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Equity Research Company Update
Friday,01 October 2021
Bank Jago (ARTO IJ) BUY
Initiation Way to go!
Within the digital banking landscape, ARTO is well placed to run ahead of its peers backed by: 1) its partnership with the GoTo digital ecosystem, 2) its solid and knowledgeable management team, and 3) its focus on the mass-market segment that should translate into higher NIMs. GoTo as one of ARTO’s non-controlling shareholders will help the bank through monetization of the sizeable database to support digital business expansion. Combined with its experienced management team and solid CAR post rights issue, we assume 102.1% loans growth resulting in a 6.9% NIM next year. All in all, the bottom line will turn positive at IDR302bn in FY22F based on our model. The digital ecosystem is the key factor. We believe the right digital ecosystem and a definitive database are the two components for digital banks to succeed. With the massive and aggressive e-commerce platforms, many digital banks are looking to tap into these ecosystems due to their sizable databases. Nonetheless, the bank would also need to select which data can be used in the credit scoring model. This requires decent data analytics with the right personnel in place along with a knowledgeable management team as the approval time is a crucial factor in the mass-market segment. Solid and well-experienced management team. ARTO’s management team has proven experience in the mass market segment, from the Danamon Simpan Pinjam (DSP) era to BTPN’s Jenius digital savings initiative. Its shareholders will allow ARTO to reach more customers across different sectors and segments, from the GoTo digital ecosystem to sharia-based P2P lending. At the same time, the dominance of millennials as ARTO’s employees should help the bank to continuously develop and launch innovative digital products and services.
Focus on the mass-market segment. The c.64.0mn MSME business owners in Indonesia with knowledgeable teams are the low hanging fruit for ARTO. By partnering with the right digital ecosystem, ARTO can penetrate the high-yield loan segments, i.e. BNPL, merchants financing, and others. Combined with its low savings interest rate compared to its peers, NIM should touch 6.9% next year. All in all, FY22F’s net profits should reach IDR302bn based on our forecast.
Initiate coverage with a BUY, TP of IDR20,000. We utilize lifetime value as the valuation basis on ARTO assuming a total of 11mn customers. Downside risks to our TP are: 1) execution delays, 2) lower-than-expected customer acquisition, 3) potential Government intervention, 4) reversal in the policy rate that might impact its blended CoF, and 5) the non-exclusive partnership with GoTo and other possible digital ecosystems.
Last price (IDR) 15,100
Target Price (IDR) 20,000
Upside/Downside +32.5%
Previous Target Price (IDR) 0
Stock Statistics
Sector Banking
Bloomberg Ticker ARTO IJ
No of Shrs (mn) 13,856
Mkt. Cap (IDRbn/USDmn) 209,229/14,659
Avg. daily T/O (IDRbn/USDmn) 277.6/19.4
Major shareholders (%)
PT Metamorfosis Ekosistem Indonesia 29.8
PT Dompet Karya Anak Bangsa 21.4
Estimated free float 48.8
EPS Consensus (IDR)
2021F 2022F 2023F
Danareksa (1.5) 23.8 47.2
Consensus 1.4 25.1 68.5
Danareksa/Cons (205.6) (5.1) (31.1)
ARTO relative to JCI Index
Source : Bloomberg
Eka Savitri
(62-21) 5091 4100 ext.3506
Andreas Kenny
(62-21) 5091 4100 ext.3509
Key Financials
Year to 31 Dec 2019A 2020A 2021F 2022F 2023F
PPOP (IDRbn) (26) (148) 39 528 973
Net profit (IDRbn) (122) (190) (19) 302 599
EPS (IDR) (101.1) (22.5) (1.5) 23.8 47.2
EPS growth (%) 423.7 (77.8) (93.3) (1,682.6) 98.4
BVPS (IDR) 564.7 146.2 650.2 674.0 721.3
PER (x) (149.3) (671.5) (10,037.7) 634.3 319.7
PBV (x) 26.7 103.3 23.2 22.4 20.9
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
ROAE (%) (30.6) (19.8) (0.4) 3.6 6.8
Source : ARTO, Danareksa Estimates
www.danareksa.com See important disclosure at the back of this report 2
Exhibit 1. Loans and Growth Exhibit 2. Net Interest Income and Growth
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates
Exhibit 3. NIM and LDR Exhibit 4. NPLs
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates
www.danareksa.com See important disclosure at the back of this report 3
The digital ecosystem is the key factor The pandemic has expedited the transition to online-based transactions
The COVID-19 pandemic which broke out in 2020 has led many people, particularly those who live in urban and suburban areas, to limit their daily activities. Activities including studying, working, and shopping for daily needs as well as banking transactions have mostly been done in the home. This has led to a shift from an offline to online (O2O) business model in several sectors such as retail, food and beverages (F&B), and banks.
