FOCUS | BFI FINANCE

FOCUS | XXX Company Update | XX XXXXX 2013

FOCUS | BFI Finance Initiating Coverage | 6 September 2017

Accelerating Growth With Rising ROE

Mandiri Sekuritas Analyst

We initiate BFIN with a BUY and TP of Rp700 based on 2.1x average P/BV 2017-18, implying 8.9x PE for 2018. As the 8th largest finance company, BFIN has shown its strong earnings performance with the expected net profit CAGR of 17% in 20162019 and 22% ROE in 2017-19. Further expansion in financing business is feasible given its low gearing ratio, diversified network, and strong management team.

Tjandra Lienandjaja +6221 5296 9617 [email protected] Priscilla Thany +6221 5296 9569 [email protected]

Sector : Multi Finance

BUY Current Price Price Target 52-wk range

Rp550 Rp 700(+27.3%) Rp 290- Rp560

Stock Data Bloomberg Code BFINI IJ Mkt.Cap (Rp bn/US$ mn) 8,782/ 659 Issued Shares (mn) 15,967 Avg. Daily T/O (Rp bn/US$ mn) 14.5/1.5

Major shareholder Trinugraha Capital Public

42.8% 50.9%

EPS consensus 2017F 2018F 2019F

Mansek 67.3 79.0 87.8

Cons 60.2 69.3 78.3

Diff 11.8 14.0 12.1

Share price performance

Absolute (%) Relative to JCI (%)

3m 5.8 3.7

6m 37.5 29.8

12m 83.3 74.9

The 8th largest finance company. BFIN recorded 23% CAGR of managed receivables in 2006-2016 and 15% y-y in 1H17 vs. the industry average of 15% CAGR and 10% y-y over the same period. As a result market share jumped to 3.3% in 2016 from 1.8% in 2006 and it is now the 8th largest finance company in terms of assets and 6th in terms of equity. Diversified portfolio. Concentrating on the low to middle income segment, BFIN offers refinancing for used cars, used motorcycles and property in addition to regular financing on new cars and heavy equipment. Of the managed receivables, non-dealer refinancing accounts for 54% (46% used cars and 8% used motorcycles), dealer based financing 30% (7% new cars and 23% used cars), heavy equipment financing 13%, and property refinancing 3%. Supported by 316 offices, BFIN achieved 13% net profit CAGR during the weak commodity prices in 2012-16. Well managed asset quality. With >30 years of experience, BFIN has been able to manage its asset quality with low nonperforming financing of 1.1% currently. We FINANCIAL SUMMARY YE Dec (Rp bn) Pre-Provision Profit Net Profit EPS EPS Growth (%) P/E Ratio (x) BVPS P/B Ratio (x) Dividend Yield (%) ROAE (%)

2015A 1,066 650 41.0 9.0 13.4 253 2.2 2.5 17.1

expect its NPF will be <1% with 1.8-2.1% pa write offs in the next three years. High margin business. BFIN recorded 1216% NIM over the past five years with 14.0% achieved in 1H17, up from 11.9% in 1H16. This led to one of the highest ROA in the industry of 6-7%. We expect margin to stay around the 13% level in 2017-2019. Plenty of room for assets growth. BFIN is conservatively run with gross gearing ratio of less than 2x, well below the industry limit of 10x. The company has plenty of opportunity to expand its business with the support from lenders. 17% earnings CAGR. Supported by 18% CAGR in new booking, we forecast 17% earnings CAGR for 2016-2019. This translates into 22% ROE for 2017-2019 assuming 50% dividend payout ratio. Fair value at Rp700 - BUY. This is based on 2.1x average P/BV 2017-18. Trading at 1.7x P/BV 2017, it commands a relatively undemanding valuation compared to peer companies in the region. Risks include slower economic growth, rising interest rate, and weaker commodity price. 2016A 1,298 798 53.3 30.2 10.3 284 1.9 1.3 19.3

2017F 1,543 1,007 67.3 26.1 8.2 325 1.7 4.9 22.1

2018F 1,796 1,182 79.0 17.4 7.0 370 1.5 6.1 22.7

2019F 1,981 1,313 87.8 11.1 6.3 419 1.3 7.2 22.2

Source: Company (2015-2016), Mandiri Sekuritas (2017-2019)

Please see important disclosure at the back of this report

Page 1 of 33


BFIN - At a Glance FIGURE 2. MANAGED PORTFOLIO BY TYPE AND ORIGIN

Non Dealer Used 4W Dealer Used 4W Leasing - HETO New financing growth (RHS)

20.0 6,000

-

3,000

-20.0

-

2007

Non Dealer Used 2W Dealer New 4W Others/property

Non Dealer Used 4W Dealer Used 4W Leasing - HETO Managed receivables growth (RHS)

Source: Company, Mandiri Sekuritas


FIGURE 3. MANAGED RECEIVABLES BREAKDOWN – 2016

FIGURE 4. NPF LEVEL

Dealer New 4W, 7%

Others/property, 3%

1H17

-40.0

1H17

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

-

40.0

9,000

Non Dealer Used 2W Dealer New 4W Others/property

(Rpbn) 250

Leasing HETO, 13%

(%) 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0%

200

Non Dealer Used 2W, 8%

150

Dealer Used 4W, 23%

100

Non Dealer Used 4W, 46%

50


FIGURE 5. YIELD, COST OF FUNDS, AND NIM

FIGURE 6. TOTAL DEBTS AND GEARING RATIO

25.0%

(Rpbn) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -

Net Interest Margin

Interest Yield

Cost of Funds



Apr-17

1.5 1.0 0.5

Total Debt (LHS)

Jan-17

Aug-16

Mar-16

Oct-15

May-15

Dec-14

Jul-14

Feb-14

Sep-13

Apr-13

Nov-12

0.0

Jan-12

1Q17

3Q16

1Q16

3Q15

1Q15

3Q14

1Q14

3Q13

1Q13

3Q12

1Q12

3Q11

1Q11

0.0%

2.0

Jun-12

5.0%

2.5

Aug-11

10.0%

(x)

Mar-11

15.0%

Dec-16

Apr-16

NPF Level (RHS)


20.0%

Aug-16

Dec-15

Apr-15

NPF amount (LHS)

Aug-15

Dec-14

Apr-14

Aug-14

Dec-13

Apr-13

Aug-13

Dec-12

Aug-12

Apr-12

Dec-11

-

Jun-17

2,000

60.0

2016

4,000

12,000

2015

6,000

80.0

2014

8,000

(%y-y)

2013

10,000

(Rpbn) 15,000

2012

120.0 100.0 80.0 60.0 40.0 20.0 -20.0 -40.0 -60.0

2011

12,000

2010

(%y-y)

2009

(Rpbn)

2008

FIGURE 1. NEW BOOKING BY TYPE AND ORIGIN

Debt/Equity (RHS)


Page 2 of 33


Investment Summary As the top independent finance company, BFI Finance (BFIN)’s experience of over 30 years enables it to expand market share with strong asset quality. Concentrating more on used car refinancing, we expect 17% CAGR earnings growth in 2016-2019 with ROE is forecast at 22%. The eight largest independent finance company. BFIN is the 8th largest finance company in terms of assets and 6th largest in terms of equity in Indonesia with the estimated market share in the financing industry of 3.3%. It has more than 30 years of experience with a stable management team. BFIN is 43% controlled by Trinugraha Capital (a consortium of TPG Capital, Northstar Equity Partner, and Garibaldi Thohir), which entered the company in 2011, 3.7% owned by the management and BoC, while 6.3% are treasury stocks. BFIN is one of the few companies in Indonesia which is no longer controlled by family and without any affiliation with a bank or big corporation/auto dealership. The debt to equity swap after the Asian crisis helped achieve the wide range of shareholders. Indonesia has low financial inclusion with rising consuming class. According to the World Bank study there are only 36% of Indonesian population has accounts in the financial institutions in 2014. Meanwhile the middle income is rising and there will be 90m new entrants of the consuming class by 2030 (consuming class, according to McKinsey spend USD6/day). Many of the untapped population and the rising middle income are potential customers for finance company, which offers faster service and simpler procedure for financing. High margin business with diversified financing portfolio. Concentrating on low to middle income segments, mainly by providing working capital through refinancing of fixed assets (used cars, used motorcycles, and property), BFIN commands a high margin business. Based on the origin of business, BFIN relies more on non-dealer (direct) used car refinancing, for which it has built an extensive customer base portfolio. This brings in higher asset yield compared to new car financing, which it has been reducing its exposure to. Non-dealer used car and used motorcycle refinancing account for 54% of total managed receivables, dealer new financing and used car refinancing 30%, heavy equipment leasing 13%, and property refinancing 3% currently. Net interest margin is forecast at 13.3-13.4% in 2017-18 after recording 12.4% in 2016 and 14.0% in 1H17. Extensive network, difficult to replicate. BFIN has built strong presence around Indonesia with more than 300 offices, the second largest in the industry. BFIN is supported by strong sales force and agencies with its loyal customer leads to 40% repeat order. Such an extensive network, coupled with in depth understanding of the customers and strong loan processing is difficult for competitor to replicate. Its network is 52% in Java & Bali, 19% in Sumatra, 10% in Kalimantan, and 19% in Sulawesi and other parts of the country as of June 2017. Of the total managed portfolio, Java & Bali accounted for 54%, Sumatra 19%, Kalimantan 11%, and Sulawesi & other parts 16%. These diversified network locations help the business during the downturn of commodity prices. Managed asset quality. The long experience in financing business, coupled with investment in information technology, helps to keep BFIN’s asset quality in check. NonPerforming Financing (NPF) level has been kept low at 1.1% currently with coverage ratio of >100%. We expect write-offs at the rate of 1.8-2.1% of average receivables in 2017-2019 with NPF of <1%. Strong capital base to support financing growth. A finance company is allowed to have up to 10x gearing ratio. This is not the case taken by BFIN, whose gearing ratio has always been lower than 2x since after the Asian crisis, indicating the conservative management. We believe the company can raise financing easily if necessary and thus expect the ratio to increase slightly to 2.2x by 2019. Bank facility remains open now, unlike in the early 2000’s when it was still undergoing debt restructuring process. In


