BTPN, Productive bank, CLSA

BTPN is one of the few banks with a unique value proposition. After its
successful story in the micro segment, the bank is now entering the
“productive poor” segment, which also offers superb margin. This effort
will support the bank’s sustainable growth. We like the bank’s strong
management and strategy serving a very niche market. We reinitiate the
stock with an outperform recommendation.


A successful micro loan story
Headed by Jerry Ng, BTPN has been a success story in the micro segment,
with micro loans contributing 22% to total loans at end 2011 from almost
nothing at end 2008. The bank will continue growing its micro loans, expected
to contribute 28% of total loans at end 2014. As a result of higher
contribution from micro loans, we expect NIM to remain strong at 12-13% for
12-14CL.

NPLs from micro loans to normalise
On the flip side, the bank has experienced increasing impairment expenses
over the past two years as a result of major write-offs during the years. It
usually takes one loan cycle (i.e 2-3 years) for NPLs to normalise. As the
bank entered its fourth year of micro venture this year, we expect NPL to
normalise at 2.7-2.8% over the next three years, bringing total NPL to be
stable at around 0.8%.

Venturing into the productive poor segment
Since 2010, BTPN has started to serve the Productive Poor (PP) segment,
targeting entrepreneurial women (around 20 years old to 60 years old) in
rural areas. The PP program, which started in mid-2010, is conducted under
the Syariah Unit of BTPN and has an average loan size of Rp1-3mn/borrower.
The bank’s exposure to this segment will support its growth in the future.

Reinitiate with outperform recommendation
BTPN’s venture into the productive poor segment is another smart move from
the management. This will help supporting the bank’s future growth, in our
view. We project the bank to deliver the highest EPS growth this year, which
will support higher ROAE, thus justify a higher P/BV multiple for the bank.
Using a 27.5% LT ROAE assumption and 14% cost of equity, we arrive at our
TP of Rp4,000/share for the bank. Reinitiate with outperform
recommendation.

Download file : Indonesia BTPN Final