Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

We have not written about an Indonesian lender for some time given relative valuations across EM. However, on the back of BJBR’s positive fundamental momentum and relatively attractive valuations versus other Indonesian lenders, we initiate a constructive note. The bank does just pass our theoretical threshold of A FV of 10% and a PBV of &lt;1x. We would attach greater value to Indonesian franchises in theory given elevated Profitability and NIM levels and higher growth potential in conjunction with dynamic Fintech innovations.BI has provided liquidity to the banking system in response to the pandemic and cut its policy rate by a total of 100bp since February 2020 to 4.0%. (Interest Rate in Indonesia averaged 6.84 percent from 2005 until 2020). We expect BI to keep the rate unchanged, provided the economy does not deteriorate further, given a mindful stance on the volatility of the rupiah. Private credit represents only 36.4% of GDP and the banking sector's capital-adequacy ratio remained strong at 22.1% in May 2020.We also see recent corporate activity in the Islamic Banking space as a trigger for improving efficiencies and opportunity moving forward. The proposed merger of 3 state-owned Islamic banking units comes at a time when demand for Shariah-banking is on the rise, especially among the middle class. Despite being home to the largest Muslim population in the world, Indonesia has been arguably trailing behind Malaysia in Shariah-compliant Capital Markets. The size of Indonesia’s Islamic banking business pales into significance vis-à-vis the Persian Gulf, though relatively rapid economic growth in recent years and government initiatives may narrow the gap.PT Bank Pembangunan Dearah Jawa Barat Dan Banten (BJBR) results at Q320 are satisfactory. Our PH Score™ shows that the bank is making moderate headway on Profitability, maintaining elevated NIMs and Interest Spreads, as well as revealing benign trends in Liquidity (LDR and Liquid Asset Ratio), spurred by vibrant deposit expansion, in Provisioning, and in headline Asset Quality. However, Capital Adequacy reveals some erosion. While the top-line shows solid growth, non-interest Income remains subdued. Efficiency could also be a great deal better: maybe increased competition in the sector will act as a catalyst to improve “jaws” and the CIR going forward. The bottom-line was impacted higher by lower Credit Costs, as elsewhere, in part related to lower Problem Loans and much lower Net Charge-offs. Comprehensive Income and Net Profit still showed forceful progression YoY, up 21% and 16%, respectively, YoY. In general, we have a broadly constructive picture though we are mindful of some Balance Sheet risks and look forward to a much better showing on the Efficiency front over the next few quarters.A FV of 10%, a PBV of 0.98x, an Earnings Yield of 14.9%, and a Dividend Yield of 8.5% are certainly not unappealing. A PH Score™ of 7.4 is in the top quartile globally.<div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. </div>

We have not written about an Indonesian lender for some time given relative valuations across EM. However, on the back of BJBR’s positive fundamental momentum and relatively attractive valuations versus other Indonesian lenders, we initiate a constructive note. The bank does just pass our theoretical threshold of A FV of 10% and a PBV of &lt;1x. We would attach greater value to Indonesian franchises in theory given elevated Profitability and NIM levels and higher growth potential in conjunction with dynamic Fintech innovations.BI has provided liquidity to the banking system in response to the pandemic and cut its policy rate by a total of 100bp since February 2020 to 4.0%. (Interest Rate in Indonesia averaged 6.84 percent from 2005 until 2020). We expect BI to keep the rate unchanged, provided the economy does not deteriorate further, given a mindful stance on the volatility of the rupiah. Private credit represents only 36.4% of GDP and the banking sector's capital-adequacy ratio remained strong at 22.1% in May 2020.We also see recent corporate activity in the Islamic Banking space as a trigger for improving efficiencies and opportunity moving forward. The proposed merger of 3 state-owned Islamic banking units comes at a time when demand for Shariah-banking is on the rise, especially among the middle class. Despite being home to the largest Muslim population in the world, Indonesia has been arguably trailing behind Malaysia in Shariah-compliant Capital Markets. The size of Indonesia’s Islamic banking business pales into significance vis-à-vis the Persian Gulf, though relatively rapid economic growth in recent years and government initiatives may narrow the gap.PT Bank Pembangunan Dearah Jawa Barat Dan Banten (BJBR) results at Q320 are satisfactory. Our PH Score™ shows that the bank is making moderate headway on Profitability, maintaining elevated NIMs and Interest Spreads, as well as revealing benign trends in Liquidity (LDR and Liquid Asset Ratio), spurred by vibrant deposit expansion, in Provisioning, and in headline Asset Quality. However, Capital Adequacy reveals some erosion. While the top-line shows solid growth, non-interest Income remains subdued. Efficiency could also be a great deal better: maybe increased competition in the sector will act as a catalyst to improve “jaws” and the CIR going forward. The bottom-line was impacted higher by lower Credit Costs, as elsewhere, in part related to lower Problem Loans and much lower Net Charge-offs. Comprehensive Income and Net Profit still showed forceful progression YoY, up 21% and 16%, respectively, YoY. In general, we have a broadly constructive picture though we are mindful of some Balance Sheet risks and look forward to a much better showing on the Efficiency front over the next few quarters.A FV of 10%, a PBV of 0.98x, an Earnings Yield of 14.9%, and a Dividend Yield of 8.5% are certainly not unappealing. A PH Score™ of 7.4 is in the top quartile globally.The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

BJBR: Positive Fundamental Momentum at a Decent Valuation

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

There are many banks globally that have restricted dividends. This is less apparent in Asia. Even so, we are less concerned with temporary deferment or postponement on dividends, as economies reopen and recover.  Their reinstatement will only be an additional positive delta alongside likely lower credit costs. In Asia, there are many banks where yields are over 9% and where capital levels are high, suggesting dividends can remain in place and where many banks, have not deferred, or postponed dividends. When we remember that dividend restrictions were imposed in the more dire days of shutdown, well before the sharp recovery seen in many economies, it makes it even less likely that these restrictions will remain in place for long. And many banks in Asia, continue to pay dividends as normal.