Page 3 of 33


addition, the company has 6.3% treasury stocks, worth Rp536bn currently, equivalent to 11.7% of total shareholders’ equity. Rising GDP to support automotive financing business. While BFIN’s main business is to provide refinancing for used car and motorcycle, the primary automotive sales can be a gauge for the business. Indonesia is still behind other countries in the region in terms of car ownership, which stood at 92 per 1,000 people in 2016 compared to 472 in Malaysia, 230 in Thailand, and 102 in China. With per capita GDP forecast to reach USD4,000 in 2018, we believe car sales growth will remain positive. Higher economic growth and lower down payment requirement for automotive purchase should translate into the expected 5% increase in car sales. This will eventually create used car refinancing business for BFIN. Strong management team. BFIN’s management is mostly held by those promoted from within the company. The CEO, Francis Lay, is the founder of the company in 1982 and of the four other members of Board of Directors, two have been with the company for more than 20 years and two are outsiders. 1H17 performance. After growing at 23% CAGR during 2006-2016 new booking was a strong 30% y-y in 1H17 with gross receivables growth of 27% y-y (vs. industry’s of 10%). Improving margin led to a 54% y-y earnings increase with 7.8% ROA and 23.9% ROE. Expected 17% earnings CAGR in the next three years. Supported by 18% CAGR in new booking, we forecast a 17% CAGR net earnings in 2016-2019. There will be little change in terms of financing breakdown, in which used car refinancing account for 70% of total, new car financing 2%, heavy equipment 13%, motorcycle 13%, and property 2%. Average new financing is forecast at Rp37m per unit in 2017, but this is skewed towards used motorcycle refinancing at Rp7m/unit, while used car is at Rp95m, new car at Rp190m, heavy equipment at Rp540m, and property at Rp260m. Rising ROE to 22%. The expected earnings growth should lead to improving ROE toward 22% in 2017-19 with the assumption that the company keeps 50% dividend payout ratio, as in the past two years. This level is higher than our average banking industry’s ROE of 15-17% for 2017-2018. Undemanding valuation relative to regional players – Buy with TP of Rp700. BFIN is trading at 1.7x P/BV 2017 compared to similar companies in the region at 4.0x. Our fair value calculation, based on Gordon Growth Model, puts the counter at Rp700 based on average P/BV of 2.1x for 2017-18. This translates to 10.4x P/E for 2017 and 8.9x for 2018. FIGURE 7. BFIN‘S ROLLING P/BV CHART

FIGURE 8. P/BV BAND CHART

(Rp)

P/BV (x)

2.5

800 2.0x 700 1.7x

2.0

600 1.4x

500 400

1.0x

300

0.7x

200

0.3x

1.5

+2SD +1SD

1.0

Mean -1SD

0.5

2SD

100

Aug-17

Mar-16

Dec-16

Jul-15

Jan-14

Oct-14

Aug-12

May-13

Dec-11

Jul-10

Apr-11

Oct-09

Feb-09

Sep-07

May-08

Dec-16

Aug-17

Jul-15


Mar-16

Oct-14

Feb-14

May-13

Sep-12

Dec-11

Jul-10

Apr-11

Nov-09

Jun-08

Feb-09

Sep-07

Jan-07

Source: Bloomberg, Mandiri Sekuritas

Dec-06

-

0

Source: Bloomberg, Mandiri Sekuritas

Page 4 of 33


FIGURE 9. VALUATION COMPARISON WITH MULTIFINANCE PEERS Bbg Ticker

Price LCY (Rp)

Mkt. Cap (US$ m)

Net profit (US$m) FY17

EPS Growth FY16 FY17

PER (x) FY16 FY17

P/BV (x) FY16 FY17

ROE (%) FY16 FY17

ROA (%) FY16 FY17

Indonesia ADMF IJ BFIN IJ

6,775

508

—

51.7

—

6.7

—

1.4

—

21.6

—

3.6

—

550

659

75.5

30.2

26.1

10.3

8.2

1.9

1.7

19.3

22.1

6.6

7.2

CFIN IJ

300

90

20.1

(28.3)

52.5

5.8

3.8

0.3

0.3

5.6

6.7

3.1

3.8

MFIN IJ

1,175

117

—

3.8

—

5.6

—

0.8

—

15.0

—

6.3

—

VRNA IJ

97

19

—

167.6

—

15.0

—

0.3

—

2.3

—

0.4

—

WOMF IJ

200

52

—

297.5

—

11.4

—

0.8

—

7.7

—

1.0

—

248

43

—

(47.6)

—

18.2

—

0.9

—

5.1

—

0.8

—

38.8

19.4

9.0

8.5

1.5

1.6

17.9

19.5

4.9

6.9

28.9

22.7

4.0

3.8

HDFA IJ

Indonesia Average Regional ACSM MK

12.4

650

63.9

17.1

—

10.7

10.6

2.8

2.4

MGMA IN

180.3

666

32.3

(90.3)

908.1

209.6

20.7

2.0

1.8

0.9

9.2

0.1

1.4

GL TB

19.1

879

44.2

42.5

21.9

27.4

22.5

3.5

3.2

13.3

8.4

7.6

7.8

8207 HK

1.06

2,995

67.2

190.2

28.4

71.6

55.8

5.4

4.6

8.9

9.8

4.4

4.5

MMFS IN

446.6

3,963

168.2

(33.8)

110.6

49.3

23.4

3.6

3.2

7.6

14.9

1.0

2.0

1,169.6

2,852

131.9

21.4

17.5

25.4

21.6

4.2

3.4

18.0

17.5

2.5

N/A

104.0

784

84.7

(1.8)

13.9

10.8

9.5

1.9

1.7

18.7

17.9

3.4

3.6

THANI TB

5.9

426

32.1

16.1

17.8

16.3

13.8

2.8

2.6

18.4

20.3

2.8

3.1

MTLS TB

33.8

2,158

69.5

76.9

57.4

48.9

31.1

10.7

8.3

23.7

30.5

7.8

8.0

772.4

1,178

49.8

CIFC IN AEONTS TB

CAFL IN

Regional Average

39.7

27.1

30.2

23.8

3.3

2.9

11.9

12.9

1.5

1.7

42.5

86.3

48.9

28.4

4.7

4.0

13.7

16.3

3.4

3.3

Prices as of closing 06 September 2017; Source: Bloomberg, Mandiri Sekuritas estimates


Page 5 of 33


Financial Outlook Commanding 3.3% market share in financing industry, BFIN’s, unlike many other finance companies, provides refinancing facility to small SME owners. This higher-risk-higher-return business coupled with BFIN’s long experience and improving economy should lead to strong growth. We expect net profit to grow at 17% CAGR in 2016-19 and ROE of 22%. Above industry financing growth. BFIN has been growing its managed financing receivables at 23% CAGR in the past ten years to 2016, above the industry average of ca. 14% CAGR. As a result, BFIN has been able to increase its market share in the financing industry to 3.3% currently from 1.8% in 2006. This has been achieved through network expansion, the ability to manage asset quality, expansion into less competitive areas, and financing types which command high yield. We note BFIN achieves this as an independent finance company with no affiliation with a bank, auto dealer or large conglomerate. FIGURE 10. FINANCING INDUSTRY GROWTH VS BFIN

FIGURE 11. BFIN MARKET SHARE IN FINANCING (Rpbn) 450,000

(% yoy) 100

400,000

80

350,000

60

300,000

2.0

200,000

1.5 1.0 0.5

50,000 -

BFIN growth (RHS)

Industry

Source: OJK, BI, Company, Mandiri Sekuritas

BFIN

Jun-17

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

(40)

2006

-

2004

2016

1H17

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

100,000

2003

0

2002

150,000

2001

2.5

250,000

20

Industry growth (LHS)

3.5 3.0

2005

40

(20)

(%)

BFIN Market Share (RHS)

Source: OJK, Company, Mandiri Sekuritas

FIGURE 12. BFIN IS IN THE TOP 10 WITH 3.3% MARKET SHARE

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0%

Asset (% of Market Share)

Clipan

Surya Artha

Bussan

BCA Finance

Indomobil

Summit Oto

MTF

BFIN

Dipo

TAFS

Oto M

ADMF

C. Java Power

FIF

ASDF

0.0%

Financing (% of market share)

Source: Infobank, Company, Mandiri Sekuritas


Page 6 of 33


1H17 marked a new start. BFIN entered 2017 with good results, reporting new booking growth of 30% y-y in 1H17 (+35% y-y in 1Q17) and managed receivables of +15% y-y (+11% y-y in 1Q17). As the company is increasing non-dealer refinancing for used cars (financing to customers who use their cars as collateral) and cost of funds are on the decline, we have seen net interest margin improve and net profit jump 54% y-y in 1H17. How did it achieve this? Here is how BFIN was able to improve its market share in the financing business over the past 10 years: 1. Targeting low to middle income segments. BFIN has been serving these segments, which make up the bulk of the Indonesian economy, - according to the government, 99% of the total amount of operating enterprises or around 60m, creating more than 100m jobs and contributing 60% of the GDP. Many of these business players are informal or semi-formal entities that lack formal relationship with commercial banks and prefer the less formal affiliation with finance companies or friends and family. 2. Providing non-dealer refinancing for used automotive and property. Of the variety of financing offered, BFIN concentrates more on providing used car refinancing. Direct customers pledge their cars, motorcycles, or property as collateral to get working capital financing from BFIN. The company is one of the first to introduce this product to support customer business development. . BFIN's interest yield on this product is much higher than in the new car financing from dealer in which it has to compete with many other finance companies with lower cost of funds. Aside from refinancing business, which makes up 69% of the new bookings in 1H17, BFIN also provides new and used car financing through dealers as well as traditional heavy equipment financing. 3. Opening vast network. In order to achieve wider range of customers, BFIN has been expanding into all parts of Indonesia. BFIN currently has 316 offices, many of them in smaller cities, closer to the end customers. Aside from network, BFIN has strong database system for telemarketing, has strong relationship with auto dealers, and use a vast amount of 4,000 agents to initiate business relations. Diversified office locations help maintain a continuous stream of refinancing business, as outside Java & Bali depend more on commodity prices. 4. Preparing competent human capital and IT system. Having vast network is also followed by preparation on human capital to lead the offices through various types of training. The company opened BFI Learning Centre in 2016 to focus on reorganizing, re-strategizing, and utilizing knowledge management as well as building organization learning infrastructure. In technology, BFIN’s IT infrastructure and application platform are prepared to support the business for the next 5-10 years. 5. Keeping NPF low. Long experience in the market, strong underwriting standard, risk management, and collection division help shape up the good asset quality. BFIN has one of the lowest NPF levels among peers, at 0.9% in 2016 vs. 3.3% industry average, and this enables it to build up its business. The company’s write off policy on cars and motorcycles portfolio is for those accounts already overdue more than 210 days. On heavy equipment, machinery, and property the account is individually analyzed or if it is already due more than 270 days. All of these factors have made BFIN a unique company in the sector with the business model that is hard to be replicated by other finance company. Most of other companies focus more on dealer based financing business, while BFIN uses different approach through non-dealer refinancing activities as their major business activities. This needs specific skills that the company has built for many years. BFIN now has the second largest network in the industry after Adira Finance, with half of the offices are located outside the major cities (Tier 2 and 3 cities).