Additionally, the e-commerce players have also played a greater role given the change in consumer behavior, especially of those who live in first and second tier cities. This is partly due to their aggressive marketing gimmicks, with cashbacks and free delivery fees to name but a few. Tokopedia and Shopee are two main players that currently dominate the e-commerce space, offering a wide range of products and services. Both names claim to have more than 100 mn internet visits in the past six months (refer to Exhibit 1). Bukalapak, on the other hand, as the only e-commerce player already listed on the IDX, booked c.31.9mn internet visits in the last six months as the company focuses more on leveraging and monetizing its 5.0mn warung partners.
Exhibit 5: Key e-commerce players in Indonesia
Company General info Shareholders Traffic before pandemic Internet visits July 2021 (Last
6 months)
Bukalapak # of users: 90mn
Avg daily transactions: IDR2mn
GMV: USD3bn (2020)
TPV: IDR22.88tn
Employees: 2000+
PT Kreatif Media Karya (23.93%), API 9hong Kong Investment Limited (13.05%), Archipelago Investment Pte. Ltd. (9.45%), Achmad Zaky Syaifudin (4.32%), Muhammad Fajrin Rasyid (2.64%), New Hope OCA Limited (3.16%). Batavia Incubator Pte. Ltd (2.47%), Mirae Asset-Naver Asia Growth Investment Pte. Ltd (1.80%), UBS AG, London Branch (1.86%), Willix Halim (1.40%), Others (37.32%)
70 million active users, 4.5 SME sellers, 131.7 million visits (2019)
31.9 Mn
Tokopedia # of users: 100mn GMV: USD14bn (2020) Employees: 4,700 (2019)
Softbank (35.35%), Alibaba Group (28.25%), Radiant (10.6%), Sequoia India (8.05%), William Tanuwijaya (4.66%), Anderson Investments (3.28%), Leontinus Alpha Edison (1.9%), Google (1.64%), East Ventures (1.08%), Dream Fund (1%)
Jan 2020: 7.2mn merchants, 90mn users
126mn
Shopee # of users: 93mn (2020) Avg daily transactions: IDR2.8mn GMV: USD14.2bn (2020) Employees: 20,000+
Sea Group shareholders Tencent: 39.7% Blue Dolphins Venture: 15% Forrest Li: 20% Gang Ye: 10%
2019: 55.9mn monthly users 141.6mn
Blibli # of users: 18.5mn Djarum Group, GDP Ventures 2019: 15-20mn monthly active users
18.3mn
Lazada # of users: 30.5mn
GMV: USD4.5bn (2020)
Alibaba, Temasek Holdings, Verlinvest, Rocket Internet, Kinnnevik AB, Tesco, Access Industries, HV Capital, TEC Ventures, Summit Partners
Q4 2018: 36.4mn monthly visits 28.5mn
Source: BRI Danareksa Sekuritas
www.danareksa.com See important disclosure at the back of this report 4
Plenty of growth opportunities for financial institutions
The big e-commerce players which own sizeable databases of customers attract banks and fintech companies to partner with them as the involved parties will share the database. Using the first principles design (build from scratch), the digital banks focus more on the customers’ needs and utilize the customer database to create customized products and services. The large database is also the underlying asset for the banks to build a proper underwriting and internal credit scoring system using data analytics. Such an approach applies not only for the end-customers (individuals) but also the merchants, the logistics companies and individual couriers (if any), in our view.
At a more micro level, by tracking the transactions from upstream to downstream (end-customers) the digital banks can obtain a better understanding of the volumes, patterns in certain areas, average transaction ticket size and many other aspects that can be included in the parameters of an internal credit scoring system. For the merchants, the banks can estimate the turnover value per month as the basis to calculate the potential loans facility to be offered. The banks can then offer either invoice-based loans (PO based) or regular working capital loans.
