privilege from parent - bfi.co.id · privilege from parent financial services 16 june 2017...

Financial ServicesSector outlook

Multi-finance market share in new 4W credit sales

Source: CLSA, respective companies

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For important disclosures please refer to page 26.

12.2% 13.9% 15.4% 14.3% 15.3%

12.8% 13.0% 11.2% 13.3% 15.0%5.8% 8.3% 11.8% 14.9% 13.3%7.0%

7.2% 8.2%9.2% 11.0%

8.1%7.7%

7.6%7.0% 6.3%

54.2% 50.0% 46.0% 41.3% 39.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2012 2013 2014 2015 2016

Astra Sedaya Finance BCA FinanceMandiri Tunas Toyota Astra FSAdira Others (260 companies)

Marisa [email protected]+62 21 2554 8825

Sarina Lesmina+62 21 2554 8820

16 June 2017

IndonesiaFinancial services

www.clsa.com

Privilege from parentAuto- and bank-owned firms dominate multi-finance marketAs of 2016, Indonesia had 200 multi-finance firms, with auto- and bank-owned firms continuing to take market share from others. Supported by parents, bank-owned firms can offer more competitive lending rates, while auto-owned firms can rely on strong dealer relationship (more flexible financing packages). Among bank-owned, BCA Finance hascompetitive rates, high ROAE and good asset quality. Meanwhile, amongauto-owned, ASDF and TAFS have the strongest dealer network and solid asset quality. Increasing LCGC and Toyota market share should also benefit them as the leading players in those markets.

Attractive business for banksq Consumer financing contributed 68% of multi-finance’s portfolio.q Multi-finance’s lending rate is ~24%, while the bank’s lending rate is ~13%.q Multi-finance may have higher CoC, but still have higher ROAA than banking.q More relaxed multi-finance regulations (lower DP, 10x gearing) enhance banks to

disburse consumer loans through multi-finance firms.

Domination of auto- and bank-ownedq Both auto- and bank-owned firms continued to take market share from others.q Bank-owned firms offer more competitive rates, while auto-owned rely on dealer

relationship and flexible financing package. In 2016, OJK capped dealer commissionat 15%, making it more difficult for non-bank/non-auto owned firms to compete.

4-Wheeler to support financing growthq Auto sales recovery will be the key financing growth driver (70% sales is on credit)q In the last three quarters, we started to see pick up in wholesale car demand. 4W

penetration is still low at ~9%.q For leasing business (commercial vehicle), we started to pick up in sales in Feb-17.

Standing out: Astra-owned firms and BCA Financeq For auto-owned, Astra Sedaya (ASDF) and Toyota Astra FS (TAFS) have the

strongest dealer network and solid asset quality. Increasing LCGC and Toyota market share should also benefit them as the leading players in those markets.

q For bank-owned, BCA Finance has competitive rates, high ROAE and good asset quality.

q Among listed companies, BFIN and Adira have high ROAE and successful portfolioshifting.

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Privilege from parent Financial Services

16 June 2017 [email protected] 2

Attractive business for banksAccording to the Financial Services Authority (OJK, 2015), only 35% of the 250m Indonesian population had access to formal financial institutions (banks, insurance, mortgage financing, multi-finance). In terms of loan account, according to the Global Financial Inclusion Index (World Bank, 2012), among every 1,000 Indonesians, only 197 have accounts vs 964 in Malaysia and 272 in Thailand. This shows a huge potential market to be tapped in by financial institutions in Indonesia, including multi-finance firms.

Figure 1 Figure 2

Loan account penetration for every 1,000 people Multi-finance’s vs banking’s loan growth

Source: Global Financial Inclusion Index (2012) Source: CLSA, Financial Services Authority (OJK)

Different from banks which offers loans to various segment, multi-finance firms are focusing more on consumer financing (68% of financing portfolio, dominated by passenger auto loans/multipurpose loans). This segment allows multi-finance firms to generate relatively higher financing yield than banks, which eventually translates into higher ROAA.

Figure 3 Figure 4

Multi-finance’s financing portfolio – by type Multi-finance’s portfolio based on purpose

Source: CLSA, Financial Services Authority (OJK, 2015) Source: CLSA, Financial Services Authority (OJK) – March 2017

197

964

272

0

200

400

600

800

1,000

1,200

Indonesia Malaysia Thailand

account

-5%

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016

Financing - multifinance Loan - banking

Leasing29%

Factoring3%

Consumer Finance

68%

Investment30%

Working capital

6%

Multi-purpose

loans (including passenger

2W/4W loans)63%

Only 35% of Indonesian population had access to

formal financial institutions

Consumer financing contributed 68% of multi-

finance’s portfolio




Figure 5 Figure 6

Multi-finance vs banking’s average lending rate Multi-finance vs banking’s NIM

Source: CLSA, Financial Services Authority (OJK) - 2015 Source: CLSA, Financial Services Authority (OJK)

For consumer financing, multi-finance’s average lending rate is around 24%, while banks’ average lending rate is around 13%. Hence, the multi-finance industry can generate higher net interest margin than the banking industry.