Page 7 of 33


FIGURE 13.NETWORK DISTRIBUTION COMPARISON BASED ON CITY CATEGORY - 2016 600

523

500 128

400 305 178

58

29 50

25

100

155

82

97

Summit Oto

FIF

Indomobil

BFIN

ADMF

0

Tier 1

64

57

41

19

11 18

48

46

12 16 36

5 12 40

6 11 24

18

56

104

75

CFIN

242

85

Oto M

54 66

Tier 2

33 6 9 18

TAFS

183

BCA Fin.

200

ASDF

202 92

Mandiri T F

153

300

Tier 3

Source: Company, Mandiri Sekuritas estimates

New booking expected to grow 18% CAGR in 2016-2019. After growing more than 20% pa in the past ten years, we expect the new booking growth rate to slow down in the next three years toward 2019. While we forecast new booking growth of 24% in 2017 (it recorded +30% y-y in 1H17), we project growth rate to stabilize in 2018-19 at 14-17% pa given the higher base and more competition in the coming years. FIGURE 15. NEW BOOKING UNIT FINANCED BASED ON TYPE (Unit)

(% Y-Y) 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% 2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2010

500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 2009

2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -

2008

(% Y-Y) 120.0 100.0 80.0 60.0 40.0 20.0 0.0 (20.0) (40.0) (60.0)

2007

(Rp bn)

2006

FIGURE 14. NEW BOOKING BASED ON TYPE

New Four-Wheeler

Used Four-Wheeler

Heavy-Equipment

New Four-Wheeler

Used Four-Wheeler

Heavy-Equipment

Used Two-Wheeler

Others/property

Y-Y growth rate (RHS)

Used Two-Wheeler

Others/property




Non-dealer used car refinancing is BFIN’s key for high profitability. Financing for cars (new and used) and used motorcycles can be classified based on their origin: 1) from car dealership and 2) from non-dealership or direct to customers financing. BFIN has relationship with many car dealers, from which it gets business from. However, the company has to share the fees if the financing comes from dealers and hence the return is lower using this scheme. On the other hand, getting direct financing or direct to customer refinancing gives the highest return to the company, which is why BFIN prefers this, and the company gets most of its profit from this scheme. Non-dealer used car refinancing accounted for 49% total new bookings in 2015, rising to 54% in 1H17; and non-dealer motor cycle refinancing from 9% to 13% over the same period. Meanwhile, dealer new car financing and dealer used car financing contribution to total new booking declined from 12% and 19% in 2015 to 2% and 17% in 1H17, respectively. The rest of the financing came from leasing of heavy equipment & machinery (12%), and property (2%). BFIN achieved this on its own without any affiliation with other larger institutions, be it a bank, automotive-related group or large conglomerate. Figure 17 shows that the portion of non-dealer used car financing to total managed


Page 8 of 33


receivables has increased to 46% in June 2017 from 20% in December 2012 while dealer new car financing went down to 20% from 7% over the same period. FIGURE 16.NEW BOOKING BASED ON TYPE AND ORIGIN (Rp bn) 12,000

FIGURE 17. MANAGED RECEIVABLES ON TYPE AND ORIGIN 100%

(% Y-Y) 40%

90% 80%

10,000

30%

8,000

20%

60%

6,000

10%

50%

4,000

0%

2,000

-10%

-

-20%

70%

20% 10%


Dealer new 4W Non-dealer used 2W

Dealer used 4W Total leasing

6M17

3M17

9M16

12M16

6M16

3M16

9M15

12M15

6M15

3M15

9M14

12M14

6M14

3M14

9M13

6M13

12M13

Non-dealer used 4W Property

3M13

0%

6M17

3M17

9M16

12M16

6M16

3M16

9M15

12M15

6M15

3M15

9M14

12M14

Dealer used 4W Total leasing

30%

12M12

Dealer new 4W Non-dealer used 2W Growth rate (RHS)

6M14

3M14

9M13

12M13

6M13

3M13

12M12

40%

Non-dealer used 4W Property


The following figure shows how managed receivables in finance companies differ as of 2015 with BFIN standing out, as 47% of its managed financing comes from non-dealer refinancing, which gives better return. Other companies that try to replicate BFIN’s success story only has 2% of their managed financing coming from non-dealer financing with the much larger portion from either dealer car or motorcycle financing. FIGURE 18. COMPARISON OF MANAGED RECEIVABLES BASED ON TYPE AND ORIGIN - 2015

2% 4%

2% 9%

2%

2%

2% 4%

1%

2%

47%

44%

11% 100% 94%

19%

42%

37%

2%

41%

57% 94%

100% 98%

87%

98% 57%

40%

Dealer 4W

Dealer 2W

Others

CFIN

BCAF

Indomobil

Mandiri T

Summit O

BFIN

TAFS

Oto M

ADMF

FIF

2% ADSF

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Non-dealer Financing


Number of new contracts expected to rise 15% CAGR toward 2019. The largest unit contributor comes from used motorcycle financing, which stood at 189k in 2016 (of 283k total units financed), while used car financing came second with 89k in 2016. We anticipate BFIN to be more aggressive in used motorcycle financing in 2017 to provide more financing to the lower income segment. Managed receivables grew at 23% CAGR in 2006-2016. Growth rate reached the peak of 55% in 2007 and it grew at single digit rate in 2015-2016 before picking up again to 15% y-y in 1H17. Similarly the number of units financed also grew at 24% CAGR during the same period. Based on type of assets financed, used car refinancing accounted for 69% of total managed receivables in 2016, heavy equipment leasing 12% and new car financing 11%. Used motorcycle refinancing and property financing contributed 7% and 2% of total managed receivables, respectively. Please see important disclosure at the back of this report

Page 9 of 33


FIGURE 19. MANAGED RECEIVABLES BASED ON TYPE

FIGURE 20. MANAGED RECEIVABLES UNITS BASED ON TYPE

(Rp bn)

(% y-y) 80.0

16,000 14,000

60.0

12,000 10,000 8,000 6,000

(Unit) 400,000

(% Y-Y) 70.0

350,000

60.0

300,000

50.0

40.0

250,000

20.0

200,000

-

40.0 30.0

150,000

20.0

100,000

Used Cars Heavy Equipment Property

New Cars Used Motorcycles Growth rate (RHS)


2016

2015

2014

2013

2012

2011

2010

2006

2016

10.0

-

1H17

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

-40.0

2009

-

50,000 2008

-20.0

2,000

2007

4,000

Used Cars

New Cars

Heavy Equipment

Used Motorcycles

Property



Average value of new booking to grow at 3% CAGR in 2016-2019. The average values of both new booking and managed receivables are skewed toward heavy equipment, which in 2016 stood at Rp500m and Rp379m, respectively. We project average value of heavy equipment leasing will increase 5-8% pa going forward. Average housing financing (Rp257m in 2016), used car financing (Rp88m in 2016), and used motorcycle financing (Rp6.4m in 2016) are expected to increase 4-8% pa in the next three years. All in all, the average value of new booking in total is Rp38m in 2016 rising to Rp41m in 2019. FIGURE 21. AVERAGE VALUE OF NEW BOOKING

FIGURE 22. AVERAGE VALUE OF MANAGED RECEIVABLES

(Rp bn)

(Rp bn)

1,600

New Four-Wheeler

Used Four-Wheeler

Used Two-Wheeler

Others/property

Heavy-Equipment


Used Cars

New Cars

Used Motorcycles

Property

2016

2015

2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

-

2014

200

2013

400

2012

600

2011

800

2010

1,000

2009

1,200

2008

1,400

2007

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 -

Heavy Equipment


Heavy equipment financing on excavator, while property financing on houses. While BFIN gives refinancing with used cars and motorcycles as the collateral, it gives regular financing for heavy equipments, most of them to construction companies with excavators being the most common equipment financed, accounting for 38% of total. For property financing, the scheme is similar to the used cars and motorcycles, in which the borrowers use their property, mostly landed houses (91%), as the collateral to get refinancing for working capital purpose.


