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Rounding The Recovery Bend

In the digital age, financial innovation is revolutionizing our shopping habits, with the Buy Now Pay Later (BNPL) scheme soaring in popularity. This model offers the allure of instant purchases with the promise of deferred payment, appealing to consumers craving flexibility and convenience.

However, this rapid expansion has raised concerns about compliance and financial risks, prompting regulatory bodies like OJK to enforce stringent standards. These measures aim to preserve the financial ecosystem's integrity and safeguard consumer rights, ensuring that the BNPL trend grows within a framework of responsibility and transparency.

Do you remember that last October, 23 online lending platforms faced sanctions? One notable name among them was Akulaku. It was revealed that Akulaku's paylater activities were halted due to failing to carry out the supervisory actions requested by OJK.

According to an official release from OJK, Akulaku's online lending service was thereafter prohibited from conducting financing distribution activities under the BNPL scheme, affecting both existing and new borrowers

In addition to the paylater scheme, Akulaku was also barred from distributing financing through channeling schemes or joint financing arrangements.

Yet, Akulaku was not discouraged.. Thanks to the continuous improvements made by AFI (Akulaku Finance Indonesia), OJK eventually lifted the ban on AFI, which is part of BBYB, on the 29th of February. 

The ban was lifted due to significant improvements in loan growth and market sentiment, along with AFI being recognized as one of the lenders in compliance with OJK regulations.

Congrats to AFI! But what about BBYB, Akulaku’s digital bank subsidiaries? Let's delve deeper.

Turns out, we should also extend our congratulations to BBYB for recording positive net profits in its recent reports. In October and November, the company achieved profits of IDR 18 bn and IDR 8 bn, respectively.

Source: Company, Sucor Research

This positive outcome was sparked by a blend of rising NIM and reduced operating costs, despite an uptick in credit expenses.

Source: Company, Sucor Research

Moreover, 2023 witnessed a significant transformation in BBYB's PPOP. PPOP displayed a robust positive trend, peaking in October. This surge reflects the fruitful outcome of the management's strategies focused on cutting operational costs and enhancing efficiency. 

Source: Company, Sucor Research

PPOP is expected to continue its upward trajectory into 2024, where BBYB is anticipated not just to sustain the positive momentum from the previous year but to amplify it further.

Despite recording losses yoy, BBYB's management views this as a positive trend set to persist into 2024. This optimism is backed by strong sales growth, ongoing cost reductions, and the potential for decreased credit expenses as credit quality improves. 

This forward-looking perspective underscores the management's confidence in the strategic direction and resilience of BBYB, painting a promising picture of recovery and growth in the upcoming year.

This optimistic outlook is buoyed by pivotal events from 2023. BBYB received shareholder approval for a rights issue, planning to issue up to 5 bn new shares in August 2023.

By January 2024, BBYB's equity stood at IDR 3.5 tn, satisfying OJK's minimum equity requirement of IDR 3 tn. This rights issue is seen as a strategic move to fuel loan growth and enhance the bank's infrastructure, laying a solid foundation for BBYB's future endeavors. 

Source: Bloomberg

The funds raised from this issuance are earmarked for bolstering the company's expansion efforts. Initially scheduled for December 2023, this plan faced delays, with execution likely in the second or early third quarter of 2024.

Looking ahead, it is expected that BBYB will experience reduced revenue volatility, predicated on the assumption that asset quality will enhance and the company will transition from relying on productive lending consumers to a more diversified asset portfolio. 

With enhanced operational efficiency, the bank is poised to record net profits of IDR 63 bn and IDR 394 bn in 2024 and 2025, respectively.

Our analyst, Edward, acknowledges short-term challenges already factored into BBYB's stock price. Nevertheless, the strong future prospects for asset growth and revenue performance form the foundation of our BUY recommendation, with a target price of IDR 790.

Let's watch BBYB soar to new heights, making it a compelling pick for investors looking for growth amidst the market's ebbs and flows. 


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