii. Worsening liquidity Taxation (1,386) (1,097) (941) (1,139) (1,392) Minority interests (75) (181) (142) (150) (162)

Reported net profit 2,963 2,954 4,559 4,846 5,284 Company Profile Recurring net profit 2,828 2,821 4,408 4,697 5,138 Bank Panin is majority-owned by Panin Financial (46%) and ANZ (39%). The latter has expressed its plan to divest its stake in Panin, and is currently seeking Profitability ratios Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F approval from regulators. Return on average assets (%) 1.4 1.4 2.1 2.1 2.2 Return on average equity (%) 8.2 7.5 10.7 10.7 10.9 Return on IEAs (%) 8.5 8.9 8.5 8.4 8.4 Cost of funds (%) 5.0 5.4 5.3 5.1 5.0 Net interest spread (%) 3.5 3.4 3.2 3.3 3.5 Net interest margin (%) 4.3 4.4 4.2 4.2 4.4 Non-interest income / total income (%) 24.5 19.1 20.2 20.2 20.0 Cost to income ratio (%) 45.0 46.3 47.8 46.3 44.2 Credit cost (bps) 83.1 56.0 0.0 0.0 0.0

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total gross loans 141,232 140,683 144,206 152,357 161,358 Other interest earning assets 52,726 55,152 59,839 61,264 63,346 Total gross IEAs 193,959 195,834 204,045 213,621 224,704 Total provisions (4,134) (4,222) (3,896) (3,976) (4,224) Net loans to customers 137,098 136,461 140,311 148,380 157,134 Total net IEAs 189,824 191,612 200,150 209,644 220,480 Total non-IEAs 17,380 19,675 21,643 23,807 26,188 Total assets 207,204 211,287 221,792 233,451 246,667 Customer deposits 137,694 131,403 134,567 137,818 141,159 Other interest-bearing liabilities 22,624 29,700 33,580 37,985 42,987 Total IBLs 160,318 161,103 168,147 175,803 184,146 Total non-IBLs 6,139 5,743 6,605 7,595 8,735 Total liabilities 166,457 166,846 174,751 183,398 192,880 Share capital 5,853 5,853 5,853 5,853 5,853 Shareholders' equity 37,763 41,316 43,768 46,626 50,199 Minority interests 3,001 3,067 3,221 3,382 3,551

Asset quality and capital Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Reported NPLs / gross cust loans (%) 2.8 2.9 3.1 2.9 2.8 CET-1 ratio (%) 20.1 21.3 20.5 19.4 19 Tier-1 ratio (%) 20.1 21.3 20.5 19.4 19 Total capital ratio (%) 23.3 24.5 23.6 22.4 21.8

Source: Company data, RHB

See important disclosures at the end of this report 44

Bank Panin Indonesia Company Update

17 April 2020 Financial Services | Banks

Figure 1: PNBN’s monthly loans balance Figure 2: PNBN’s monthly deposits balance

(IDRbn) (IDRbn) 140,000 12% 145,000 4% 138,000 10% 140,000 136,000 2% 8% 135,000 134,000 130,000 0% 132,000 6% 125,000 130,000 4% -2% 120,000 128,000 2% 126,000 115,000 -4% 0% 124,000 110,000 -6% 122,000 -2% 105,000

120,000 -4% 100,000 -8%

1M18 2M18 3M18 6M18 7M18 3M19 4M19 7M19 8M19 1M20 4M18 5M18 8M18 9M18 1M19 2M19 5M19 6M19 9M19 2M20

1M18

2M18

3M18

4M18

5M18

6M18

7M18

8M18

9M18

1M19

2M19

3M19

4M19

5M19

6M19

7M19

8M19

9M19

1M20

2M20

10M18 11M18 11M19 12M19 12M18 10M19

10M18

11M18

12M18

10M19

11M19 12M19 Loan (LHS) YoY (RHS) Deposits (LHS) YoY (RHS)

