Bank Jago (ARTO.IJ Rp 2,570; BUY; TP Rp 3,800) 1H24 earnings miss, but solid asset quality to support 2H24 earnings

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Bank Jago (ARTO IJ)

1H24 earnings miss, but solid asset quality to support 2H24 earnings

ARTO booked a higher 2Q24 NP (+30% qoq), supported by 10% qoq loan growth which offset the lower NIM and higher CoC.
1H24 NP is below our and consensus FY24F at 39/32%, but we expect higher NIM and steady CoC to improve NP in 2H24.
We lowered our LT ROE from 18.1% to 16.7% as we trimmed our NIM, which is partly offset by lower CoC. Maintain BUY with a TP of Rp3,800.

2Q24 NP supported by asset quality offsetting the lower NIM

ARTO reported a 2Q24 net profit of Rp28bn (+23% yoy, +30% qoq), bringing its 1H24 NP to Rp50bn (+23% yoy), which formed 39/32% of our/consensus FY24F NP., i.e., below. The lower provisions (-56% yoy) supported the 1H24 NP growth. Despite the robust CoF, NIM fell 330bps yoy to 7.3% in 1H24, mainly due to the lower loan yield as the bank reduced the sharia portion from its loan book and shifted towards higher quality loans.

Asset quality continues to be the main priority

CoC remained manageable at 1.7% in 2Q24 (1Q24/2Q23: 1.5/4.7%), as Sharia portion of the CoC became negligible and asset quality improved, as shown by the NPL decline to 0.4% in 2Q24 (LaR at 3.3%). Management expects a slight uptick in NPL (but still below 1.0% in FY24) to cater to the higher portion of riskier loans in 2H24.

Strong loan and deposit growth in 2Q24

Loans grew 40% yoy to Rp15.7tr in 1H24 (+10% qoq), higher than the initially expected 30% yoy growth. Management reiterates its aim to focus on quality and is comfortable with slowing loan growth to the 30-35% range in FY24. The loan-to-GTF currently stands at approximately Rp3.1tr (from Rp1.7tr in Dec23), which is 80% of the GTF loan book. Management is willing to increase the cash/BNPL portion to around 60% (from 40% currently) in the future, partly supported by future direct lending. Deposits rose 12% qoq to Rp14.8tr (+47% yoy). Management stated that out of 10mn digital bank customers, around 37% are GOTO users, equivalent to c. 10-12% of total GOTO users.

Maintain Buy with a lower TP of Rp3,800

We trimmed our FY24-25F NP by 3.7-23.9% to factor in the lower NIM and lower CoC, and consequently lowered our TP to Rp3,800 (from Rp4,500 previously). Our TP is still based on our 3-stage DDM, with LTG assumption of 8.0% and CoE of 11.0% but with lower LT ROE to 16.7% (from 18.1%). We maintain our Buy rating, as we believe the bank’s steady improvement and customer loyalty will remain key drivers for the bank’s LT growth. Risks to our view are lower-than-expected loan growth and deteriorating asset quality.

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