For the retail/individual segment, the banks can easily provide Buy Now Pay Later (BNPL) options for transactions value above IDR1mn, for example. Indeed, the e-commerce platforms already offer this payment term with interest rates ranging from between 1.4%-5.25% per month with a maximum loans size of IDR3bn (refer to Exhibit 2). Currently, the e-commerce players are partnering with fintech, multifinance companies and banks for the products. With a relatively small ticket size (max IDR30.0mn) and short-term tenors (less than 12 months), a fast approval and disbursement process are the key factors to beat the pay later competition.
Exhibit 6: Lending products in a few e-commerce platforms
Company Feature name and partners
Maximum ticket size Maximum tenor (months)
Maximum lending rate per month (%)
Tokopedia Paylater (Kredivo) IDR3.0mn (basic)
IDR30.0mn (premium)
1 (basic)
12 (premium)
0 (basic)
2.6 (premium)
Paylater (BRI Ceria) IDR20.0mn 12 1.4
Pinjaman Online (BFIN, Julo Finance, Koinworks, Adira Finane, Tunaiku)
IDR3.0bn 96 Not disclosed
Dana instan (Kredit Pintar, Finmas)
IDR2.4mn 3 5.25
Shopee SpayLater for goods purchase
IDR50.0mn 12 2.95
Spinjam for instant loans IDR9.0mn 12 2.95
Gojek GopayLater (Findaya) IDR3.0mn Not disclosed Fee starts from IDR10,000
GoModal (Findaya) Not disclosed (Merchants) Not disclosed Not disclosed
Source: BRI Danareksa Sekuritas
www.danareksa.com See important disclosure at the back of this report 5
Collaborative type of partnership
An agile and lean structure with a high dependency on IT (including a proper credit scoring system)
and fast approval process are the key factors for exponential growth in the fintech industry, we
believe. As of September 2021, OJK recorded 107 legal fintech companies, already down from
August 2020’s 157 entities. We believe the prolonged pandemic is one of the reasons for the fewer
number of fintech players in recent months.
The key fintech players are Investree, Amartha, Uang Teman, Modalku, Indodana, Julo and Awan
Tunai, among others. Please also note that some fintech players have niche markets other than
consumption-based loans, i.e. TaniFund for agriculture and farmers, Edufund for education-oriented
needs, and Qazwa for sharia-based P2P lending. Nonetheless, we believe there will be less players
within the fintech industry going forward, particularly those which offer a non-unique value
proposition to customers and have a dull credit scoring system with weak support from
shareholders.
We also see that some multifinance companies are quite aggressive in tapping into the paylater
business, i.e. BFI Finance (BFIN IJ, NOT RATED) and Adira Finance (ADMF IJ, NOT RATED). Both
companies, we believe, aim to diversify their financing portfolios as well as to explore more business
opportunities and to gain more databases for internal credit scoring systems. We assume that
smaller multifinance companies with non-bank shareholders will be in higher risk territory due to
the threat from fintech companies.
Exhibit 7: Example of Paylater features in Tokopedia apps
Source: Tokopedia, BRI Danareksa Sekuritas
www.danareksa.com See important disclosure at the back of this report 6
Exhibit 8: Digital banks comparison
Indicators ARTO AGRO BABP BBYB SEA BANK
Ecosystem Go-To BRI group
BRI Ventures portfolio, i.e. TaniHub, Payfazz, Haus!
MNC Group
P2P players, i.e. Kredit Pintar, Atome, Oriente
Akulaku
Alibaba’s investment portfolio, i.e. Lazada, Bukalapak, DANA
Shopee
Shareholders PT Metamorfosis Ekosistem Indonesia (29.8%)
Gojek (21.4%)
PT Bank Rakyat Indonesia (86.1%)
MNC Capital Indonesia (50.27%)
PT Akulaku Silvrr Indonesia (24.98%)
PT Gozco Capital (17.68%)
PT Danadipa Artha Indonesia (97.25%)
PT Koin Investama Indonesia (2.75%)
Specific target market
Merchants, gojek drivers, individual customers
Informal workers (freelancers, half-employed), merchants, suppliers
MNC Group’s pay TV subscribers, P2P players
Merchants, individual customers
Merchants, individual customers
# of potential users (mn)
11.0mn merchants
2.0mn drivers
100.0mn individual customers
4.5mn informal workers
1.0mn merchants
100k suppliers
250k branchless agents
10.0mn pay TV subscribers
30.5mn Lazada customers
90.0mn Bukalapak customers
93.0mn users
Potential products
Working capital loans for merchants
Multipurpose loans for drivers
Paylater for individual customers
Working capital loans for merchants/suppliers
Multipurpose loans for informal workers
Co-branding credit cards for individual customers
Multipurpose loans for customers of P2P partners
Working capital loans for merchants
Paylater for individual customers
Working capital loans for merchants
Paylater for individual customers
Current features
Deposits: Free transfer/e-wallet top up fee, multiple pockets
Lending: Biometrics recognition for account opening, instant approval
Deposits: fast account opening process with biometrics face recognition
Deposits: free transfer fee
Deposits: free transfer fee, high TD and savings rate (8.0% p.a)
Deposits: free transfer fee, high deposits rate (7.0% p.a.)
