Bank Neo Commerce (BBYB.IJ Rp 260; BUY TP Rp 400)1Q25 earnings Beat: Significant CoC lowering offset the lower PPOP

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Bank Neo Commerce (BBYB IJ)

1Q25 earnings Beat: Significant CoC lowering offset the lower PPOP

BBYB booked net profit of Rp160bn in 1Q25, up by more than tenfold both qoq and yoy, well ahead of our and consensus’ FY25F.
NIM fell to 16.2% but was offset by a sharp drop in CoC to 16.3%, as asset quality improved from a higher portion of commercial loans.
Maintain Buy rating with a lower TP of Rp400, adjusting for the LT lower loan growth from higher portion of commercial loans.

Solid earnings driven by significantly lower CoC

BBYB booked net profit of Rp160bn in 1Q25 (FY24: Rp20bn), soaring more than tenfold both qoq and yoy. This result accounts for 59% of our and 116% of consensus FY25F, well above expectations. The strong bottom line was driven solely by a sharp drop in CoC to 16.3% (-915bps qoq, -979bps yoy), while PPOP remained weak at Rp511bn (-15% qoq, -24% yoy), as loan contraction continued. Loans declined by -4% qoq and -10% yoy, while deposits grew 5% qoq (-5% yoy), pushing LDR down to 62%, indicating ample room for future loan growth.

Declining NIM but better asset quality from commercial loans

NIM fell to 16.2% (-183bps qoq, -254bps yoy) despite a lower CoF of 5.8% (-22bps qoq, -37bps yoy), likely due to declining loan yields amid rising exposure to lower-yielding commercial loans. However, higher portions of commercial loans brought overall asset quality higher, with NPL and LaR ratios improved to 3.2% and 8.2%, respectively (from 3.3% and 12.8% in 4Q24). The write-off ratio also declined to 4.4% from 4.8% in 4Q24. Despite lower provisioning, NPL coverage remained above 200%, while LaR coverage improved to 81% — supported by significantly lower LaR levels.

Revised FY25/26F earnings by 80/110%

Taking into account the positive impact from a higher portion of commercial loans, we expect BBYB to book FY25F net profit of Rp269bn. This is well below the annualized 1Q25 earnings, as we see risks to asset quality in both its consumer and commercial loans, caused by the lingering weak purchasing power in the subsequent quarters.

Maintain Buy with a lower TP of Rp400

We maintain our Buy rating with a lower TP of Rp400, based on our changed LT forecasts, which now incorporate lower LT loan growth, lower NIM, and lower CoC. We believe the low LDR and ample liquidity should support loan growth expansion. The risks to our view are higher-than-expected NPL, leading to higher CoC or continuing loan balance contraction.

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