OCBC has longstanding presence in Singapore and Malaysia and entered the Indonesia market through acquisition of Bank NISP in 2004. It owns 87% of life insurer Great Eastern and has a 15.3% stake in Bank of Ningbo.
We conducted channel check by visiting OCBC's subsidiary OCBC NISP in Indonesia. OCBC NISP has a strong SME franchise, which accounts for 55% of total loans. Contribution from OCBC NISP increased from 3.9% of pre-tax profit in 2008 to 4.4% in 2012 due to compounded average loan growth of 22% and improvement in CIR from 65.3% to 57.1%. Contribution from OCBC NISP further expanded to 5.4% of pre-tax profit in 9M13.
WHAT’S NEW
• Company background. Bank NISP was established at Bandung in 1941. It became a commercial bank in 1967 and was listed in 1994. Bank NISP was conservatively managed and weathered the Asian Financial Crisis without any government support. OCBC first acquired a 22.5% stake in Bank NISP in 2004. OCBC continued to increase its stake and currently owns 85.1% of OCBC NISP. Bank NISP merged with OCBC Indonesia to form OCBC NISP in 2011.
• Specialist in SME lending. OCBC NISP had 336 branches and
731 ATMs as of Sep 13. It specialises in SME loans, which accounts for 55% of total loans. Corporate and consumer loans account for the balance 25% and 20% (predominantly mortgages) of total loans respectively. Management intends to cap corporate loans at 25% of total loans. Corporate business provides access to SMEs in customers’ supply chain.
• Resilient SME franchise. About 60% of OCBC NISP’s SME customers are companies in the food & beverage (F&B) industry, ranging from food processing, distribution to F&B outlets. The general election will have a positive impact on GDP growth and domestic consumption in 2014 with SMEs being the prime beneficiaries. Asset quality is pristine as SME loans are secured with collaterals. OCBC NISP has a low NPL ratio of 0.7% (UOB Indonesia: 1.8%) and low NIM of 4.2% (UOB Indonesia: 6.2%) as its loan portfolio is skewed towards secured loans.
• OCBC NISP has exited the micro loans business, which requires extensive infrastructure in terms of head count for administration and collection.
• Net interest income grew 22.7% yoy to Rp2,305b and accounted for 78.3% of total income. 73% of loans is denominated in rupiah while 27% of loans is denominated in foreign currencies, mainly US dollar. OCBC NISP lends in US dollar only if customers have revenue in US dollar. Non-interest income is derived from loans, trade finance, bancassurance and deposit administration and accounted for 21.7% of total income.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$12.45 is based on 1.71x 2014F P/B, derived from Gordon Growth Model (ROE: 12.0%, required return: 7.8% and growth: 2.0%).
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