There are many banks globally that have restricted dividends. This is less apparent in Asia. Even so, we are less concerned with temporary deferment or postponement on dividends, as economies reopen and recover.  Their reinstatement will only be an additional positive delta alongside likely lower credit costs. In Asia, there are many banks where yields are over 9% and where capital levels are high, suggesting dividends can remain in place and where many banks, have not deferred, or postponed dividends. When we remember that dividend restrictions were imposed in the more dire days of shutdown, well before the sharp recovery seen in many economies, it makes it even less likely that these restrictions will remain in place for long. And many banks in Asia, continue to pay dividends as normal.  

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of competition, specialized nature of these banks, an under-penetrated system and excellent demographics. Where recovery metrics are strong across most all regions, banks should seem a meaningful delta in profit, perhaps in 2Q20 or later during 2H20.  One way of considering where the most marginal gains can be made is by looking at where the greatest loss was, where the greatest decline in ROA was.

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of competition, specialized nature of these banks, an under-penetrated system and excellent demographics. Where recovery metrics are strong across most all regions, banks should seem a meaningful delta in profit, perhaps in 2Q20 or later during 2H20.  One way of considering where the most marginal gains can be made is by looking at where the greatest loss was, where the greatest decline in ROA was.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Our cautious outlook and expectation for continued downward consolidation for global equities remains intact. Broad global indexes (MSCI ACWI, ACWI ex-U.S., EAFE, and EM) are all trading within patterns of lower highs and lower lows, leading us to believe the most likely scenario is that this near-term bounce is likely nothing more than a countertrend rally before longer-term downtrends reassert themselves. The one bright spot is EM.  In this report we highlight a number of attractive set-ups within the Financial, Communication, Engineering &amp; Construction, and Transportation Sectors.

Our cautious outlook and expectation for continued downward consolidation for global equities remains intact. Broad global indexes (MSCI ACWI, ACWI ex-U.S., EAFE, and EM) are all trading within patterns of lower highs and lower lows, leading us to believe the most likely scenario is that this near-term bounce is likely nothing more than a countertrend rally before longer-term downtrends reassert themselves. The one bright spot is EM.  In this report we highlight a number of attractive set-ups within the Financial, Communication, Engineering &amp; Construction, and Transportation Sectors.

Global Equity Strategy: Bearish with the Exception of EM.

ASEAN Insight Provider

Jessica Irene

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

INDO Snippets brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market. 
Today on INDO Snippets:
<ul class="">
<li>The regulator's plan to introduce free-float adjustments to the LQ45 and IDX30 index impacts several stocks more than others. Big cap stocks with low free float such as <a href="https://www.smartkarma.com/entities/617" target="_blank" data-smartkarma-citation="entities:617:1">Hm Sampoerna (HMSP IJ)</a> and <a href="https://www.smartkarma.com/entities/231" target="_blank" data-smartkarma-citation="entities:231:1">Unilever Indonesia (UNVR IJ)</a> are disadvantaged while banks that tend to have higher free float are set to gain. The IDX plans to use the new weightings from February 2019.</li>
<li>3Q18 Current Account Deficit (CAD) is came in at 3.37%, bringing 9M18 CAD to 2.86%. Though it is in line with consensus estimates, this is the worst quarterly number in the past four years. The Central Bank (BI) is still confident to maintain this year's CAD at below 3%. </li>
<li>Rupiah had a nice rally in the past 2 weeks, strengthening close to 5% against the USD. This triggers some locals to punt USD. We noticed that several money changers are out of USD last Thursday and Friday. </li>
</ul>

INDO Snippets brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market. 
Today on INDO Snippets:

The regulator's plan to introduce free-float adjustments to the LQ45 and IDX30 index impacts several stocks more than others. Big cap stocks with low free float such as Hm Sampoerna (HMSP IJ) and Unilever Indonesia (UNVR IJ) are disadvantaged while banks that tend to have higher free float are set to gain. The IDX plans to use the new weightings from February 2019.
3Q18 Current Account Deficit (CAD) is came in at 3.37%, bringing 9M18 CAD to 2.86%. Though it is in line with consensus estimates, this is the worst quarterly number in the past four years. The Central Bank (BI) is still confident to maintain this year's CAD at below 3%. 
Rupiah had a nice rally in the past 2 weeks, strengthening close to 5% against the USD. This triggers some locals to punt USD. We noticed that several money changers are out of USD last Thursday and Friday. 


INDO Snippets: LQ45 and IDX30 Rebalancing Impact, 3Q18 CAD, Money Changer Out Of USD

Indonesia

PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk is a commercial bank. The bank offers a wide range of banking products and services.

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Bank BJB (BJBR IJ)

BJBR: Positive Fundamental Momentum at a Decent Valuation

BJBR is cheap by Indonesian bank standards but increasingly attractive versus EM banks given the dynamics of the Indonesian market and its own high...

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Asia Banks – Oversized Dividends

There are many banks globally that have restricted dividends. This is less apparent in Asia. Even so, we are less concerned with temporary...

Daniel Tabbush

BCA – Most ROA to Claw Back

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of...

Daniel Tabbush

Global Equity Strategy: Bearish with the Exception of EM.

Our cautious outlook and expectation for continued downward consolidation for global equities remains intact. Broad global indexes (MSCI ACWI, ACWI...

Vermilion Research

INDO Snippets: LQ45 and IDX30 Rebalancing Impact, 3Q18 CAD, Money Changer Out Of USD

INDO Snippets brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian...

Jessica Irene

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