Undervalue Opportunity: Bank Bukopin

Last week hundreds of taxi drivers, especially from two cab companies ie Blue Bird (BIRD) and Express Transindo Utama (TAXI), rallied in downtown Jakarta to protest against Uber and Grabtaxi, which almost led into a riot. Shortly thereafter, the issue of ‘online versus conventional taxi’ became a headline in the media. While in the stock market, the stocks of BIRD and TAXI became the center of attention, in which TAXI, which previously freefall from Rp1,200 per share to below 100, suddenly is now above 200 again. Similarly, BIRD, which in last January dropped to Rp5,400 per share, but it is now traded at 6,800.

In fact, since BIRD went public in November 2014, or when TAXI continued to fall in the last year, these stocks were never a choice for most investors or traders (except maybe for some speculators who stick to the fact that when TAXI dropped to as low as Rp80 per share, the price had been too low, and indeed the stock rebounds). And if not for the rally of taxi drivers, perhaps there would be no people who bother to read the financial statements of BIRD, and then found that the company still generated a profit of hundreds of billion Rupiah (equal to tens of millions US Dollar), a figure that certainly sounds fantastic, and it is used as justification by Uber and Grabtaxi supporters to say that BIRD already making a too big profit from the their monopolistic practices in taxi business.

However, if later the stories about the rally began to be forgotten, the stocks of BIRD and TAXI will be forgotten too, because since the beginning the two stocks do not offer good fundamentals for investors.

Okay, then what about Bank Bukopin (BBKP), the topic of our current discussion?

Just like BIRD and TAXI, BBKP is not a popular stock among investors (and traders). But in the past, it has been the center of attention when it rose significantly, most recently in early 2013 when the stock flew from 600’s to nearly 1,000, after reports that the Bosowa Group acquired 30% stake in BBKP at the price of Rp1,050 per share. But some time later (after the story was forgotten), BBKP returned into its status as ‘mediocre’ stock, and has not received any public attention until today.

While for bargain hunter like me, BBKP would not attract attention when it rose, but instead when it's down. In the last five years, it was clear that the lowest point for this stock is on the level of Rp520 – 530 per share, and based on its valuation, BBKP can not priced lower than that, because its PBV is only 0.5 times at the price of 525, far below the average PBV of Indonesian banking stocks, while BBKP is not a tiny or rogue company (I cannot find a proper word, sorry), but it is a quite popular bank with consistent financial performance in the long term. As of 2015, BBKP net asset recorded at Rp7.5 trillion, up significantly compared to the previous five years (in 2010) which was Rp2.9 trillion.

Note: Based on my own research over the years, banks in Indonesia can be grouped into four tier. Tier 1 is the list of giant banks with assets of Rp500 trillion (US$ 45 billion) or more, the banks are very famous and very influential to the general public. There are only three banks on the list, they are Bank Mandiri, Bank BCA and Bank BRI. Tier 2 is the list of big banks with assets of Rp100 trillion or more, but they are usually only a second choice for the people (for saving) after the three major banks above. The example of this Tier 2 banks are Bank BNI, Bank CIMB Niaga, Bank Danamon, and Bank BII. Tier 3 is a list of medium-sized banks with assets of Rp20 - 100 trillion, the bank’s brands were quite famous but less-known when compared to banks in tier 1 and 2, and BBKP including in this tier. Lastly, the fourth tier is the list of small banks that most public doesn’t even aware that they are exist, and if they are listing on the Stock Exchange, ther shares typically illiquid. For example Bank Victoria (BVIC), Bank QNB (BKSW), Bank Mestika Dharma (BBMD), and so on.

Fundamentally, banks in Tiers 1 and 2 generally have a very good and consistent performance in the long term, because they are arguably dominated the banking industry in Indonesia. For banks in tier 3, including Bukopin, their performance is not as good as the bigger banks, but in the long-term the value of their net assets are still growing. While banks in tier 4, they have a fairly poor performance, and some of them may experience a bankruptcy, for example the unfamous Bank Century, which has changed its name to Bank JTrust Indonesia (BCIC).

Back again to BBKP. As mentioned above, BBKP is a Tier 3 bank with a medium-quality fundamental, and therefore the stock valuation can not be equated with BMRI, BBRI, or BBCA, wherein if the three stocks are often priced at PBV of 2, 3, or even 4 times, then PBV of BBKP is usually only about 0.9 – 1.1 times only.

So when the PBV is now only 0.6 times (at the price of Rp590 per share), then that means? The stock is currently undervalue, of course, just like when in last September BBRI dropped to the price of Rp8,000 per share, which reflecting a PBV of 1.7 times, whereas normally this BBRI is valued at PBV of 2 – 3 times. And after several months, as you can see for yourself, what is the current price of BBRI? The point is, the decline of BBRI was not because the company is had a problem or something, but only because the market was in a state of panic (in September 2015, the Jakarta Composite Index/JCI dropped to as low as 4,120). So when later the JCI rebounds, the stock will also rise back into its normal position (and that was the case indeed).

While BBKP? The bank also has no problem at all, but in beginning of this year, the stock slided down from 700 until it stopped at 525, as the JCI was down about 3% following the drop in Chinese Stock Exchange. But when the JCI later rose back, the stock seemed to ‘forget’ to follow (and this is a common case for most of second liner stocks). Well, actually in mid-February BBKP had rebounded following the increase in JCI, but after the issue of restrictions on NIM (Net Interest Margin), the stock had to be down to 525 again. Along with the evaporation of the issue, BBKP slowly recovers, and it is now traded at Rp590 per share.

But if we look at the hypothesis that normally the stock priced on PBV 0.9 – 1.1 times, then the stock could rise further to a level of Rp750 – 800 per share. Let say, the stock rise to 750 only, then it means that the profit would be 27%, would not it? Profit of 27% may seem low, especially when compared with TAXI which rose to more than 100% in a very short time. However, when considering the risks, then unless there is a force majeure or the JCI fall into a state of another panic selling, no way BBKP would going back to 525. While TAXI? Well, since its fundamentals were a mess, then I have absolutely no idea if it will rise or fall in the future.

And related with being the ‘center of attention’ just like TAXI and BIRD, then although BBKP is currently not a center of attention (of the stock investors/traders), but as already mentioned above, in the past it had become the center of attention for several times, including in 2010 when the stock rose significantly after coming out the story that the bank would be acquired by the Social Security Company/Jamsostek. If we assume that there will be some ‘stories’ that would make this BBKP become the center of attention once again, then potential gain is far greater than 27% before, while the risks are still low. So I think this is a very fair bet, of course!

PT Bank Bukopin, Tbk

Rating of Performance in 2015: A

Rating of stock price at 590: AA

Disclosure: When this article was published, Avere Investama (Teguh Hidayat & Partners) is in a position of holding BBKP at an average purchase price of Rp565 per share. This position can change at any time without prior notice.

Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com