Source: Various resources, BRI Danareksa Sekuritas
www.danareksa.com See important disclosure at the back of this report 7
Solid and well-experienced management team Decent track record in previous banks
ARTO’s BOC and BOD include many experienced members, mostly from BTPN (BTPN IJ, HOLD, TP
IDR3,200) pre SMBC as the controlling shareholders. Jerry Ng, the president commissioner, is the
key person behind the ARTO new business ventures. His previous experience at the management
level was in BTPN while he also worked at BDMN and BBCA. At the BOD level in ARTO, Kharim Siregar
and Arief Tandjung are two key personnel who have already worked with Jerry Ng for more than
ten years.
During the BTPN period, the team successfully diversified the bank’s business model from only a
focus on the pensions segment to also encompassing the micro loans segment. Such a strategy was
successful during that era as the team adopted the improved business model from Danamon Simpan
Pinjam (DSP). This business was solid as the Government’s KUR program had not yet been
introduced. As such, most of the financial metrics such as NIM, ROAA, and ROAE were superior than
those of its peers.
Exhibit 9: ARTO corporate structure
Source: ARTO
Exhibit 10: Key management team and respective prior experience
Key personnel Position in ARTO Previous experience
Jerry Ng President Commissioner • CEO of BTPN
• Deputy CEO of BDMN
Anika Faisal Commissioner • Director of Compliance in BTPN
• Director of Compliance in BTPN
Kharim Indra Gupta Siregar Chief Executive Officer (CEO) • Director of IT in BTPN
• Head of Business Support – Danamon Simpan Pinjam of BDMN
Arief Harris Tandjung Deputy CEO • CFO of BTPN
• Head of SME Banking Business of BDMN
Peterjan Van Nieuwenhuizen Director of digital banking • Head of Digital Banking of BTPN
Tjit Siat Fun Director of Compliance • Director of Compliance of DBS Bank Indonesia
Deddy Triyana Director of SME • CEO of ARTO
Source: ARTO
30%
12%
21%
9%
28% PT Metamorfosis EkosistemIndonesia (MEI)*
Wealth Track TechnologyLimited (WTT)*
PT Dompet Karya Anak Bangsa(DKAB)
GIC Private Limited (GIC)
Public
www.danareksa.com See important disclosure at the back of this report 8
Implementing the improved business models in ARTO
BTPN’s micro loans faced a threat from the Government’s KUR program starting in 2014, resulting
in a moratorium of its micro loans as BTPN’s lending rate was not competitive with the KUR rate
(recall that the KUR lending rate stood at 9% when first introduced vs BTPN’s micro lending rate at
above 19%). However, the management team came out with its new business initiative while
maintaining the high-yield segment as its focus market through BTPN Syariah (BTPS IJ, BUY, TP
IDR3,500). BTPS taps the productive poor segment using the female group-lending based approach.
Jenius, BTPN’s digital deposits product, is another initiative by Jerry Ng and the team to capture
opportunities in the digital market and was launched in 2016. Jenius is considered to be a pioneering
digital banking product despite the account opening process that is still partly manual, i.e. BTPN
personnel come to the customer to collect and verify the personal information pre-opening of the
account. In the early phase, Jenius offered c.4% rate to attract new customers on the flexi saver
product. The management team has since learned, however, that such a strategy (premium rate) is
not sustainable to support business expansion in the future. Learning from these initiatives, ARTO’s
management team then implemented the improved business models on both lending and funding
activities in ARTO.
