Bank Jago (ARTO IJ)

1Q25 Earnings: Positive Development from Its Higher-Risk Strategy

• ARTO booked a robust NP of Rp60bn in 1Q25 (+41% qoq, +178% yoy) as less insurance coverage improved the NIM, offsetting the higher CoC.
• CoC spiked to 4.7% in 1Q25 from 3.1% in 4Q24 due to seasonality and will be normalized from Apr25 onwards.
• We tweaked our LT projection to account for higher NIM and higher CoC, resulting in a higher TP of Rp3,400; maintain Buy rating.

Robust NP with higher NIM offsetting the higher CoC

In 1Q25, ARTO reported a record-high quarterly net profit of Rp60bn (+41% qoq, +178% yoy), above our estimate (33%) but below consensus (20%). The strong performance was mainly driven by robust PPOP growth (+48% qoq, +273% yoy), which offset the spike in provision expenses. Furthermore, NII grew significantly (+24% qoq, +71% yoy), supported by robust loan growth. NIM also expanded due to lower coverage for insured loans but at the expense of higher CoC, which rose to 4.7% in 1Q25 from 3.1% in 4Q24, above the bank’s FY25F target. Despite this, management attributed the spike to seasonal factors in 1Q25, noting the normalization in Apr25. LaR also increased due to lower coverage of insured loans as 60–90 DPD loans are now recorded on the bank’s books (previously only >60 DPD).

High loan and deposit growth but remain cautious throughout the FY25

As NIM expanded, operational efficiency also improved, with CIR declining to 56.4%, despite higher operating expenses driven by IT investments to enhance the digital ecosystem. While loan growth remained strong (+14% qoq, +42% yoy), deceleration is anticipated in the second half as the bank adopts a more conservative stance. Deposits rose 14% qoq to Rp21.4tr (+62% yoy), weighing on CoF as the bank prudently manages liquidity amid macroeconomic uncertainty.

Adjusting our number to account for the higher NIM

Management maintains a positive outlook for FY25F, reaffirming its target of 30% yoy loan growth and 4% CoC. We revised our FY25/26F earnings by 67.9/60.3% as we adjusted our NIM up by 111/123bps, partly offset by 40/40bps increase in CoC. 

Maintain Buy with a higher TP of Rp3,400

We also revised our LT projection to account for higher NIM and higher CoC to reflect the higher risk strategy, resulting in a higher TP of Rp3,400 (from Rp2,500 prev.), which is based on a 3-stage DDM, with an LTG assumption of 8.0% and a CoE of 10.0%. We maintain our Buy rating on ARTO on the back of its robust loan growth and asset quality. Risks to our view are higher CoF and higher CoC.

… Read More 20250428 ARTO