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Broadening the Scope

Welcome back to our sales notes, and yes, we're talking about property again in our opening. But before you think, "Property, again?", let's pause and consider - this is the year of property, right? Haha


In my view, the ultimate goal of discussing property is to eventually own one. Amid concerns that the younger generation may struggle to purchase homes, there are several viable options for those eager to secure their own space more swiftly. One such avenue is through home ownership loans, commonly abbreviated as KPR.


When it comes to KPR, the first bank that comes to mind is BTN. Indeed, according to the latest survey by Ahrefs, KPR BTN ranks first as the most searched-for mortgage type by Indonesians, based on Google search volumes from 2021 to Q1 2022. This preference underscores BTN's strong reputation and trustworthiness in the housing finance sector.


Source: Ahrefs, Pinhome


Furthermore, of the total 5.2 mn housing units financed by BTN over its 74-year history, approximately 4.05 mn have been allocated to low-income segment through subsidized mortgage facilities.


BTN is set to attract even more attention from the Indonesian public with its plans to acquire Bank Muamalat. The strategy involves merging Bank Muamalat with their own Islamic banking unit, BTN Syariah, to strengthen and expand their offerings in the Islamic banking sector. Currently, BTN has disclosed that this acquisition move is still in the due diligence phase.


Should the merger proceed, the combined entity is anticipated to maintain its position as the second-largest Islamic bank, with combined assets potentially reaching IDR 112 tn. This would account for approximately 14% of the market share, which, while substantial, remains smaller compared to BRIS, which holds nearly 40% of the market.


Source: Sucor Research


The story doesn't end here; BTN also flexed its financial muscle with an impressive performance in the full year of 2023.


BBTN's financial report for Q4 2023 revealed an extraordinary surge in net income, reaching IDR 1.2 tn, marking a 42% qoq increase and a 54% yoy growth. Do you see the towering chart for December 2023 below? It's truly remarkable!


Source: Sucor Research


This notable increase was primarily driven by higher-than-expected Non-Interest Income (NoII), which soared by 76% yoy, effectively offsetting the higher credit costs.


The surge in BBTN's financial performance was further bolstered by loan growth across all sectors, including an 11% increase in subsidized loans and a 3% rise in non-subsidized loans, along with a sharp 61% yoy increase in corporate loans.


Source: Sucor Research


Loan at Risk (LAR), continued its downward trend, reaching 21.1% in 2023, a decrease of 210 bps from the previous year. Meanwhile, the LAR coverage ratio saw a slight increase, moving to 22.1% from 22.6% in 2022. The slight uptick in LAR coverage indicates a prudent approach to provisioning, ensuring that the bank is well-prepared to absorb potential loan losses.


Source: Sucor Research


Our analyst, Edward, forecasts that BBTN is poised to achieve CAGR of 13% over the next five years, with this growth primarily fueled by robust loan expansion, especially in the non-subsidized sector.


NIM is expected to recover in the coming years, buoyed by high credit demand and robust revenue growth projections for 2024-2025. This anticipated rebound in NIM is indicative of an improving interest income BTN, as the bank capitalizes on the increasing demand for loans.


The strong revenue growth outlook further suggests that BBTN is well-positioned to leverage its diverse loan portfolio and strategic initiatives to enhance profitability.


Furthermore, Edward estimates that the net income for 2024-2025F will experience a year-on-year growth of 12%. This projection underscores a positive outlook for BBTN's profitability, driven by the anticipated recovery in NIM, robust loan growth, particularly in the non-subsidized sector, and efficient operational management.


Source: Sucor Research


Considering the potential impact of BTN's acquisition strategies and its impressive financial performance, we issue a BUY recommendation with a target price of IDR 1,755.

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