Exhibit 11: Key indicators on prior business initiatives by ARTO’s management team
Indicators BTPN BTPS ARTO
Key products Pension loans, micro loans, Jenius deposits
Ultra-micro (productive poor segment) Digital loans to individuals, merchants, P2P channels, digital savings with multi products offering
Competitive advantage
High-yield segment, premium deposits rate
High-yield segment, female group-based, premium individual deposits rate, sharia based
Partnership with digital ecosystem, custom
Threats Government’s KUR program on micro loans, aggressive SOE banks to tap the pension segment
Ultra-Micro Holding plan on BBRI with Pegadaian and PNM, agile P2P players
Agile and aggressive P2P players, other digital banks
Source: BTPN, BTPS, ARTO
ARTO adopted four business values to win in the digital banking space, namely:
1) Life centricity
2) Purposeful growth
3) Fearless creativity
4) Empowered agility
Based on those values, we believe ARTO should continuously develop digital products and services
to better serve its customers, be they individuals, merchants or P2P lending. With 62.3% of the
employees being below 40 years of age, ARTO is already equipped with internal talent that matches
its target market, i.e. the millennials tech savvy segment.
www.danareksa.com See important disclosure at the back of this report 9
Focus on the mass-market segment The MSME segment is the low hanging fruit
Industry wise, the MSME segment is the backbone of Indonesia’s economic structure due to its
labour-intensive business model. MSME loans, however, only accounted for 18.5% of total industry
loans as of June 2021. We believe multi-finance and P2P are two main players in the MSME segment
supported by the fact that MSME businesses are usually still operated on an individual basis rather
than as a formal business entity. To tap the MSME segment, banks should have a different
underwriting and credit scoring system than that used for the consumer and corporate segments.
Additionally, by nature, MSME loans are usually marked by higher NPLs and relatively high overhead
costs. This also explains why only select conventional banks can survive and succeed in the MSME
market.
Given the management team’s experience in the mass-market segment, ARTO is tapping into the
MSME market. This is inline with GoTo’s business value to empower MSME business owners. By
partnering with GoTo, ARTO will have access to 2.0mn Gojek drivers, 11.0mn GoFood and Tokopedia
merchants, 20mn Gojek active users and 90mn Tokopedia active visitors. ARTO would benefit from
its partnership with GoTo, providing BNPL or revenue-based loans for the Gojek drivers. Going
forward, ARTO would also be able to expand its consumer loans to auto ownership loans as well as
mortgages in our view.
Exhibit 12: MSME loans and NPLs position
Source: OJK, BRI Danareksa Sekuritas
3,0
3,5
4,0
4,5
5,0
-
50
100
150
200
250
300
350
400
450
500
Dec
17
Mar
18
Jun
18
Sep
18
Dec
18
Mar
19
Jun
19
Sep
19
Dec
19
Mar
20
Jun
20
Sep
20
Dec
20
Mar
21
Jun
21
Micro (LHS) Small (LHS) Medium (LHS) NPL MSME (RHS)
IDRtn %
www.danareksa.com See important disclosure at the back of this report 10
Exhibit 13: ARTO target market
Source: ARTO
To diversify the loans mix going forward, ARTO will tap the merchant segment, particularly given
the c.64.0mn micro and small business owners in Indonesia, the underserved segment that is
currently served by fintech, P2P and multi-finance players. As of June 2021, ARTO already
channelled loans to BFI Finance (BFIN IJ, NOT RATED) of IDR150bn (total facility of IDR600bn). We
also consider the potential of P2P channelled loans to its sister company, Amaan (sharia-based),
owned by the ultimate same shareholder, Jerry Ng. ARTO’s recently formed sharia unit would
penetrate the sharia segment through Amaan, focusing on the female group-based lending.
By utilizing a digital ecosystem, most of the digital banks have emphasised the adoption of a supply
chain approach on the merchant lending segment (PO-based). By doing so, ARTO can mitigate higher
NPLs going forward as it is guaranteed by the payment from customers. For the individual loans, the
lending product would usually be short-term and of a small ticket size. Given the short-term tenors
in both segments, the number of potential borrowers and the recurring loans are two crucial factors
to ensure sustainable business growth. Knowing the style of the management team in the previous
banks, ARTO will build a proper credit scoring system while expediting the approval time utilizing AI
data processing. By gaining a large database from the digital ecosystem, the bank can then build a
reliable credit scoring system and underwriting process.