Page 10 of 33


FIGURE 23. HEAVY EQUIPMENT FINANCING BASED ON TYPE

FIGURE 24. PROPERTY FINANCING BASED ON TYPE

100% 100.0%

90%

90.0%

80%

80.0%

70%

70.0%

60%

60.0%

50%

50.0%

40%

40.0%

30%

30.0%

20%

20.0%

10%

10.0% 0.0%

0% 2008 Bulldozer

2009

2010

Excavator

2011

Forklift

2012

2013

2014

Other Heavy Equipment

2015

2015

2016


2016

House

Machinery & Others

Shop House


FIGURE 25.SUMMARY OF BFIN PORTFOLIO % of managed receivables %

Avg. financing size (Rpm)

Typical tenor (months)

Interest rates %

New cars

2

180

6-48

15.9-22.5

Used cars

17

90

6-48

16.1-22.0

Used cars Used motorcycles Heavy equipment Property

54

90

6-24

16.1-22.0

13

6

6-24

37.7-41.2

12

500

6-48

15.7-21.0

2

250

12-180

15.0-18.5

Type of financing

Origin

Dealer Nondealer HETO

HETO: heavy equipment, truck and others; Source: Company, Mandiri Sekuritas

Non-performing financing of below 1%. BFIN’s NPF stood at 1.1% in Jun 17, up from 0.9% recorded in Dec 16. The level of NPF has so far been below 2% over the past five years as those financing above 180 days in arrears are automatically written off. Thus we expect the level of NPF will not rise substantially and stay around 0.8-0.9% in 2017-19. The NPF has been evenly distributed between the financial lease and consumer financing in the past two quarters. Previously, consumer financing posted more problem financing, for which the company wrote off the bad debts. FIGURE 26. NPF LEVEL

FIGURE 27. QUARTERLY TOTAL NPF: DEC 2011-JUN 2017

(Rpbn) 180

(%) 2.50

160 2.00

140

(Rp bn) 250

(%) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 -

200 150

120 1.50

100

100

1.00

60 40

0.50

20 -

NPL amount (LHS)

2019E

2018E

2016

2017E

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

-

50 -

Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

80

Finance Lease NPF

Consumer Finance NPF

NPF % (RHS)

NPL Level (RHS)




Page 11 of 33


Financial leasing commands lower NPF level. Given more assets managed under financial lease, this segment shows lower NPF level (those with past due of >90 days). In financial lease the NPF level is at 0.8% in Jun 17, while in consumer financing 1.0%. Including the joint financing, the average NPF of the two segments is 1.1%. FIGURE 28. QUARTERLY FINANCE LEASE AGING: DEC 2011-JUN

FIGURE 29. QUARTERLY CONSUMER FINANCE AGING: DEC 2011-

2017

JUN 2017

(Rp bn) 3,000

(%) 3.0

2,500

2.5

2,000

2.0

1,500

1.5

1,000

1.0

500

0.5 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

1-30

31-90

91-120

121-180

>180

(%) 2.5 2.0 1.5 1.0 0.5 -

Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

-

-

(Rp bn) 1,800 1,600 1,400 1,200 1,000 800 600 400 200 -

1-30

NPF (RHS)


31-90

91-120

121-180

>180

NPF (RHS)


Coverage ratio of >100%. Over the past ten years BFIN’s coverage ratio has been or near 100% level and we expect this trend to continue going forward. Coverage ratio was at 167% in Jun 17 compared to 154% in Dec 16 and we project it to stay in the 150168% range in 2017-2019. Write off of bad debts is conducted when the receivables are already in arrears for >180 days; these reached Rp270bn in 2016, equivalent to 2.1% of average receivables, and Rp212bn in 2016 (1.8%). We forecast total write offs to remain in the range of 1.8-2.1% of average receivables in 2017-2019. FIGURE 30.WRITE OFFS

FIGURE 31. COVERAGE RATIO

(Rpbn) 350

1,200

300

1,000

(%) 9.0

(%)

250

8.0 7.0

800

6.0

200

5.0

600

100

400

50

200

Write Offs

NPF


3.0 2.0 1.0

Coverage ratio (LHS)

NPL Level (RHS)

2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2010

2009

0.0 2008

2006

2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

-

4.0

2007

150

Provisioning Level (RHS)


Net interest margin at of >10%. Dealing with small ticket financing for the lower to middle income segment gives high margin for BFIN, especially with the ability to manage the financing quality. Despite NIM trending down, the level is still above 10% so far. It recorded 12.4% NIM in 2016, which went up to 14.0% in 1H17 due to lower cost of funds. Back in the early 2000’s BFIN could record more than 20% NIM as the economy was recovering from the severe Asian crisis and it still relied more on its own capital instead of borrowing for financing purpose. We project NIM of 13.3-13.4% for 20172018, going down to 12.8% in 2019.


Page 12 of 33


Blended asset yield was 18.5% in 2016 and we project this to go up to 19.4% in 2017 as the company has been increasing non-dealer used car and used motorcycle refinancing, which command higher yield than other type of assets. The lower yield new car financing (through car dealer) has been substantially reduced due to stiff competition from other players. Cost of funds on the decline. On the liability side, cost of funds has been declining thanks to the reduction in the central bank benchmark rate as well as low USD borrowing, including the swap costs. Average cost of funds was recorded at 10.6% in 2016, going down to 10.0% in 1H17, and we expect 10.2% for full year in anticipation of more domestic bond financing. FIGURE 32. NET INTEREST MARGIN

FIGURE 33. NET INTEREST MARGIN FORECAST

30.0%

30.0%

25.0%

25.0%

20.0%

20.0%

15.0%

15.0%

10.0%

10.0%

5.0%

5.0%

Net Interest Margin

Interest Yield

Cost of Funds


Net Interest Margin

Avg. Interest Yield

2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2010

2009

2008

0.0%

2007

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

0.0%

Avg. Cost of Funds


Managed cost to income ratio. Supported by high margin and run more efficiently, BFIN’s cost to income has never surpassed 50% level in the past ten years. The ratio was recorded at 46.7% in 2016 and 42.3% in 1H17 and we expect the level to remain stable in 46-47% in 2017-19. The company has spread out its network in Java & Bali (52%), Sumatra (19%), Kalimantan (10%), and other parts of Indonesia (19%). The total number of offices rose to 316 in June 2017 from 278 in June 2016 and almost double from 169 in December 2011. Similarly, the number of staff has been increasing to 8,941 in December 2016 from 4,635 in December 2011. FIGURE 34. NUMBER OF BRANCHES AND STAFFS

FIGURE 35. COST TO INCOME RATIO

(units) 500 450 400 350 300 250 200 150 100 50 0

(people) 14,000 12,000 10,000

60.0% 50.0% 40.0%

8,000

30.0% 6,000 4,000

20.0%

2,000

10.0%



2019E

2018E

2017E

2016

2015

2014

2013

2012

2011

2020E

2019E

2018E

2017E

2016

Number of Employees (RHS)

0.0%

2010

No of Branches (LHS)

2015

2014

2013

2012

2011

2010

2009

2008

2007

-


Page 13 of 33


Net profit CAGR of 17% in 2016-2019. We expect a 17% CAGR net profit growth in the next three years. After posting a 23% profit growth in 2017 we forecast another 27% earnings growth in 2017 due to the strong new booking and higher margin recorded in 1H17. Profit growth will then slow down to 17% in 2018 and 8% in 2019 on lower NIM and rising operating costs. ROE is expected to improve to 22% in 2017 from 19% in 2016 and 17% in 2015. Improvement in ROE was seen after the company declared at least 50% dividend payout ratio for 2013-2015 that was paid the next year. Going forward we expect BFIN to keep 50% dividend payout ratio, which should help support the 22% ROE level in 2018-19. FIGURE 36. NET PROFIT AND GROWTH RATE

FIGURE 37. ROE TO REACH 22% IN 2017-2019

(Rpbn) 1,400

(%y-y) 30%

1,200

25%

1,000

20%

800

(Rpbn)

(%) 25.0%

7,000 6,000

20.0%

5,000 4,000

15.0%

3,000

10.0%

15% 2,000

Net Income

5.0%

Growth (%y-y)


Total Equity (LHS)

2019E

2018E

2017E

2016

2015

0.0%

2011

2019E

2018E

2017E

2016

2015

-

2014

0%

2013

-

2012

1,000

2011

5%

2010

200

2014

400

2013

10%

2012

600

ROAE % (RHS)


Ratios comparison. The following two figures show BFIN’s performance relative to peer companies in 2015-2016, which clearly stated that most of BFIN’s ratios beat the industry. BFIN’s NIM is similar to those concentrating on motorcycle financing such as Adira Finance and FIF while those concentrating in car financing such as Toyota Astra Finance and Astra Sedaya Finance, Mandiri Tunas have lower NIM. We calculate NIM using the total financing receivables including off-balance sheet. BFIN’s lower than industry gearing level suggests that the company has the capacity to expand more. FIGURE 38.2016 RATIO COMPARISON AMONG COMPANIES (%)

NIM

Gearing

CIR

NPF

ROA

ROE

Adira Finance

10.1

396

46.0

1.56

2.2

21.6

BCA Finance

5.6*

136

28.7

0.84

2.8*

44.7

FIF

10.1

460

48.9

0.70

4.0

33.8

BFI Finance

12.4

180

46.7

0.90

5.7

19.3

Clipan Finance

11.2

72

61.2

1.98

3.1

5.6

Toyota Astra Finance

5.2

742

37.7

1.00

2.3

14.7

Astra Sedaya Finance

5.6*

423

26.5

0.63

2.5*

16.3

Mandiri Tunas

2.9

605

42.7

1.49

1.0

25.9

Average

7.9

340

51.3

1.35

3.0

21.7

NIM and ROA are calculated based on total asset managed, including off-balance sheet receivables *Data 2015, Source: Company, Mandiri Sekuritas estimates


Page 14 of 33


1H17 - net profit increased 54% y-y. BFIN recorded Rp526bn net profit, +54% y-y, in 1H17 with 2Q17 posting Rp271bn profit, +50% y-y/+7% q-q. The good results came from improvement in net interest margin of 14.0% from 11.9% in 1H16, while the company managed its operating expenses. NPF declined to 1.1% in June 2017 from 1.5% in June 2016, while coverage ratio improved to 167% from 117% over the same period. The stronger margin and cash dividend payment led to 23.6% ROE reached in 1H17, a surge from 16.8% recorded in 1H16. In terms of new booking, BFIN recorded Rp6,775bn (+30% y-y) in 1H17, dominated by non-dealer used car refinancing (54% of total), dealer used car (17%), non-dealer motorcycle refinancing (13%), heavy equipment leasing (12%), dealer new car financing and property refinancing (each 2%). Managed receivables increased 15% y-y tp Rp14,524bn with non-dealer used car refinancing accounting for 46% of total, dealer used car 23%, heavy equipment leasing 13%, non-dealer motorcycle refinancing 8%, dealer new car financing 7% and property refinancing 3%.


