Bank Jago (ARTO IJ) - FY24-25F estimates and TP cut on weaker growth outlook despite the better credit quality in FY23

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Bank Jago (ARTO IJ)

FY24-25F estimates and TP cut on weaker growth outlook despite the better credit quality in FY23

ARTO’s FY23 net profit slightly missed our estimate/the cons. due to higher-than-expected CoF and opex, partly offset by lower provisions.
The bank has a conservative FY24F loans growth target of 30% due to lower contributions from home credit and the slowing P2P industry.
We maintain our Buy rating but cut our FY24/25F NP est. by 57/67% on lower loans growth despite lower CoC, with a new TP of Rp4,500.

FY23 net profit slightly below est. on higher-than-expected CoF and opex

ARTO reported FY23 net profit of Rp72bn with core profit (exc. ESOP cost) of Rp92bn, or slightly below our estimate and the consensus (at 95% and 94% of FY23F, respectively). The lower-than-expected net profit reflects higher-than-expected CoF and opex, though partly offset by lower-than-expected provisions. In 4Q23, ARTO doubled its net profit qoq to Rp22bn (vs. net losses of Rp25bn in 4Q22) driven by the lower provisions (-58% yoy, -39% qoq), offsetting the lower PPOP (-16% yoy, -26% qoq).

Strong NPLs improvement led to lower-than-expected provisions

NPLs declined significantly to 0.8% in 4Q23 from 1.1% in 3Q23, followed by a fall in 4Q23’s CoC to 1.7% from 3.2%. While ARTO conservatively expects NPLs to range between 1.0-1.5% in the long run, the bank also forecasts its CoC to remain at 3% or below in FY24F. NIM declined to 8.2% in 4Q23 (3Q23/4Q22: 9.2%/10.3%) due to a lower portion of high-yield Sharia lending and a higher portion of lower-yield GTF and multi-finance loans.

Strong loans growth in FY23, but a more conservative target for FY24F

Despite the lower Sharia lending (-81% yoy, equal to c. Rp1.8tr), total lending balances grew 38% yoy to Rp13.0tr driven by conventional loans growth of 74% yoy. The management conservatively target loans growth of 30% yoy in FY24F due to the lower contribution from home credit (currently at c. 15%) and slower growth in the P2P market due to the pricing cap. GTF loans doubled qoq, reaching Rp1.7tr in 4Q23 (13% of the total portfolio) with a target of above 20% in FY24F. Loans extended to BFIN contributed c. 6% of loan but no guidance was given on the potential from recent collaboration.

Maintain Buy rating with a lower TP as we revise down LT loans growth

We cut our FY24/25F net profit forecasts by 57/67% to take into account the lower LT growth albeit partly offset by lower CoC. Thus, we arrive at a lower TP of Rp4,500 (down from Rp6,600 previously) based on the 3-stage DDM assuming LTG of 8.0%, CoE of 11.0%, and LT ROE of 18.1%. Risks to our view are lower loans growth, lower NIM, and higher CoC.

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