On the funding side, learning from the previous experience in BTPN’s Jenius, ARTO currently does
not offer a great deposits rate to acquire new customers. Instead, ARTO offers multi-pocket
features, allowing customers to have several pockets that are customised to their needs. In addition,
the seamless connection with GoPay (no fee unlike GoPay top-up from other banks) is another key
feature to build more sustainable CASA deposits going forward in our view. Other than that, the
easiness and wide range of products (insurance, e-wallet, mutual funds, prepaid vouchers, etc)
would be ARTO’s value proposition to beat its competitors going forward.
www.danareksa.com See important disclosure at the back of this report 11
Financial metrics 1H21 highlights
As of June 2021, ARTO booked 695.3% yoy loans growth mainly supported by channeling loans to
multifinance and P2P, such as IDR150bn loans to BFI Finance (BFIN IJ, NOT RATED). Post rights issue
in March 2021, the earnings assets mix was still mostly dominated by non-loans instruments. In
turn, this translated to a 5.0% NIM given the lower yields in non-loans earning assets (reverse repo
and government bonds instruments). Customer deposits, meanwhile, grew by 326.3% yoy in June
2021 driven by 328.2% yoy current account growth.
Profits and loss wise, the 1H21 bottom line was still in the red (albeit with less severe losses) given
the lending has started to have an impact at the interest income level. Given the bank’s strategy to
focus more on CASA deposits, the blended CoF provides some support for its NIM. Operating
expenses, meanwhile, still grew by 134.8% yoy as ARTO still allocated a certain budget on selective
expenses, i.e. personnel, IT and marketing/promotion. Those expenses are crucial as ARTO is still in
the growth phase mainly in acquiring new customers.
Exhibit 14: 1H21 highlights
FYE Dec (IDR bn) 2Q20 1Q21 2Q21
QoQ (%) YoY (%) 1H20 1H21
YoY (%)
Net interest income 17 33 106 215.5 538.5 27 139 422.6
Reported NIM (%) 4.4 7.7 4.0 4.1 5.0
Non-interest income 0 13 7 (43.7) 4,474.5 2 20 936.4
Non-II/Total income (%) 1.0 28.1 6.5 6.9 12.8
Operating income 17 47 113 142.7 576.5 29 160 458.1
Operating expenses (43) (78) (105) 35.1 146.4 (78) (183) 134.8
Cost-Income Ratio (%) 255.9 167.5 93.2 273.0 114.9
Pre-provisions profit (26) (31) 8 (124.5) (129.5) (49) (24) (52.0)
Provisions allowance 0 (7) (13) 89.5 (2,897.2) (1) (20) 1,254.4
Credit cost - annualised (bps)
(65) 253 304 107 261
Pretax profit (26) (38) (9) (77.3) (66.1) (51) (47) (8.1)
Tax - - - N/A N/A - - N/A
Effective tax rate (%) - - - - -
Net Profit (26) (38) (9) (77.3) (66.1) (51) (47) (8.1)
Other Key Data and Ratios
Gross loans 273 1,292 2,171 68.1 695.3 273 2,171 695.3
Customer deposits 405 958 1,726 80.2 326.3 405 1,726 326.3
Gross NPLs - - - N/A N/A - - N/A
Total assets 1,707 9,244 10,093 9.2 491.5 1,707 10,093 491.5
Shareholders' equity 1,272 8,143 8,118 (0.3) 538.3 1,272 8,118 538.3
ROAA (%) (7.0) (2.7) (0.4) (6.7) (1.5)
ROAE (%) (10.6) (3.3) (0.4) (16.0) (2.0)
LDR (%) 67.4 134.9 125.8 67.4 125.8
Gross NPLs ratio (%) - - - - -
CAR (%) 215.2 538.0 342.8 215.2 342.8
Source: ARTO, BRI Danareksa
www.danareksa.com See important disclosure at the back of this report 12
Financial outlook Looking at ARTO’s prospects, we expect FY22F’s earnings to turn into profits of IDR302bn supported
by: 1) 102.1% yoy loans growth as we assume the digital lending product will already be launched
in 4Q21, 2) more sustainable CASA deposits coming from the customers’ stickiness despite the
potential reversal direction of the policy rate, 3) normalized operating expenses growth of 29.7%
yoy, and 4) stabilized credit costs of 204bps due to its mass-market core business.
OJK’s recent relaxation policy on the new products’ approval should pave the way for ARTO and
other banks to continuously innovate lending and deposits products. Capital, meanwhile, should not
be a concern in the next five years given the rights issue proceeds of IDR7.0tn received in March
2021. We also assume that ARTO will not distribute any dividends in the next two years as the bank
is still in the growth phase and needs to build sustainable capital through retained earnings.