Page 15 of 33


FIGURE 39. 1H17 RESULTS Income Statement YE Dec (Rpbn)

1H16

1H17

% YoY

2Q16

1Q17

2Q17

% YoY

Finance Lease

612

829

35

321

399

430

34

8

Consumer Financing

548

565

3

273

272

293

7

8

15

2

(86)

3

1

1

(71)

(21)

Finance Others Total Income

% QoQ

384

490

27

200

229

260

30

14

1,559

1,885

21

797

901

984

24

9

Interest and Financing Charges

(399)

(424)

6

(198)

(202)

(222)

12

10

Salaries

(346)

(422)

22

(178)

(210)

(212)

19

1

G&A

(189)

(197)

4

(98)

(95)

(102)

4

8

Provisions for Consumer Receivables

(84)

(99)

18

(38)

(39)

(60)

59

54

Provisions for Financing Receivables

(57)

(85)

50

(28)

(37)

(48)

70

32

Others

(22)

-

(12)

-

-

(1,097)

(1,227)

12

(552)

(583)

(644)

17

11

Total Expenses Pre-tax Profit

462

658

43

245

319

340

39

6

Income Tax

(122)

(133)

9

(64)

(64)

(68)

6

6

Net Income

340

526

54

180

254

271

50

7

Jun-16

Mar-17

Jun-17

% YoY

% QoQ

Balance sheet (Rpbn) Net investment in finance lease + impairment

6,340

7,692

8,380

32

9

Net consumer finance rec’bles + jf + impairment

6,283

5,843

6,144

(2)

5

11,683

13,313

14,688

26

10

Fund borrowing and securities issued

7,097

8,227

9,523

34

16

Shareholders' equity

4,113

4,499

4,588

12

2

2Q17

Total assets

Ratios (%)

6M16

6M17

2Q16

1Q17

Net interest margin

11.9

14.0

12.4

14.0

14.0

Cost to income

48.0

42.3

48.1

43.6

41.2

ROA

5.8

7.8

6.2

7.9

7.8

ROE

16.8

23.6

17.8

23.3

23.9

1.5

1.1

1.5

1.0

1.1

117.1

167.2

117.1

152.8

167.2

1.7

2.1

1.7

1.8

2.1

Non performing financing Coverage ratio Debt to equity (x) Source: Company, Mandiri Sekuritas estimates


Page 16 of 33


Capital – High Potential for Asset Expansion Low debt to equity level. BFIN’s gearing ratio has always been low and it stood at 2.1x as of June 2017, while the industry is allowed to have maximum gearing ratio of 10x. Prior to the Asian Crisis in 1998, gearing ratio was in the range of 4-6x. However post the crisis, this level has been brought down to <1x and only since 2007 has the company started to utilize debt for expansion. FIGURE 41. TOTAL DEBT AND GEARING RATIO (%) 350.0

(Rpbn) 9,000

8,000

300.0

8,000

7,000

250.0

7,000

6,000

200.0

6,000

5,000

150.0

5,000

4,000

100.0

4,000

3,000

50.0

3,000

2,000

0.0

2,000

1,000

-50.0

1,000

Total Equity Ttl Equity Growth (RHS)

Total Debt (LHS)


2016

2015

2014

2013

2012

2011

2010

2009

2008

2004

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Total Debt Ttl Debt Growth (RHS)

2007

-

-100.0

-

(x) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0

2006

(Rpbn) 9,000

2005

FIGURE 40. TOTAL DEBTS AND EQUITY

Debt/Equity (RHS)


Expect low gearing level to remain. As part of debt covenants and the company’s characteristic we do not expect BFIN to gear up substantially from the current level. BFIN expects gearing ratio to increase towards 3-3.5x in the future but we project the level at still <3.0x in the next three years, well below the current industry’s gearing ratio of 6.5x. FIGURE 42. GEARING RATIO FORECAST OF <2.5X

FIGURE 43. SOURCE OF BORROWINGS (x) 2.5

14,000

2.0

12,000 10,000

1.5

8,000 6,000 4,000 2,000


2019E

Debt/Equity (RHS)

2018E

2016

2015

2014

2017E

Total Debt (LHS)

2013

2012

2011

2010

2009

2008

2007

-

100% 90% 80% 70% 60% 50%

1.0

40% 30%

0.5

20% 10%

0.0

0% 12M11 3M12 6M12 9M12 12M12 3M13 6M13 9M13 12M13 3M14 6M14 9M14 12M14 3M15 6M15 9M15 12M15 3M16 6M16 9M16 12M16 3M17 6M17

(Rpbn) 16,000

Bank borrowings

Bonds & MTN

Joint financing


Financing availability still plenty. BFIN sources its financing either from bank loans or bond issuance. Given its gearing ratio of 2x, there is plenty of room for it to expand business. The company currently sources its debts from bank (60%), bond issuance (33%), and joint financing with banks (7%). On bank loans, the top five banks with the largest loan exposure as of June 2017 are: Bank Mandiri (24% of total bank loans), Standard Chartered Bank (23%), BCA (7%), KEB Hana Bank (6%), and bjb (5%). Around 35% of the bank loans are in USD, which are fully hedged. Going forward, expect more borrowing to come from bond issuance as the company’s improving rating should enable them to get lower rate bonds.


Page 17 of 33


Creditors entail some restrictions and certain obligations that should be met by BFIN, which we believe pose no real threat to the company. Among the debt covenants are: 1. 2. 3. 4. 5.

Maintaining security coverage ratio of >100% of total outstanding; Debt to equity ratio of no greater than 5x; Maintaining NPF ratio of <5%; Maximum foreign currency exposure that are not hedged is 25% of total equity; Total equity of at least Rp1tr.


Page 18 of 33


Risks We highlight the following as key risks for BFIN: Slower economic growth. BFIN provides refinancing with used cars as the main collateral to the low to middle income segments. While Indonesia's economy has been growing at a faster rate than many other countries', we believe the country still needs to see >5% growth rate to see more positive impact on all segments. Slow economic growth will affect purchasing power in many segments and thus affect financing demand in BFIN’s major customers. Rising interest rates. The average interest rate charged to customers is 20% pa with average cost of funds of 10%. While rising interest rates will force BFIN to adjust its lending rates, this will also increase problem financing, especially under weak economic condition. Tighter liquidity in the banking sector. Finance companies in Indonesia have been relying on banks as the major funding source. With the banking industry LFR getting closer to 90%, any rising loan demand or slowdown in deposit growth will affect the industry’s liquidity, forcing companies to hike interest rates. A finance company with a link with a major bank is always in a better position in this case. To overcome this, BFIN plans to get more funding from bond issuance in the future rather than depend on bank loans. Weak commodity prices. Commodity rich areas in Sumatra and Kalimantan account for 31% of total financing portfolio and declining prices on coal and CPO will have negative impact on financing demand, not only in these areas, but also in Java, where 52% of the portfolio is located. A lot of workers in the resource-rich areas are from Java and still have families there. Intervention on interest rate. The finance industry has to rely on equity, bank loans, and bond issuance for funding, which lead to expensive cost of funds. There is no limitation so far on how much companies can charge their customers; all is left to the market mechanism to decide. However, the government has been in favor to the low income segment in providing cheap loans through interest rate subsidy (KUR). This is an indirect threat to the finance industry if the government expands its coverage on the low interest rate loans. Major management change. The management has been stable and BFIN has developed an internal system to prepare staffs for future management roles. However, any sudden management change may become a risk.


Page 19 of 33


Valuation TP of Rp700. We use the Gordon Growth Model to determine the fair value of BFIN as a financial company. The crucial factor for this model is on the company’s ROE and the cost of equity used. At 22% ROE and 11.3% COE plus 5% growth rate, we come up with the fair value of 2.1x P/BV after taking into account some 20% discount factor for smaller counter and low liquidity. This translates into Rp700 Target Price based on average P/BV of 2.1x for 2017-2018. This implies PE multiple of 10.4x for 2017 and 8.9x for 2018. FIGURE 44. FAIR VALUE CALCULATION 2017

2018

ROE (%)

22.1

22.7

COE (%)

11.9

11.9

5.0

5.0

Growth (%) BVPS (Rp)

325

370

Target BV multiple @20% discount

2.0

2.1

Average BV multiple 2017-2018

2.1

Fair TP (Rp) EPS (Rp) Implied PE Multiple (x)

700 67

79

10.4

8.9

Source: Mandiri Sekuritas estimates


Page 20 of 33


Industry Outlook The finance industry’s assets have been growing at 18% CAGR in the past 15 years to 2016 with consumer financing accounting for 59% of the total financing receivables and leasing 41%. Most finance companies provide financing for automotive purchases with the bigger players being affiliated with banks or auto makers. Rising middle income population. According to the World Bank, only 36% of the Indonesian population has formal accounts in financial institutions, with high potential upside to reach similar levels like in some other neighboring countries. The middle income class is expected to increase significantly in the next 10-15 years. The McKinsey study states between 2010 and 2030 there will be additional 90m new entrants of consuming class to 135m. This refers to those with daily spending of USD6 and up. A lot of these people need financing, not only from banks, but also from finance companies, which offer faster approval process and simpler procedures. FIGURE 45. FINANCIAL INCLUSION IN ASEAN IN 2014 Singapore

FIGURE 46. NEW CONSUMING CLASS BY 2030 (m) 300

98.2%

Malaysia

250

80.7%

Thailand Indonesia

145

200

78.1%

180 150

36.1%

Philippines

31.3%

100

Vietnam

31.0%

50

195

135 85 45

Myanmar

22.8%

Cambodia

22.2%

0.0%

20.0%

40.0%

0 2010

2020 Consuming Class

60.0%

80.0%

Source: World Bank

100.0%

2030 Below Consuming Class

120.0%

Source: McKinsey Global Institute

Industry assets growing at 17.9% CAGR to Rp443tr in the past 15 years to 2016. The multi finance industry assets represent ca. 6.6% of the banking industry’s total assets of Rp7,026tr in June 2017. This is a fragmented industry with most companies being small; the top 10/20 companies accounting for 47/59% of total industry assets with the average asset size of Rp2.2tr. The industry assets are growing at 7% y-y in Jun 17, a pick up from 4% recorded in Dec 16. Financing receivables breakdown. There has been a change in industry reporting starting Sep 16. Prior to this, consumer financing made up 70% of total financing, followed by heavy equipment leasing at 27% and factoring at 3%. Starting Sep 16, the reporting system is similar to the banking industry, in which financing receivables are divided into multipurpose financing, which account for 59% of total financing of Rp406tr as of Jun 17, followed by investment at 27% and working capital purpose at 14% of total. The underlying assets for financing are still for the automotive - cars and motorcycles.


