BTPN Syariah (BTPS IJ)

Back to its roots

We reiterate our BUY call on BTPS with an unchanged GGM-derived TP of IDR2,800 (implying 2.3x PBV 2023F) as the 2Q23 results are expected to be the worst quarter this year due to the high CoC. Based on our recent discussions with BTPS, the bank is reimplementing its pre-pandemic business process by requiring its borrowers to attend group meetings while utilizing an attendance rate of 75% as the inflection point for an improvement in assets quality. All in, we expect less CoC pressure hence translate to better attendance rate starting in 3Q23 at the soonest.

Targeting a 75% attendance rate. BTPS emphasized the importance of its borrowers’ attendance rate in the group meetings as the indicator for an improvement in assets quality. Recall that during the pandemic years (2020-22) BTPS allowed its borrowers to not attend group meetings for safety reasons due to physical distancing concerns. With recent endemic status, BTPS requires all borrowers to attend group meetings as peer pressure is key in making them meet their obligations. BTPS set a 75% attendance rate as the indicator for an improvement in assets quality. Yet, the attendance rate is still below 75% with April’s figure standing at 62%, improving slightly to 68% in both May and June. With such a proxy, it is also easier for BTPS’ management to track the progress of its NPF position, expecting less than a year to be back on track.

More players coming into the picture. Due to its attractive yields, the mass-market segment has always been a fruitful business not only for banks, but also fintech names. PNM-BRI and Amaan (a sharia fintech formed by BTPS’ previous BOD) are the two closest competitors for BTPS despite having different approaches. While PNM seeks a national presence and the largest number of borrowers, Amaan utilizes digital platforms with a higher ticket size. BTPS believes the unique customer behavior in this segment and BTPS’ long-standing knowledge remain key in performing well in this segment.

Attractive PBV multiple. BTPS’ share price underperformed as the stock has already declined by 21% YtD, mostly already factoring in the higher CoC and tough recovery outlook. With a soft 2Q23F outlook due to the peak in CoC (>10%), we expect gradual quarterly improvements going forward. Nonetheless, its current PBV multiple at 1.8/1.5x 23/24F should be attractive and provide a decent entry point, in our view, especially with ROAE projected to be above 20% in the next three years. 

BUY: TP of IDR2,800. BUY maintained with an unchanged GGM-derived TP of IDR2,800 (implying 2.3x 2023F) assuming 10.5% CoE, 3% growth and 20% ROAE.