Bank Neo Commerce (BBYB.IJ Rp 232; BUY TP Rp 600) Turning into net loss in 2Q24 on loans and NIM contraction (inline 1H24); maintain FY24F net losses

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Bank Neo Commerce (BBYB IJ)

Turning into net loss in 2Q24 on loans and NIM contraction (inline 1H24); maintain FY24F net losses

BBYB reported a slight net loss of Rp20bn in 2Q24 (vs. slight net profit in 1Q24) from lower NII, partly offset by lower opex and provisions.
As expected in our prev. notes, NIM and loan disbursement still declined qoq in 2Q24; 1H24 net loss was still in line with our FY24F est.
Maintain Buy rating with an unchanged TP of Rp600, supported by a low LDR and sufficient coverage to drive loan and earnings growth.

2Q24: turning back to net loss due to lower loans and NIM

BBYB's 2Q24 net profit turned into a slight negative of Rp20bn in 2Q24, in line with our expectations. The 2Q24 losses wiped out its 1Q24 net profit, resulting in a slight loss of Rp6bn for 1H24, albeit still above our and consensus FY24 forecasts. The reversal from the 1Q24 net profit was due to a lower NII (-14% qoq) as the bank reported a 4% qoq decrease in loans and an approximately 300bps drop in NIM, both attributed, in our view, to the lower contribution from loan channeling to Akulaku Finance.

Lower NIM caused by lower LDR and EA yield

BBYB continued to report opex efficiencies at -13% qoq (-29% yoy) and lower provisions (-7% qoq, -6% yoy). However, this was insufficient to offset the declining NII. Supported by high CoC in recent quarters, BBYB managed to maintain its NPL at 3.9% in 2Q24 and improved its LaR to 13.8% (-352bps qoq, -81bps yoy), with decent NPL coverage of 139% and LaR coverage of 39%. Despite the lower provisions, CoC remained high at 26.6% in 2Q24, due to the lower loan balance. LDR dropped to 61% in 1H24 from 66% in 1H23 and 65% in 1Q24, as the bank's loans were still contracting. Meanwhile, customer deposits rose by 3% qoq to Rp14.8tr (-3% yoy), providing the bank with ample liquidity to support its 2H24 earnings.

We maintain our FY24 estimates of negative earnings

Despite expecting higher contributions from the commercial loans in 2H24, which the management expects to support the loan growth target of 20% (vs -11% in 1H24), we have yet to consider it as a game changer, as it will come with a much lower yield (c. 7.5%) than digital loans (c. 33% in 1H24). However, we also note that the commercial loans will drive the bank’s CoC lower.

Maintain Buy rating on loan growth expansion potentials

We maintain our valuation, which uses a 3-stage DDM, unchanged and retain our Buy rating with a TP of Rp600 (unchanged). We believe the low LDR and resilient customer deposits should support the loan growth expansion (2H24). The risks to our view are higher-than-expected NPL and lower loan balances.

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