Robust coverage reflects prudent measures

2Q23 results came in line with our forecast and cons. BBCA posted a net profit of IDR 12.7tn in 2Q23 (+9.8% QoQ and +26.8% YoY) which brought 6M23 results to IDR 24.2tn, (+34.0% YoY), in line with our estimates (SSI: 52.9% of our full-year forecast) and consensus (cons: 50.9%). The company’s robust performance was primarily supported by a lower CoC (0.1% in 2Q23 alone) than its guidance for FY23 (0.5-0.6%). In addition, BBCA also managed to cut its provision expense to IDR 422bn in 2Q23 (1Q23: IDR 1.5tn, 2Q22: IDR 909bn), as the company was able to reduce its LAR further to 8.7% in 2Q23 (1Q23: 9.5%) and increase its LAR coverage ratio to 61.6% as of Jun-23. Its NII also improved to IDR 18.5tn (+0.2% QoQ, +21.5% YoY) in 2Q23, on the back of robust loan growth (9.0% as of Jun-23), as well as relatively stable NIM in 2Q23 (5.5%). It is worth highlighting that consumer segment became the main driver for BBCA’s loan growth in 2Q23; the segment reported loan growth of 13.9% YoY, supported by mortgage and vehicle ownership loans (+21% YoY).

BBCA’s view of the macroeconomic and banking industries as a whole. During its analyst meeting, BBCA's management emphasized that they are quite confident that loan growth will increase this year, thanks to improvements in consumer and SME loans. The macroeconomic environment in Indonesia is expected to remain healthy, and the rupiah is expected to stay at its current level through the end of the year. The company believes that BI may begin to cut its 7-day repo rate by next year, which would be a positive catalyst for the banking sector, as banks will begin to reduce their TD rate, while the adjustment in loan yield will be relatively limited, since most banks did not increase their loan yield too aggressively during this year's rate hikes.

2023F guidance. During its analyst meeting, the company maintained its guidance for loan growth in 2023F at 10-12%, supported by consumer and SME segments. The company guided that NIM will improve to 5.5%-5.6% in FY23 vs. previous guidance of 5.3%-5.4%, as the company still has very ample liquidity, and did not increase TD rates as aggressively as other banks. Regarding LAR, the company guided that it would stay at 8-9% in FY23 vs. 10.0% in FY22, and expect its CoC to be lower in FY23 (0.5-0.6%).

Maintain BUY rating and TP of IDR 10,300. We continue to view BBCA favorably, since it has low credit risk and the fact that it is one of the best liability franchises in Asia. However, in our view, the valuation is quite high and is currently trading at premiums to historical valuations (PBV: +1.5 SD). We maintain our BUY rating for BBCA and TP of IDR 10,300/share, implying a 2023F PBV of 5.1x. Downside risks: Worse-than-expected NPL downgrade and lower NIM.