Source: Company data, RHB Source: Company data, RHB

Figure 3: Our vs Street estimates RHB Street RHB vs Street 2020E 2021E 2020E 2021E 2020E 2021E Net Interest Income 8,344 8,844 9,608 10,280 87% 86% Operating Income 10,455 11,081 11,889 12,729 88% 87% Net Income 2,687 3,229 3,312 3,593 81% 90%

Loans 144,206 152,357 165,489 182,038 87% 84% Loans Growth 2.5% 5.7% 7.5% 10.0%

EPS 112 134 139 149 80% 90% EPS Growth -19.0% 20.2% 6.2% 6.9%

BVPS 1,819 1,938 1,822 1,971 100% 98% DPS 0 0 0 0 N/A N/A ROE 6.3% 7.1% 8.3% 8.7% 76% 82%

Source: RHB

Figure 4: Changes to our estimates RHB (Prior) RHB (New) Change (%) 2020E 2021E 2020E 2021E 2020E 2021E Net Interest Income 8,856 9,207 8,344 8,844 -6% -4% Operating Income 12,095 12,725 10,455 11,081 -14% -13% PPOP 6,774 7,256 5,461 5,953 -19% -18% Provision 2,165 2,301 2,156 1,918 0% -17% Net Income 3,431 3,680 2,687 3,229 -22% -12%

Loans 154,218 161,808 144,206 152,357 -6% -6% Loans Growth 4.4% 4.9% 2.5% 5.7%

EPS 142 153 112 134 -22% -12% EPS Growth 7.8% 7.2% -19.0% 20.2%

BVPS 1,851 1,988 1,819 1,938 -2% -3% DPS 0 0 0 0 N/A N/A ROE 8.0% 8.0% 6.3% 7.1% -21% -10%

Source: RHB

Figure 5: GGM valuation Cost of equity calculation Sustainable ROE (%) 8.0 Risk free rate (%) 7.3 COE (%) 12.8 Equity premium (%) 5.7 Long-term growth (%) 3.5 Beta (x) 1.05 Implied P/BV (x) 0.46 COE (CAPM) 12.8 FY20F BVPS (IDR) 1,819 TP (IDR) 832 Rounded 830

Source: RHB

See important disclosures at the end of this report 45

Bank Panin Indonesia Company Update

17 April 2020 Financial Services | Banks

Recommendation Chart

Date Recommendation Target Price Price Price Close 2019-10-28 Neutral 1,400 1,275 1,870

Recommendations & Target Price 2019-07-30 Buy 1,725 1,435

na

725 725

2,000 2,000 1,400 1,400 1,670 1,725 2019-07-05 Buy 1,725 1,280 2019-04-29 Buy 2,000 1,305 1,470 2019-04-23 Buy 2,000 1,300 1,270 2019-03-13 Buy 2,000 1,525 2019-02-21 Sell 725 1,580 1,070 870 Source: RHB, Bloomberg

670

470 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Feb-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 46

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Analyst Company - -

(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

KUALA LUMPUR JAKARTA RHB Investment Bank Bhd PT RHB Sekuritas Indonesia Level 3A, Tower One, RHB Centre Revenue Tower, 11th Floor, District 8 Jalan Tun Razak - SCBD Kuala Lumpur 50400 Jl. Jendral Sudirman Kav 52-53 Malaysia Jakarta 12190 Tel : +603 9280 8888 Indonesia Fax : +603 9200 2216 Tel : +6221 509 39 888 Fax : +6221 509 39 777

HONG KONG BANGKOK RHB Securities Hong Kong Ltd. RHB Securities (Thailand) PCL 12th Floor, World-Wide House 10th Floor, Sathorn Square Office 19 Des Voeux Road Tower Central 98, North Sathorn Road, Silom Hong Kong Bangrak, Bangkok 10500 Tel : +852 2525 1118 Thailand Fax : +852 2810 0908 Tel: +66 2088 9999 Fax :+66 2088 9799

SINGAPORE RHB Securities Singapore Pte Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +65 6533 1818 Fax : +65 6532 6211

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