Page 21 of 33


FIGURE 47. FINANCE COMPANIES' ASSETS

FIGURE 48. FINANCING BREAKDOWN BASED ON USAGE (% yoy) 80

(Rp tr) 500 450

(% yoy) 60%

100%

70

Source: OJK, BI, Mandiri Sekuritas

Leasing

Consumer Finance

2016

Jun 17

2015

2014

2013

2012

-10% 2011

2016

2015

2014

Total equity Equity growth (RHS)

0%

0%

Jun-17

Total asset Asset growth (RHS)

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

10

2003

50

10% 20% 2010

20

100

20%

2009

150

40%

2008

30

2007

200

30%

2006

40

2005

250

40% 60%

2004

50

2003

300

2002

350

50%

80%

2001

60

2000

400

Growth rate (RHS)

Source: OJK, BI, Mandiri Sekuritas

Financing receivables based on economic sector and region. Similar to bank loans, the largest portion of the industry financing receivables goes to the trading sector, which makes up 15.6% of total. Financing for household purpose comes second with 13.9%, followed by rental industry with 8.8% and manufacturing 8.5%. On the regional basis, Java & Bali account for 70% of total financing receivables, Sumatra 15%, Kalimantan 7%, and Sulawesi 6%. FIGURE 49. FINANCING BREAKDOWN BASED ON INDUSTRY Consumer

100.0 90.0

Others

80.0 70.0

FIGURE 50. FINANCING BREAKDOWN BASED ON REGION (%) 100 90

Social/public services

80

Business services

70

60.0

60 Trans, warehouse & comm

50.0 40.0

Trading, rest. & hotel

30.0

Construction

20.0

Utilities

50 40 30 20

Agriculture

Source: OJK, Mandiri Sekuritas

Java, Bali

Sumatra

Kalimantan

Sulawesi

Jun-17

May-17

Apr-17

Mar-17

Feb-17

Jan-17

Dec-16

Mining

-

Nov-16

Jun-17

May-17

Apr-17

Mar-17

Jan-17

Feb-17

Dec-16

Nov-16

Oct-16

Sep-16

-

10

Oct-16

Manufacturing

Sep-16

10.0

Other


With total assets of Rp14.7tr in June 2016, BFI Finance is the 8th largest (market share 3.2%) multi finance company out of 198 in Indonesia. In terms of total financing, it is the 7th largest (3.6% market share) with Rp14.5tr and in terms of shareholders equity it is the 6th largest (9.1% market share) with Rp4.6tr. Finance industry non-performing financing. Data on industry NPF is only available for the past ten months since September 2016 with the level standing at 3.5% as of June 2017 (the highest so far), similar level to the May figure. The lowest NPF level was recorded in Feb 17 at 3.0%. In general practice, the NPF is defined as those with arrears of more than three months, while there is automatic write off for those in arrears of at least 210 days. Funding – reliance on bank loan and bonds. Finance companies are not allowed to collect third party funding, and aside from their own equity they heavily rely on bank loans and bond issuance to finance their activities. By regulation, total gross gearing is limited to 10x. Industry ROE at 11-12%. Finance industry ROE has been hovering at 11-12% in the past 10 months with ROA of around 4.0%. Compared to the banking industry, finance industry ROE is lower, while ROA is higher, as the industry is more leveraged than banks. Banking industry ROE and ROA are around 15.9% and 2.1%, respectively, in 2016. Please see important disclosure at the back of this report

Page 22 of 33


FIGURE 51. FINANCE INDUSTRY NPF

FIGURE 52. FINANCE INDUSTRY ROE AND ROA

(%) 3.6

(%) 14.0

3.5

12.0

3.4

10.0

3.3

8.0

3.2

6.0

3.1

Non-performing financing


ROE

Jun-17

May-17

Apr-17

Mar-17

Feb-17

Jan-17

Dec-16

Nov-16

Sep-16

Jun-17

May-17

Apr-17

Mar-17

Feb-17

Jan-17

Dec-16

Nov-16

Oct-16

2.0

2.8 Sep-16

2.9

Oct-16

4.0

3.0

ROA


Automotive industry – main financing assets The Indonesian automotive industry has been developing rapidly in the past 25 years, especially after the 1998 Asian crisis. Rising per capita income, in the wake of the economic reform, helps support the automotive sales. From the low of USD600 in 1998, GDP per capita has grown to USD3,600 in 2016, which triggers the rapid increase in automotive sales, for both cars and motorcycles. Post the Asian crisis, motorcycle sales reached the first million mark in 2001, the second million in 2002, and five million sales in 2008. The industry sold 8m motorcycles in 2011, helped by the commodity boom. The sales volume, however, came off to 5.9m in 2016 and is expected to reach around 6.5m in 2017. Sales data shows a 1% y-y decline to 3.2m in the first seven months this year, as people are facing lower purchasing power in the wake of unstable commodity prices. In the car industry, the first one million unit sales were reached in 2012 and the market expects some 1.1m to be sold this year. Sales data shows a 4% y-y increase to 0.62m units in 7M17 with the expected sales to pick up in 2H17 thanks to introduction of new products by some automakers. Based on study, once a country's per capita GDP reaches USD3,000, demand for car sales rises more than motorcycle's, while the ratio between car and motorcycle sales in Indonesia is now at 1 to 10. As we expect GDP to grow at ca. 5.0-5.6% pa in the next five years, coupled with development of new infrastructure such as toll roads, we anticipate higher sales growth to come from cars than motorcycles. The ownership ratios of motorcycles and cars in Indonesia were at 405 and 92 per 1,000 population in 2016, respectively, both still below the level seen in other major Asian countries. Malaysia posted 400 for motorcycle ownership and 472 for car, Thailand at 294 and 230, and China at 102 for car ownership.


Page 23 of 33


FIGURE 53. 4W WHOLESALES AND YOY GROWTH

FIGURE 54. 2W WHOLESALES AND YOY GROWTH

('000)

('000)

(% Y-Y) 80

1,400

(% Y-Y) 100

9,000 8,000

1,200

60

1,000

40

800

20

5,000

40

600

0

4,000

20

80

7,000

400

60

6,000

3,000

(20)

0

2,000

Car sales


Motorcycle sales

2016

Jul 17

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2016

Jul 17

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

(40)

2004

(20)

0

2003

1,000

(60)

2002

(40)

0

2001

200


Source: GAIKINDO, Mandiri Sekuritas

Source: AISI , Mandiri Sekuritas

FIGURE 55. CAR OWNERSHIP PER 1000 IN 2016

FIGURE 56. MOTORCYCLE OWNERSHIP PER 1000 IN 2016

(units) 500.0 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 -

(units) 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 2010

2011

Indonesia

2012

Malaysia

2013

2014

Philippines

2015

Thailand

2016

2010

India

Indonesia

Source: CEIC, IMF, Mandiri Sekuritas

2011

2012

Malaysia

2013 Philippines

2014

2015

Thailand

2016 India


The automotive sales have been supported by the availability of financing by banks as well as finance companies, which provide faster and easier terms. Around 80% of motorcycle sales and 60-70% of car sales are now sold on credit with the remaining sold on cash basis. The relaxation of automotive financing. Through the circular #47/SEOJK 05/2016, the authority (OJK) has relaxed the minimum down payment for automotive financing to as low as 5% instead of 15-25%, depending on the finance company’s asset quality. The lower the non-performing financing ratio, the lower the minimum down payment required. This will allow more penetration of financing to the lower income segment as long as the company can keep its financing quality in check. FIGURE 57. MINIMUM DOWN PAYMENT FOR AUTOMOTIVE FINANCING BY FINANCE COMPANY Minimum Down Payment amount as a % of selling price Conventional Companies Type of vehicle

Previous regulation

New Regulation

NPF≤5%

NPF>5%

NPF≤1%

NPF>1≤3%

NPF>3%≤5%

NPF≤5*

NPF>5%

2 & 3 W (Motorcycle)

15%

20%

5%

10%

15%

15%

20%

4 W- for productive use

15%

20%

5%

10%

15%

15%

20%

4 W-consumptive

20%

25%

5%

10%

15%

20%

25%

Source: OJK


Page 24 of 33


GDP per capita expected to reach USD4,000 in 2018. Based on our macroeconomic assumptions, we expect GDP per capita to reach > USD4,000 in 2018 with GPD growth of 5.1% in 2017 and 5.3% in 2018. This, coupled with development of new roads across the country, should translate into improving car sales, and hence used car sales will also pick up. Used car refinancing business for the lower to middle income segment is also expected to increase. FIGURE 58. GDP PER CAPITA AND CAR OWNERSHIP

FIGURE 59. INDONESIA'S GDP AND CAR OWNERSHIP (USD) 4,000

(Car ratio) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -

3,500 Korea

3,000 2,500 2,000 1,500 1,000 500

GDP per Capita USD

GDP per capita (LHS)


2015

2013

2011

2009

2007

2005

2003

30,000

2001

25,000

1999

20,000

1997

15,000

-

1995

4W per 1,000 people Malaysia 500 450 400 350 300 Thailand 250 200 150 Indonesia China 100 50 India Philippines 5,000 10,000

Car per 1,000 population (RHS)


Expect lower interest rates. We believe, with the government’s ability to manage inflation, the central bank has room to reduce the benchmark rate again in 4Q17 to 4.25% from 4.50%. Our economist believes that this level will be maintained in 2018. Further rate cut should translate into lower bank lending rates and it will be cheaper for company to issue bonds. FIGURE 60. INDONESIA’S MACROECONOMIC FORECAST 2017-2018 2012

2013

2014

2015

2016

2017F

2018F

Real GDP (% yoy)

6.0

5.6

5.0

4.9

5.0

5.1

5.3

Domestic Demand (% yoy)

6.6

5.4

4.6

4.9

4.4

5.7

6.1

8,616

9,546

10,570

11,532

12,407

13,628

14,900

GDP (Rp tn) - nominal GDP (US$ bn) - nominal

918

915

891

861

933

1,013

1,125

3,742

3,662

3,520

3,377

3,605

3,843

4,203

Current Account (% of GDP)

(2.7)

(3.2)

(3.1)

(2.0)

(1.8)

(1.7)

(2.5)

