Bank BJB

Bank BJB (BJBR) is one of the few listed banks that have released its financial statements for the period of the third quarter of 2013. And like many other companies that have released their statements, BJBR’ financial performance is quite good (Yep, if you notice, the companies who release their statements earlier are usually recorded good performance, although not always). But perhaps, there are other points beyond its financial performance that make this stock attractive for investment.

This BJBR, since it's IPO in July 2010 (we’ve had discussed it, here is the link), it had been interesting because the valuation is very low at its IPO price of Rp600 per share (I forgot the details of calculation, but the price is undervalue). Either because of the low price or other factors, at the time BJBR skyrocketted to 1,000 in just a few days after its first trading day, and then continued to rise until hits the 1,770 level, recorded a gain of nearly 200% in just four months.

One point to note is: At the time, the stock was attractive only in term of its low valuation. While the quality of the company’s performance, though quite good, but not as good as the top banks such as Bank BRI, Bank Mandiri, or Bank BCA. Its growth prospects? Also virtually not existed, given the bank's status as a regional bank, so BJBR could only operating in Provinces of West Java and Banten, and this was different from the other banks which hold status as national banks that can operate anywhere throughout Indonesia. I needed some time to later realize that BJBR is also could open offices anywhere, not only in West Java or Banten.

But because at the moment the management said nothing about their development plan, then when its performance in 2011 on a quarterly basis was down, the share price immediately fell without mercy. As of October 2010, BJBR was still in the 1,700's, but entering the month of February 2011, the stock tumbled to 1,100's. And now, after almost three years, BJBR is going nowhere but in the range of Rp1,000 – 1,200 per share. BJBR have had dropped into below 1,000 three times, all happened at the correction period of the Jakarta Stock Index (JCI), ie September - October 2011, June 2012, and August 2013. On the other hand, the stock has not been able to go up to break the barrier of 1,300's, let alone 1,700's.

The fact is, although the stock is going nowhere over the past three years, but during the three years the real value of the company is growing. Yep, although in certain quarters the earnings of BJBR looks down, but the overall performance during the whole year is still growing. Following the details, figures in billions of Rupiah.

Years	2010	2011	2012	2013*)
Assets	43,446	54,449	70,841	75,860
Equity	4,991	5,375	6,009	6,443
Revenue	4,894	5,977	6,796	5,995
Net Income	890	963	1,193	1,096

By the way, please note that the data for year of 2013 is for the period that ended September 30, 2013. If annualized, the revenue and net income for the full year of 2013 would be Rp7,993 billion and Rp1,462 billion, grow 17.6 and 22.5% respectively compared to 2012.

Now, remember that the BJBR’ share price of 600 in 2010 was considered undervalue, and the fair price is in the range of 1,000 to 1,200 (because in the year 2010, or at the beginning of 2011 to be exact, after some volatile movements, BJBR share price stopped at the level of 1,000 to 1,200). At the end of 2010, BJBR’ equity and net income were Rp5.0 trillion and Rp890 billion respectively.

And today, the equity already increased to Rp6.4 trillion, and the net income (if annualized) has surged to Rp1.5 trillion, instead the share price was down to 940 per share! So what d'ya think??

Well, so now you understand why we discuss this stock. Yep, I could say that this stock is undervalue. BJBR’ PER and PBV at a price of 940 are only 6.2 and 1.4 times respectively, lower than the average valuation of banking sector. On the other hand the company itself is not in any trouble, or being hit by certain negative sentiment. As we know, the price of a stock may fall if there is a concern that the performance of the company in question decreases. But so far there is no issues related to this bank, and the fact its current performance in the third quarter of 2013 was still fine. The only thing that explains the low price of the stock is the market only, which had some terrible declines in last June – August 2013, and has not been yet fully recovered.

That's one point related to valuation. Another point is related to the management of the company. If you notice, this BJBR, although its financial performance is good and also continue to grow, but the growth is slow. Including its latest performance until the third quarter of 2013, the net profit only rose 15.9%, lower than 17.3% of Bank BRI (BBRI), or 24.2% of Bank (BTPN). If we take a look at the other indicators, then BJBR is also no better than BBRI and BTPN.

But since BBRI and BTPN are the best two banking stock in the Indonesia Stock Exchange, then it is reasonable if BJBR was having difficulties to overtake them (you cannot said that BJBR is a poor bank just because its performance wasn’t better than the two). But here lies one more point that makes the stock attractive: Unlike the other banks that are just doing their day-by-day business, the management of BJBR has a lot of efforts of development to make a better performance in the future. The following are some of the points of 'transformation' that is going on inside the company:

1. Changing the name of Bank Jabar Banten to became the Bank BJB. The logo of the bank is also replaced with a more modern look. The status as a regional bank is slowly abandoned to become a national bank.
2. Launched a new slogan, 'bigger better stronger', which is awesome, I think.
3. Took a new president director from Bank BNI (which is a bigger bank), Mr. Bien Subiantoro. I could say that this new director is more professional than the previous ones, it can be seen from his detailed letter in the Annual Report of BJBR. In addition to recruiting new director, the number of employees in 2012 was increased 130% or more than doubled compared to 2011.
4. Open many branches, even to the Island of Sulawesi.
5. Building the brand equity of ‘Bank BJB’ through some advertisements either on television, radio, print media, and the Internet.
6. Formed various committees to maintain credit quality. One of the main problem of BJBR’ performance is its low credit quality.
7. Entering to SME financing business by developing 'Waroeng BJB'
8. Launches '​​BJB Precious', a priority banking services for high-end customers.
9. Continue to develop the services of information technology. Most recently, BJBR will soon have the SMS and Internet banking services (still waiting for permission from Bank Indonesia/BI), and most importantly:
10. Set a vision to become one of the ten largest banks in Indonesia in 2018.

Well, as usual, a vision could become true, but could also fail. But if the various transformations above are successful, where the financial performance of the bank become better in 2014, then the share price should be able to break the limit of 1,300’s, which has been a very strong barrier in the last three years. Actually, if we're talking about 'transformations', then BJBR is not the only bank in the Indonesia Stock Exchange that is actively expand their business, because Bank Pundi (BEKS) is also doing the same thing (and perhaps also some other banks). But if we pay attention to the company's latest performance, then BJBR would be the only option.

On the other hand, as long as the JCI moving normally, then you do not need to wait for the results of its performance in the next year, as BJBR could returns to its ‘real track’, ie in the range of Rp1,000 - 1,200 per share. So even if you ignored the prospect of BJBR’ better performance in the future, the stock is still very attractive because of its status as a value stock that have a low risk. Once again, we’re not talking about a sick bank here, but a compeletely normal and good bank.

PT Bank BJB, Tbk

Rating of Performance at Q3 2013: A

Rating of Stock at 940: AA

Original article was written at October 29, 2013.