Note that consumer financing is less sensitive to interest rates, as the borrowers generally prioritise more on faster approval process, instalment and downpayment affordability. With this business nature (faster approval process), multi-finance firms’ generally have higher cost of credit than the banking industry. However, net-net, multi-finance’s ROAA still was higher than the banking industry.

Figure 7 Figure 8

Multi-finance firms vs banks’ cost of credit Multi-finance vs banking’s ROAA

Source: CLSA, respective companies Source: CLSA, Financial Services Authority (OJK)

In terms of asset quality, the multi-finance industry’s non-performing financing (NPF) ratio increased to 3.2% in 1Q17. It was slightly higher than the banking industry’s non-performing loan (NPL) ratio of 3.04%, but still below the Financial Services Authority’s maximum NPF ratio of 5%. In 2017, we expect the NPF to decline to below 3% on the back of stricter approval process and better economic growth.

24%

13%

16%

12.8%

0%

5%

10%

15%

20%

25%

30%

Consumerfinance

Leasing Factoring Bank's averagelending rate

15.8%14.9% 14.5%

15.2%

5.5% 4.9%4.2%

5.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2012 2013 2014 2015

NIM - multifinance NIM - banking

3.0%

2.7%2.8%

3.2%3.4%

0.8%1.0% 1.1%

1.7%

2.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2012 2013 2014 2015 2016

Multifinance firms' CoC Bank's CoC

3.8% 3.9%

3.0%

2.5%2.8%

3.1% 3.1%2.9%

2.3% 2.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2012 2013 2014 2015 2016

ROAA - multifinance ROAA - banking

Multi-finance’s lending rate is ~24%, while

bank’s lending rate is ~13%

Multi-finance firms have higher CoC than banking industry, but still higher

ROAA than banks

Multi-finance’s NPF ratio increased to 3.2% in

1Q17, slightly higher than banks




Figure 9

Multi-finance’s NPF ratio vs banking NPL ratio

Source: CLSA, Financial Services Authority (OJK)

In 2016, the multi-finance industry’s non-performing financing (NPF) ratio jumped to ~3%, partly due to the changes in the collectability category. In 2015, 0-120 days of late payment was categorised under ‘pass’ (performing) category. Then, in August 2016, OJK tightened the collectability period to 0-30 days late payment as the ‘pass’ category, 31-90 days as the special mention category, and above 90 days as the non-performing financing (NPF) category, getting more similar with banks’ asset quality category.

Figure 10

Asset quality category: Multi-finance company vs banks (effective in August 2016)

Multi-finance company Bank

Performing categoryPass (Collectability 1) 0-30 days of late payment 0 days of late paymentSpecial mention loan (Collectability 2) 31-90 days of late payment 1-90 days of late payment

Non-performing categorySubstandard (Collectability 3) 91-120 days of late payment 91-120 days of late paymentDoubtful (Collectability 4) 121-180 days of late payment 121-180 days of late paymentLoss (Collectability 5) above 180 days of late payment above 180 days of late payment

Source: CLSA, Financial Services Authority (OJK)

To incentivise multi-finance firms to improve their asset quality, in December2016, OJK relaxed the downpayment regulation from 10-25% to 5-25%, depending on their NPF ratio. This compares to the DP for banks’ auto loans (set in June 2015) which is at 20-30% (note: 20% for NPL<5%).

Compared with the last regulation (3 July 2015), OJK introduced new minimum DP for multi-finance firms with NPF<1% and NPF between 1-3%. The lowest DP is set at 5% if the lenders have NPF<1% - applicable for 2W up to >4W both for productive or non-productive use and for both conventional and Shariah lending. This should be positive for Astra’s multi-finance firms and BCA Finance which has NPF<1%. See more details in Sarina’s report Astra Intl - BUY (The wheels are turning).

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%NPF - multifinance NPL - banking

In 2016, multi-finance’s NPF ratio jumped to ~3%, partly due to the changes

in the collectability category

OJK relaxed the DP regulation from 10-25% to 5-25%, depending on

their NPF ratio

The lowest DP is set at 5% if the lenders have

NPF<1%

OJK tightened the collectability period from 0-120 days to 0-90 days

late payment as performing category


https://www.clsa.com/member/report/587735848



Figure 11

Minimum downpayment for auto financing for multi-finance firms (effective 13 Dec 2016)

Category Conventional ShariaNPF<1%

2-Wheeler and 3-Wheeler 5% 5%4-Wheeler or more (for Productive use) 5% 5%

4-Wheeler or more (for Non- Productive use) 10% 5%NPF >1% to <3%


4-Wheeler or more (for Non- Productive use) 15% 10%NPF >3% to <=5%


4-Wheeler or more (for Non- Productive use) 15% 15%NPF >5%


4-Wheeler or more (for Non- Productive use) 20% 25%Source: Financial Services Authority (OJK). Note: NPF is non-performing financing (similar to banks’ NPL ratio).