External Debt (% of GDP)

27.5

29.1

32.9

36.0

34.7

31.3

29.0

International Reserves (US$ bn)

112.8

99.4

111.9

106.0

116.0

127.0

124.0

Rp/US$ (year-end)

9,670

12,189

12,440

13,795

13,436

13,400

13,200

5.8

7.5

7.8

7.5

-

-

-

GDP per capita (US$) - nominal

BI rate (% YE) – changed to 7-DRRR in 2016 BI 7-day reverse repo rate (% year-end) Headline Inflation (% yoy, year-end)

-

-

-

-

4.75

4.25

4.25

3.8

8.1

8.4

3.4

3.0

4.2

4.1

Source: BI, CEIC, Mandiri Sekuritas estimates


Page 25 of 33


Company Background BFI Finance Indonesia (BFIN) is an independent finance company in Indonesia, established in 1982. The company engages in providing funds through 1) finance lease, 2) consumer financing, 3) factoring, and 4) credit card business. BFI has a wide operational network with 310 branches across the country. It manages to deliver fast and reliable services by implementing GCG and embracing digital era. BFIN’s history. BFIN was established in April 1982 under the name of PT Manufacturers Hanover Leasing Indonesia, a joint venture among PT Arya Upaya Corp. , AHK Hamami, and Manufacturer Hanover Leasing Corporation of the United States. The company’s name had been changed several times before finally settling with BFI Finance Indonesia in 2001. Initially, it only conducted leasing business before transforming into a multifinance business. BFIN went public in the Indonesia Stock Exchange on 16 May 1990. During the Asian financial crisis, the company, like many others, went insolvent, forcing PT Arya Upaya Corp., the major shareholder, to swap its stakes as part of its debt facility restructuring program in 2001. The company was then controlled by the creditors and the management. However PT. Aryaputra Teguharta tried to get BFI's shares back in 2004, which was overruled by the court. Ownership structure. Following the debt restructuring in the early 2000’s, BFIN was once controlled by the creditors and the management. Trinugraha Capital & Co SCA, (a consortium of TPG Capital, Northstar Equity Partners, and Garibaldi Thohir), a Luxembourg-based company, entered the company in 2011 and now controls 42.8%. The company conducted share buyback in 2016 and currently controls 6.3% stake (it has to decide what to do with the treasury stocks by October 2019, whether to sell them back, terminate them, do ESOP, do debt equity conversion, or have them for warrant purposes). Of the 50.9% public shares, members of the Board of Directors and Board of Commissioners own 3.7% stake in the company. BFI does not have any subsidiary or any associated companies. Several business segments with various channels– BFI Finance Indonesia primarily engages in investment, working capital, and multipurpose financing activities. The company's business segments can be divided into consumer financing and finance lease. The consumer financing provides automotive financing for new & used vehicles purchased either via dealer or sales representatives/non-dealer, which has been BFI’s core business. The finance lease business serves leasing services to individuals and corporate customers that make purchase or sale and leaseback of heavy equipment, machinery, motor vehicles, and other equipment. The financing activity portfolio covers a range of products by asset type, including 1) new car, 2) used car, 3) used motorcycle, 4) heavy equipment, truck & machinery, and 4) property. What differentiates BFIN with other finance companies is its specialization to provide refinancing using car and motorcycle as collateral. This is done through non-dealer or direct to customer financing, which uses already paid-off automotive to get fresh funding. Customers then use the funds for working capital purpose. Average financing size is 70% of the appraised value of the car or motorcycle, with fixed rate applied during the tenor. Considering the used car or motorcycle, the ticket size of refinancing is small (Rp90m for car and Rp6m for motorcycle in 2016), but it commands high return. Vast operational network across the country. BFI has a total of 316 branches, compared to 267 in FY15, with more than 9,500 personnel as of June 2017. The Greater Jakarta and Java & Bali regions account for 52% of the total offices. The company is noted for its strategy to concentrate outside Java Island with the network evenly divided between the major and smaller cities, where many of the customers reside. Vast network is key to tap customers in the low to middle income segments.


Page 26 of 33


Corporate governance with experienced management. BFIN has strong commitment to comply with Good Corporate Governance (GCG) principles in order to face business dynamics and industry challenges. The commitment was stated on the BFI Integrity Pact, which governs its Code of Business. In terms of management, the majority of the management has been part of BFI’s long history. Embracing the digital era. Currently, the company has managed to adapt with the digital era along with Fintech revolution in banking sector by introducing smart phone apps, called “BFI-Ku” for consumer credit applications and agent/dealer reward point tracking, thus this could smooth origination and collection process. It also partners with fintech companies as a distribution channel for its loans (Cekaja.com/a leading financial online comparison site, Kredivo/lending platform for online shoppers without credit card, Crowdo/prominent P2P lending platform, MekarGO/for SMEs platform). FIGURE 61. MULTIFINANCE COMPANY RANK BY ASSETS - 2016

FIGURE 62. OWNERSHIP STRUCTURE – JUNE 2017

(Rp bn) 35,000

Treasury Stock 6.3%

30,000 25,000 20,000

Trinugraha Capital & CO SCA 42.8%

15,000 10,000

Others (each below 5%) 50.9%

Orix Indonesia

Mitra Pinasthika

Maybank Indonesia

BCA Finance

Clipan Finance

Mandiri Tunas

Summit Oto Finance

BFI Finance

Dipo Star Finance

Oto Multiartha

Toyota Astra FS

Central Java Power

Adira Dinamika MF

Astra Sedaya

-

Federal Int'l Finance

5,000

Source: Infobank, Company

Source: Company

FIGURE 63. BFI FINANCE MILESTONES 1982

Company was established as PT Manufacturer Hanover Leasing Indonesia. The company also obtained license to operate as a leasing company.

1986

PT Bank Umum Nasional and Essompark Ltd, Hong Kong, took over Manufacturer Hanover Leasing Corporation's shares and changed the company's name to become PT Bunas Finance Indonesia

1990

BFI Finance was listed on the stock exchange. The company also obtained license to operate as a multifinance company.

1993

The first share dividend was distributed, one new share was given for every 10 shares held.

1994

Conducted a Limited Public Offering I (Rights Issue I or 'PUT I').

1997

Stock split from Rp1,000 per share to Rp500 per share (1:2 ratio).

2001

The company completed financial restructuring and changed its name from Bunas Finance Indonesia to BFI Finance Indonesia.

2006

BFI Finance repaid all loans in accordance to its restructuring process.

2007

Conducted an initial bond offering for Obligasi Finance Indonesia 2007 with Baa1 rating from Moody’s.

2011

Trinugraha Capital & Co SCA became BFI Finance's main shareholder, owning 44.95% of the company's shares.

2012

Issuance of new shares for the Management and Employee Stock Options Program (MESOP) of up to 5% of the Company's total shares. Conducted a 1:2 stock split.

2015

Conducted stock buyback program.

2017

Conducted a 1:10 stock split.

Source: Company


Page 27 of 33


FIGURE 64. BFI FINANCE’S DISTRIBUTION NETWORK

Source: Company


Page 28 of 33


Management team Francis Lay has been managing the company since its beginning in the early 80’s. The Board of Directors consists of five people. FIGURE 65. BOARD OF DIRECTORS Name

Position

Details

President Director (since 1986)

An Indonesian citizen with Master of Business Management degree from Asian Institute of Management, Philippines. He was BFI President Director in 1986, elected as Founder Director of BFI in 1983, Credit Manager at PT Indovest in 1980-1983, Executive Officer at Ministry of Finance Singapore in 1972-1973.

Finance and Information Technology Director (since May 2014)

An Indonesian citizen, a Master of Business Administration holder from Institute Pengembangan Manajemen Indonesia in 2006 and Enterprise Risk Manager holder from Asia Risk Management Institute and National University of Singapore, Singapore in 2009. He has served as Corporate Secretary since June 2014. Prior to Director position, he has held several roles in Finance & Information Technology Division and other positions since 1993. He was also Senior Auditor at Hans Tunakotta Mustofa Audit Firm.

Retail Business Director (since May 2014)

An Indonesian citizen with a Bachelor of Industrial Engineering from Trisakti University, Indonesia, in 1998. He has held various positions in the company such as Head of Retail Business Division until 2013, Head of Department in 2008-2012, Head of Regional and Regional Manager in 2006-2008. He was also Sales Executive at PT Tjiwi Kimia Pulp & Paper in 1999-2000.

Enterprise Risk Director (since September 2016)

An Indonesian citizen with a Bachelor of Industrial Engineering from University of Trisakti, Indonesia, in 1993. He has Certified Business Management (2004) and Certified Business Management-Operation (2003) from Prasetiya Mulya Business School. He joined BFI as the Head of Enterprise Risk in 2015. He has held various positions in credit and risk fields such as Head of Credit Division in Adira Finance and Head of Account Management Department and Head of Risk Department at PT Astra Sedaya Finance in 1994-2005.

Operations Director (since 2017*)

An Indonesian citizen with Master of Business Administration degree from University of Gadjah Mada, Indonesia in 2013. He has certification for Human Capital Management from Asian Institute of Management, Philippines, in 2008. He has been serving several roles in the company, which are Nomination and Remuneration Committee since April 2015, Head of Operations and Control since 2012, and Head of Compensation and Benefit since 2014. He joined BFI in 1993 as a Marketing Officer and has held various positions.

Francis Lay Sioe Ho

Sudjono

Sutadi

Sigit Hendra Gunawan

Andrew Adiwijanto Source: Company

* The position of Andrew Adiwijanto will be effective as of the date of the fit and proper test completion from the Financial Services Authority (OJK). Please see important disclosure at the back of this report

Page 29 of 33


The Board of Commissioners consists of seven members. FIGURE 66. BOARD OF COMMISSIONERS Name

Position

Details

President Commissioner (since June 2011)

An Indonesian citizen with a Doctor of Philosophy from Australian National University, Australia, in 1988. Prior to the position, he held various commissioner and advisor positions in several energy companies since 2009. He was Minister of Research, Technology, and Higher Education in 2004-2009, Chairman of Asian-Europe University Network in 2002-2004, and Rector of Institute Teknologi Bandung (ITB) in 2001-2004.

