Valuation March 2017: Bank Jatim (BJTM.JK)

Download excel file containing the full valuation: BJTM 2017

I was intrigued to analyse Bank Jatim (BJMT.JK) due to recommendation from a lecturer of mine. Apart from the corruption scandal that arise last year, I’m wondering about the valuation of the company itself. As a BUKU3 bank, it has better potential compared to smaller banks, proven by it’s 14-16% ROE. Granted, it’s valuation has been on the low side since IPO in 2012, with PE ratio around 8 and PBV around 1. However, when comparing BJTM with it’s peer, I believe BJTM should have higher valuation due to it’s above average ROE.

Screen Shot 2017-03-09 at 2.27.04 PMFigure 1. Assumption

First, I did modelling on several key assumption such as credit growth, deposit growth, NPL, and interest rate using historical data and future expectation. All the assumption is outlined in figure 1.

Screen Shot 2017-03-09 at 2.27.32 PM

Figure 2. Income Statement Projection

From the assumption made, it translated to the income statement and net income based on recent trend, outlined in figure 2.

Screen Shot 2017-03-09 at 2.27.58 PM

Figure 3. Free Cash Flow to Equity Valuation

In calculating the WACC, I use Indonesian Stock Market return for the last 20 years (10.53%) and derived the risk free rate from 10-year government bond yield. Beta is obtained from Reuters (1.82). Using Free Cash Flow to Equity (FCFE) method, I arrived at fair equity value of Rp 1058/share, implying 15.57x PE 2017 and 2.09x PBV 2017. To improve the accuracy of the fair value, I also use the justified PE and PBV ratio in the same weighting as the DCF method. The Fair Value of Equity is Rp 735/share, implying 1.46x BV17 and 10.8x EPS17.

Screen Shot 2017-03-09 at 2.28.14 PMFigure 4. Ratios

Screen Shot 2017-03-09 at 2.44.34 PMFigure 5. Sensitivity Analysis

BJTM equity value is sensitive to change in interest rate and increase in Non-Performing Loan (NPL), therefore I also did sensitivity analysis to both measures. The probable scenario currently is for BI to increase it’s interest rate by 1% as a countermeasure to increase in US interest rate by Federal Reserve. Meanwhile, domestic economy is currently still on the right improvement track, limiting the increase in NPL to 1% maximum from base prediction. Therefore, the support price for equity value is Rp 538/share, which is similar to BJTM current market price (Rp 550/share, March 9th 2017).

Screen Shot 2017-03-09 at 3.30.38 PMFigure 6. Comparison of Indonesian Bank

“The Fair Value of Equity is Rp 735/share, implying 1.46x BV17 and 10.8x EPS17.” BJTM’s ROE is slightly below average, as shown in figure 6, however it’s PBV and PER is significantly below the average. Comparing BJTM with BJBR, both regional bank in Java, BJTM traded at half the valuation of BJBR although it’s ROE is 75% of BJBR (15.61% vs 19.96%). Therefore, I conclude that it is rational for BJTM to trade at 1.46x PBV and 10.8 PER.

Published by Journeyman

A global macro analyst with over four years experience in the financial market, the author began his career as an equity analyst before transitioning to macro research focusing on Emerging Markets at a well-known independent research firm. He read voraciously, spending most of his free time following The Economist magazine and reading topics on finance and self-improvement. When off duty, he works part-time for Getty Images, taking pictures from all over the globe. To date, he has over 1200 pictures over 35 countries being sold through the company.

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