Exhibit 15: ARTO loans and deposits growth
Source: ARTO, BRI Danareksa
Exhibit 16: ARTO net interest income, PPOP and net income
Source: ARTO, BRI Danareksa
-
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
Dec 19 Dec 20 Dec 21F Dec 22F Dec 23F Dec 24F
Loans CASA deposits TD
IDRbn
(500)
-
500
1.000
1.500
2.000
2.500
FY19 FY20 FY21F FY22F FY23F FY24F
Net int income PPOP Net income
IDRbn
www.danareksa.com See important disclosure at the back of this report 13
Valuation Initiate coverage with a BUY and TP of IDR20,000
We initiate coverage on ARTO with a BUY recommendation and a TP of IDR20,000. We utilize
customer lifetime value as the appropriate valuation method on ARTO given its close proxy to the
digital ecosystem partnership. Our TP implies 29.7x 2022F PBV, justifiable due to its strong growth
potential amid the fast digital development and adoption in Indonesia.
Exhibit 17: Lifetime value method on ARTO
Individual Merchant
Avg loans (IDRmn) 5 80 Loan yields (%) 17.0 15.0 CoF (%) 3.8 3.8 CoC (%) 2.0 2.0 CIR (%) 35.0 35.0 Fee-income/total income (%) 15.0 15.0 Tax rate (%) 20.0 20.0 k 10% 10% g 7% 7% USD/IDR 14,500 14,500
Risk-adjusted net int income (IDRmn) 0.6 7.4 Fee-income (IDRmn) 0.1 1.1 Operating income (IDRmn) 0.7 8.5 Opex (IDRmn) 0.2 3.0 Earnings before tax (IDRmn) 0.4 5.5 Earnings after tax (IDRmn) 0.4 4.4 Disc earnings: PAT/(k-g) 11.8 146.7 Cust lifetime value (IDRmn) 11.8 146.7 Cust lifetime value (USD) 812 10,062 # of customers (mn) 11.0 1.0 Total market cap (IDRtn) 130.2 146.7 276.9 O/S shares (mn) 13,856 TP (IDR) 20,000 BVPS 2022F (IDR) 674 Implied 2022F PBV (x) 29.7
Source: BRI Danareksa Sekuritas
Exhibit 18: Sensitivity analysis on our base case TP based on loan yields
Individual
15 16 17 18 19
Merchants
13 16,100 16,900 17,700 18,600 19,400
14 17,200 18,000 18,900 19,700 20,600
15 18,400 19,200 20,000 20,900 21,700
16 19,500 20,300 21,200 22,000 22,900
17 20,700 21,500 22,300 23,200 24,000
Source: BRI Danareksa Sekuritas
www.danareksa.com See important disclosure at the back of this report 14
Exhibit 19: Sensitivity analysis on our base case TP based on CoF and CoC
CoF
2.8 3.3 3.8 4.3 4.8
CoC
1.0 24,000 23,000 22,000 21,000 20,000
1.5 23,000 22,000 21,000 20,000 19,000
2.0 22,100 21,000 20,000 19,100 18,100
2.5 21,000 20,000 19,000 18,000 17,000
3.0 20,000 19,000 18,000 17,000 16,100
Source: BRI Danareksa Sekuritas
We also utilize the comparable peers on the global neo banks to obtain the better understanding
on the digital banks and ARTO valuation. ARTO’s EV/users of USD1,165 is reasonable in our view
given the abundant growth opportunities through GoTo partnership. Such figure is also still below
BBCA’s hefty EV/user of USD5,187 based on our calculation.
