Bank Tabungan Negara (BBTN IJ)

1Q25 Results: One-off Earnings Remedy from Changes in Accounting Treatment

• BBTN reported a robust 1Q25 net profit of Rp904bn, forming 31% of our and 29% of consensus’ FY25F earnings driven by accounting changes.
• NPL ratio continued to rise to 3.3%, with coverage dropping to 105%, as the non-subsidised mortgage NPL rose to 4.9% in 1Q25.
• Maintain BUY with a higher TP of Rp1,400, reflecting higher ROE due to the accounting changes.

Strong 1Q25 net profit boosted by new accounting treatment

BBTN reported a robust net profit of Rp904bn (+5% yoy) in 1Q25, forming 31%/29% of our/cons estimates (above), while only recording Rp252bn in 2M25. The profit boost was largely driven by a change in accounting standards for tiered mortgage rates, allowing BBTN to recognize higher interest income earlier. According to the management, the bank has ~Rp30tr in such loans, which contribute to ~Rp700bn in interest income in 1Q25 and ~Rp2-3tr for FY25F. NIM improved to 3.6%, supported by the new accounting treatment and slightly reduced cost of deposits (4.05%) due to a lower contribution from large institutional clients and fewer working days.

NPL trending higher but more room for higher CoC

Loan growth of 5% yoy was mainly driven by mortgages and corporate lending but lagged deposit growth (8% yoy), causing LDR to dip to 94%. Asset quality slightly deteriorated with NPL rising to 3.3%, particularly from non-subsidized mortgages (from 3.7% in 4Q24 to 4.9% in 1Q25), though offset somewhat by improved non-housing NPLs. NPL coverage dropped to 105%, but management expects it to climb to 135% by year-end. Furthermore, despite the gain, the change in accounting treatment allowed CoC to increase to 1.1%, still within the management’s FY25 target range of 1.0–1.1%.

Unchanged fundamentals but one-time remedy for earnings

The change in accounting treatment does not affect business operations and cashflow. Nonetheless, earlier recognition of higher interest rate changes will result in higher earnings and hence earnings growth during the year it occurs, because there is no restatement in the previous year and comparable treatment in the following year.

Maintain Buy with a higher TP of Rp1,400

We reiterate our Buy rating while raising the TP to Rp1,400, reflecting our revised forecasts. Our GGM-based valuation now assumes 15.5% CoE (from 15.6% avg. prev.) and a 9.8% FY25F ROE (from 8.7% prev.), translating to FV PBV of 0.5x. Key risks to our call include BBTN’s ability to mitigate CoF pressures to support NIM, and loan quality deterioration.

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