Kusmayanto Kadiman

Independent Commissioner (since June 2011)

An Indonesian citizen with a Master of Business Administration degree from Gadjah Mada University, Indonesia, in 2009. Currently, he also holds several positions such as Audit Committee Member of PT Bentoel Internasional Investama Tbk since 2010 and Director of PT Gaudi Dwi Laras since January 2014. He was President Commissioner of BFI in 2000-2011 and the company director in 1991-1999. He was also Chief Financial Officer of PT Carsurin in 2007-2013.

Johanes Sutrisno

Independent Commissioner(since June 2011)

An Indonesian citizen with a Bachelor of Law from University of Indonesia in 1975. He was a BFI Commissioner in 2006-2011 period and has been Managing Partner of Alfonso Napitupulu & Partners Law Firm since 1993. Prior to joining BFI, he has more than 20 years in legal field.

Independent Commissioner (since June 2011)

An Indonesian citizen, a holder of Master of Law from University of California Berkeley, USA, in 1982. She holds various positions such as member of Honorary Council of Capital Market Law Advisory Association since 2012, member of Indonesia Institute of Corporate Directorship since 2012, President Commissioner of PT Inalum since 2007, ABA Associate member since 2005, and Chief of Centre of Law Studies since 1997. She was special staff at Ministry of State-Owned Enterprises Indonesia in 2007-2012 and consultant for World Bank and Indonesia National Committee of Good Governance in 2004-2005.

Commissioner (since April 2015)

An Australian-English citizen with a Bachelor of Commerce (Honours) and Law from University of Melbourne, Australia. He is also Principal and Head of Financial Services (Asia, ex-India) of TPG Capital in Singapore. He joined BFI as Audit Committee Member in 2011-2015. He has held various positions in Consumer Finance Division at ANZ Bank and Investment Banking Division at Credit Suisse.

Alfonso Napitupulu

Emmy Yuhassarie

Dominic John Picone


Page 30 of 33


Commissioner (since April 2015)

An Indonesian citizen with a Master of Finance (Merit) degree from London Business School in 2002. He currently serves as Managing Director of Northstar Advisors Pte Ltd, various commissioner positions at Tugu Insurance Company Ltd, PT Delta Dunia Makmur Tbk, PT Trimegah Sekuritas, and as President Commissioner of PT Bukit Makmur Mandiri Utama. Previously, he was Commissioner and Audit Committee Member at PT Bank Tabungan Pensiunan Nasional Tbk, Assistant Vice President in Investment Banking Division at PT Danareksa Sekuritas in 2004-2006, and Consultant at Boston Consulting Group in 1998-2004.

Commissioner (since 2017*)

An Indonesian citizen, a Bachelor of Accounting from Trisakti University, Indonesia, in 1990. He was Director of Operational and Corporate Financing of BFI in 2014-2017, held various positions in the company in 1992-2014, and was Auditor at Prasetio, Utomo and Co. in 1989-1992.

Sunata Tjiterosampurno

Cornellius Henry Kho Source: Company

* The position of Cornellius Henry Kho will be effective as of the date of the fit and proper test completion from the Financial Services Authority (OJK).


Page 31 of 33


BFIN

Profit & Loss

Key Ratios

YE Dec (Rp Bn)

2015A

2016F

2017F

2018F

2019F

Interest Income

2,160

2,422

2,850

3,355

3,889

Interest Expense

(712)

(792)

(890)

(1,021)

(1,287)

Assets

1,448

1,630

1,960

2,334

2,602

Loans

Net Interest Income Other Non-Interest Income

YE Dec (Rp Bn)

2015A

2016F

2017F

2018F

2019F

21.6

6.0

23.4

17.7

16.2

15.6

16.8

22.6

18.7

16.2

Growth (% YoY)

671

805

897

1,007

1,104

Earnings Assets

15.6

16.8

22.6

18.7

16.2

(1,053)

(1,136)

(1,314)

(1,544)

(1,725)

Non-Performing Loans

-2.0

(27.3)

15.0

12.0

12.0

Personel Expenses

(626)

(716)

(815)

(948)

(1,041)

Borrowing

31.7

4.6

29.0

19.8

17.7

G&A

(341)

(392)

(467)

(558)

(642)

Shareholders' Equity

12.7

5.9

14.3

14.0

13.0

Operating Expenses

Others

(85)

(28.5)

(33)

(38)

(42)

Net interest income

12.1

12.6

20.2

19.1

11.5

1,066

1,298

1,543

1,796

1,981

Operating expenses

24.2

7.9

15.6

17.5

11.7

Provision Expense

-230

-273

-276

-309

-333

Pre-provision profit

12.4

21.8

18.8

16.4

10.3

Operating Income

835

1,025

1,267

1,487

1,647.7

8.3

22.8

26.1

17.4

11.1

Pretax Income

835

1,025

1,267

1,487

1,647

(185)

(227)

(260)

(305)

334)

0

0

0

0

0

NIM

11.8

12.4

13.4

13.3

12.8

650

798

1,007

1,182

1,313

NPL

1.6

1.0

0.9

0.9

0.9

110.3

154.4

149.2

168.3

165.2

17.1

19.3

22.1

22.7

22.2

Pre-Provision Profit

Tax Expenses Minority Interest Net Profit

Net profit

Common Ratios (%)

Coverage ratio

Balance Sheet YE Dec (Rp Bn)

ROAE 2015A

2016F

2017F

2018F

2019F

Assets Cash

ROAA

6.1

6.6

7.2

7.1

6.7

Debt/Equity

1.8

1.8

2.0

2.1

2.2

Net Gearing

1.6

1.8

2.0

2.1

2.2

777

165

347

365

456

10,078

11,766

14,428

17,123

19,897

(180)

(183)

(203)

(257)

(282)

Yield on earning assets

17.6

18.5

19.4

19.1

19.1

Fixed Assets

428

414

434

464

495

Average cost of funds

11.1

10.6

10.2

9.4

10.0

Other Assets

667

313

388

431

497

Net Interest Spread

6.6

7.9

9.3

9.7

9.1

Total Assets

11,770

12,476

15,395

18,125

21,063

Cost to income

49.7

46.7

46.0

46.2

46.5

Equity to assets

34.1

34.1

31.6

30.6

29.7

Dividend payout

33.2

13.4

39.6

42.6

45.0

Effective tax rate

22.2

22.1

20.5

20.5

20.3

2015A

2016F

2017F

2018F

2019F

Gross Loan Loan Loss Provision

Liabilities and Equity Liabilities Borrowings

5,637

4,691

5,796

6,281

8,012

Other Liabilities

2,115

3,531

4,736

6,303

6,787

Total Liabilities

7,751

8,222

10,533

12,584

14,799

Minority Interest

0

0

0

0

0

4,019

4,255

4,863

5,541

6,263

Shareholder's Equity

Other Ratios (%)

Per Share Data YE Dec Per Share Data EPS

Total Liabilities and Equity

11,770

12,476

15,395

18,125

21,063

41.0

53.3

67.3

79.0

87.8

BVPS

253.3

284.0

324.9

370.3

418.6

DPS

13.6

7.1

26.7

33.6

39.5

Valuations P/BV (x)

2.2

1.9

1.7

1.5

1.3

13.4

10.3

8.2

7.0

6.3

P/PPOP (x)

8.2

6.3

5.3

4.6

4.2

Dividend yield (%)

2.5

1.3

4.9

6.1

7.2

P/E (x)



Page 32 of 33

Mandiri Sekuritas A subsidiary of PT Bank Mandiri (Persero) Tbk Plaza Mandiri 28th Floor, Jl. Jend. Gatot Subroto Kav. 36 - 38, Jakarta 12190, Indonesia General: +62 21 526 3445, Fax : +62 21 527 5374 (Equity Sales)

RESEARCH Tjandra Lienandjaja Adrian Joezer Ariyanto Kurniawan Kresna P Hutabarat Bob Setiadi Laura Taslim Priscilla Thany Ferdy Wan Lakshmi Rowter Gerry Harlan Audrey Hanzdima Leo Putera Rinaldy Aziza Nabila Amani

Deputy Head of Equity Research, Banking Strategy, Consumer Automotive, Coal, Chemical Telecom, Media Construction, Toll Road Retail Banking, Building Material Building Material, Industrial Est., Property Research Assistant Research Assistant Research Assistant Chief Economist Research Assistant

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Co-Head Institutional Equities Co-Head Institutional Equities Institutional Sales Institutional Sales Institutional Sales Institutional Sales Institutional Sales Institutional Sales Equity Dealing Equity Dealing Equity Dealing Equity Dealing

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INSTITUTIONAL SALES Lokman Lie Silva Halim Andrew Handaya Cindy Amelia P. Kalangie Feliciana Ramonda Kevin Halim Mirna Santikara Salim Oos Rosadi Kusnadi Widjaja Edwin Pradana Setiadi Jane Theodoven Sukardi Michael Taarea

RETAIL SALES Andreas M. Gunawidjaja Boy Triyono Hendra Riady Hendra Riady Linawati Ruwie Indra Mas'ari Bambang Suwanto Widodo Yogiswara Perdana Aidil Idham Yuri Ariadi Achmad Rasyid Ravianda Firmanda

INVESTMENT RATINGS: Indicators of expected total return (price appreciation plus dividend yield) within the 12-month period from the date of the last published report, are: Buy (15% or higher), Neutral (-15% to15%) and Sell (-15% or lower). DISCLAIMER: This report is issued by PT. Mandiri Sekuritas, a member of the Indonesia Stock Exchanges (IDX) and Mandiri Sekuritas is registered and supervised by the Financial Services Authority (OJK). Although the contents of this document may represent the opinion of PT. Mandiri Sekuritas, deriving its judgement from materials and sources believed to be reliable, PT. Mandiri Sekuritas or any other company in the Mandiri Group cannot guarantee its accuracy and completeness. PT. Mandiri Sekuritas or any other company in the Mandiri Group may be involved in transactions contrary to any opinion herein to make markets, or have positions in the securities recommended herein. PT. Mandiri Sekuritas or any other company in the Mandiri Group may seek or will seek investment banking or other business relationships with the companies in this report. For further information please contact our number 62-21-5263445 or fax 62-21-5275374. ANALYSTS CERTIFICATION: Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation.

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