Exhibit 20: Peers comparison on digital banks and Indonesia big banks
Source: BRI Danareksa Sekuritas
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www.danareksa.com See important disclosure at the back of this report 15
Exhibit 21. Income Statement
Year to 31 Dec (IDRbn) 2019A 2020A 2021F 2022F 2023F
Interest Income 53 90 434 1,170 1,849
Interest Expense (41) (25) (65) (180) (321)
Net Interest Income 12 65 369 990 1,528
Non-Interest Income (NII) 5 25 59 42 53
Oper. Income 17 90 428 1,032 1,582
Oper. Expenses (42) (237) (389) (505) (608)
Pre-provisions profit (26) (148) 39 528 973
Provisions & Allowances (66) (38) (53) (137) (219)
Operating Profits (92) (186) (14) 391 754
Non-Operating Income (27) (4) (5) (6) (5)
Exceptionals 0 0 0 0 0
Pre-tax Profit (119) (190) (19) 385 749
Income Tax (3) 0 0 (83) (150)
Minorities 0 0 0 0 0
Net Profit (122) (190) (19) 302 599
Exhibit 22. Balance Sheet
Year to 31 Dec (IDRbn) 2019A 2020A 2021F 2022F 2023F
Gross Loans 285 908 4,488 9,071 13,198
Provisions (33) (82) (163) (327) (418)
Net Loans 252 826 4,324 8,744 12,780
Govt. Bonds 0 0 0 0 0
Securities 19 138 241 361 433
Other Earnings Assets 0 0 0 0 0
Total Earnings Assets 1,183 1,677 8,285 13,335 17,906
Fixed Assets 84 152 152 165 166
Non-Earnings Assets 39 309 165 225 186
Total Assets 1,321 2,180 11,819 14,668 19,360
Customer Deposits 599 804 3,421 5,905 9,952
Banks Deposits 28 2 0 0 0
Int. Bearing Liab. - Others 0 0 0 50 75
Total Liabilities 640 948 3,572 6,120 10,212
Share capital & Reserves 858 1,573 8,606 8,606 8,606
Retained Earnings (177) (341) (360) (58) 541
Shareholders' Funds 681 1,232 8,247 8,549 9,147
Minority interests 0 0 0 0 0
Total Equity & Liabilities 1,321 2,180 11,819 14,668 19,360
Exhibit 23. Key ratios
Year to 31 Dec (IDRbn) 2019A 2020A 2021F 2022F 2023F
Yield on Earning Assets 6.3 6.3 8.7 10.8 11.8
Cost of funds 7.0 3.5 3.1 3.8 4.0
Interest Spread (0.8) 2.8 5.7 7.0 7.8
Net Interest Margin 1.4 4.5 5.8 6.9 7.7
Cost/Income Ratio 252.1 264.4 90.9 48.9 38.5
Oper. Exp./Oper. Gross Inc. 258.2 261.2 102.8 67.8 60.4
Gross NPL Ratio 2.0 0.0 0.6 1.3 1.2
LLP/Gross NPL 569.3 0.0 569.3 284.7 256.2
Cost of Credit 19.5 6.4 2.0 2.0 2.0
Loan to Deposit Ratio 47.5 112.9 131.2 153.6 132.6
Loan to Funding Ratio 47.5 112.9 131.2 153.6 132.6
CASA Mix 17.6 27.1 33.8 31.2 21.5
ROAE (30.6) (19.8) (0.4) 3.6 6.8
ROAA (12.3) (10.8) (0.3) 2.3 3.5
CAR 148.3 91.4 171.4 129.3 104.3
Exhibit 24. Dupont and growth
Year to 31 Dec 2019A 2020A 2021F 2022F 2023F
Dupont
Pre-Tax ROAA (12.0) (10.8) (0.3) 2.9 4.4
Tax Retention rate 102.7 100.0 100.0 78.5 80.0
Post-Tax ROAA (12.3) (10.8) (0.3) 2.3 3.5
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 2.5 1.8 1.5 1.6 1.9
ROAE (30.6) (19.8) (0.4) 3.6 6.8
Growth (%)
Interest income (22.0) 71.2 381.7 169.6 58.1
Net Interest Income (58.2) 462.1 470.5 168.5 54.4
Other Oper. Expenses (3.8) 458.7 63.9 29.7 20.6
Fee Based Income (100.0) 0.0 0.0 112.4 52.5
Pre-Provision Oper. Profit 101.7 475.9 (126.4) 1,256.5 84.5
Net Profit 423.7 55.4 (89.9) (1,682.6) 98.4
Shareholders’ Equity 489.5 80.9 569.2 3.7 7.0
Loan (27.5) 218.8 394.3 102.1 45.5
Earnings Asset 139.9 41.8 394.0 60.9 34.3
Deposit 17.0 28.5 324.6 72.6 68.5
Int. Bearing Liab. 16.9 29.3 322.9 74.0 68.3
CASA 20.2 97.8 428.6 59.6 15.8
Total Asset 98.8 65.0 442.2 24.1 32.0 Source : ARTO, Danareksa Estimates