Compared with banks, multi-finance firms also enjoy more benefits in terms of gearing ratio, which means higher capacity to disburse loans more aggressively. Based on the Finance Ministry’s regulations, multi-finance companies can have up to 10x gearing ratio.

Figure 12 Figure 13

Multi-finance industry’s gearing ratio Joint financing/channelling portion to total financing

Source: CLSA, Financial Services Authority (OJK), respective companies Source: CLSA, Financial Services Authority (OJK)

As multi-finance firms offer more relax regulation (lower downpayment policy, 10x gearing ratio) than banks, many banks opted to disburse consumer loans(mostly auto loans) through joint financing and channelling scheme with multi-finance firms.

∑ Joint financing scheme: The funding comes from multi-finance firmsand banks (90-95% of funding usually comes from banks, while the remaining 5% funding will come from multi-finance firms). The risk that arises will be borne proportionally by each party.

∑ Channelling: The whole funding comes from the bank. The risk will be borne by the party/bank that has the funding, while the multi-finance firm only acts as the fund manager and obtains a fee from it.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2012 2013 2014 2015 2016

(x)

5% 5% 4% 3% 3%

21% 20%22%

23%24%

0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016

Channeling portion to total managed financingJoint Financing to total managed financing

Multi-finance firms can have up to 10x gearing

ratio

More relaxed multi-finance regulations help

banks to disburse consumer loans through

multi-finance firms

In joint financing, 90-95% funding comes from

banks

In channelling, the whole funding comes from the

bank s




Banks’ consumer loans generally consist of mortgage, auto loans (2-Wheeler/4-Wheeler) and payroll loans. Among those loans, auto loans require more complex operations considering its small loan size. Hence, for auto loans, banks usually prefer joint financing/channelling scheme. In terms of auto loan exposure, Danamon has the biggest auto loans (Rp44tn, 36.5% of total loans), supported by its subsidiary Adira (ADMF).

Figure 14 Figure 15

Banks’ auto loans (1Q17) Banks’ auto loans to total loans (1Q17)

Source: CLSA, respective banks Source: CLSA, respective banks

On the multi-finance side, with the joint financing scheme, they can get benefits from lower cost of funding so that they can offer competitive lending rates. Although it is profit-sharing-based, competitive lending rates can help the multi-finance firms to become customers’ top of mind. At the same time, the multi-finance firms will also have less asset quality risk (risk sharing with the bank).

Figure 16

Multi-finance firm’s joint financing partner

Multi-finance firms Key partner on joint financing(JF)

Key partner with banks(borrowing/Non-JF)

ListedAdira Dinamika Multi Finance (ADMF IJ) Danamon, Commonwealth, Adira

QuantumBNP Paribas, ANZ, Panin, BCA

BFI Finance Indonesia (BFIN IJ) Mandiri, Maybank, BTPN, BRI StanChart, Mandiri, Qatar National Wahana Ottomitra Multiartha (WOMF IJ) Maybank Panin, BCAIndomobil Multi Jasa (IMJS IJ) BNI, Mandiri Panin, Mandiri, NiagaMandala Multifinance (MFIN IJ) Maybank, CIMB Niaga, Panin, BRI,

MandiriBCA, Danamon, BJB

Non-listedBCA Finance (BBCA's subsidiary) BCA Sumitomo Mitsui Mandiri Tunas Finance (BMRI's subsidiary) Mandiri Panin, BCA, BNI, BTMU, DanamonCIMB Niaga Auto Finance (BNGA's subsidiary) CIMB NiagaAstra Sedaya Finance/ACC (ASII's subsidiary) Permata Mizuho Corporate Bank, HSBC, ANZ,

Mandiri, BCA, CIMB NiagaToyota Astra Financial Services (ASII's subsidiary) Permata BTMU, Sumitomo, CitibankFederal International Finance (ASII's subsidiary) TAFS, Permata, Commonwealth,

CIMB NiagaSumitomo Singapore, BCA, Mandiri Mizuho Tokyo, Panin


43,772

35,072

22,555

13,140 10,057

4,244

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Danamon BCA Mandiri CIMB NiagaPermata BNI

Rp bn36.5%

10.4%7.5% 8.3%

3.4%1.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Danamon Permata CIMBNiaga

BCA Mandiri BNI

For auto loans, banksusually prefer joint

financing/channelling scheme

With JF scheme, multi-finance firms can get

lower CoF and offer more competitive lending rate




For self-funding (on B/S, exclude joint financing), multi-finance firms still rely heavily on bank loans (onshore and offshore), as the bank loans offer higher funding availability and faster process. However, with tightening liquidity in the banking industry, we see growing trend on bond issuance, increased from 17% in 2014 to 23% of total self-funding in 1Q17. Meanwhile, offshore bank loans (foreign loans) show declining portion due to high hedging cost (forex risk).

Figure 17

Multi-finance industry’s self-funding portfolio breakdown – exclude joint financing

Source: CLSA, respective banks

Figure 18 Figure 19

Multi-finance firms’ gearing ratio Multi-finance firms’ joint financing portion

Source: CLSA, respective companies Source: CLSA, respective companies

45% 46% 44% 44% 50% 50%

30% 30% 34% 32% 23% 23%

17% 18% 17% 20% 22% 23%

8% 6% 5% 4% 4% 4%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 1Q17

Onshore bank loans Offshore bank loans Bonds Others

0.01.02.03.04.05.06.07.08.0(x)

68% 62% 61%87% 77%

54%75%

52% 54% 50% 53%

32% 38% 39%13% 23%

46%25%

48% 46% 50% 47%

0%

20%

40%

60%

80%

100%

120% Joint Financing Non-JF

For non-JF, multi-finance firms still rely heavily on

bank loans

Offshore bank loans shows declining portion

due to high hedging cost




Domination of auto- and bank-ownedAs of 2016, Indonesia had 200 multi-finance firms, with 16 key multi-finance firms dominating 40% gross financing market share (excluding joint financing). Among those 16 multi-finance firms, auto-owned multi-finance firms (Astra) dominated the top tier market share.

Figure 20

Auto-owned multi-finance firms

Auto company Multi-finance firmAstra International (ASII) Federal International Finance (100%)

Astra Sedaya Finance/ACC (75%)Toyota Astra Financial Services (50%)


Figure 21

Bank-owned multi-finance firms

Bank Multi-finance firmDanamon Adira Dinamika (92%), Adira Quantum (99%)BCA BCA Finance (100%), Central Santosa Finance (70%)Mandiri Mandiri Tunas Finance (51%), Mandiri Utama Finance (51%)Panin Clipan Finance (51.5%)/Verena Multi Finance (43%)BRI BRI Finance (99%)BNI BNI Multifinance (100%)CIMB Niaga CIMB Niaga Auto Finance (100%)Maybank Indonesia WOM Finance (68.6%), Maybank Indonesia Finance (100%)Bank Permata Astra Sedaya Finance (25%)Source: CLSA, respective banks

Figure 22

Key multi-finance firms’ gross financing market share (2016) – non joint financing

Source: CLSA, Financial Services Authority (OJK), respective companies

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0% 2015 2016

16 key multi-finance firms dominated with 46%

gross financing market share

Auto-owned multi-finance firms (Astra) dominated

the top tier market share

Several banks own multi-finance firms to support

their consumer loan business




If we include joint financing, bank-owned multi-finance company Adira (ADMF), BCA Finance (BCAF) and Mandiri Tunas Finance (MTF) also dominated the top tier market share.

Figure 23

Gross managed financing market share – include joint financing


Figure 24

Gross managed financing vs non-joint financing (2016)


25.8% 23.8% 22.2% 19.8% 17.7%

15.5% 16.0% 16.4% 15.2% 15.7%

13.5% 12.8% 13.7% 14.3% 14.4%

13.7% 14.4% 13.2% 13.6% 14.2%

6.2% 7.4% 9.2% 11.2% 12.0%5.8% 5.8% 6.2% 6.5% 7.9%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2012 2013 2014 2015 2016

Adira Astra SedayaFIF BCA FinanceMandiri Tunas Toyota Astra FSCIMB Niaga Auto Finance BFINWOMF IMJSCFIN

27 31 30

7 11 21

6 12 8 9 7

83 82 75

52 50 46

25 25 17 18 15

0102030405060708090

Rp tnGross financing receivable (non joint financing)

Gross managed financing receivable (include joint financing)

If we include JF, Adira BCAF and MTF also

dominated the top tier market share




Auto- and bank-owned firm’s competitive advantagesTo attract customers, those auto-owned firms have competitive advantages on dealer relationships. As they are being prioritised on the dealer’s referral, they can get larger number of potential customers, which enables them to select the best-quality customers (good credit record), translating into solid asset quality. Also, although they may not offer the lowest rate, auto-owned firms usually can offer more flexible packages (tenor, interest rates, insurance, downpayment, trade-in) and faster approval procedures.

In IIMS 2017, auto-owned firm ASDF (ACC) offered Kredit Mantap program (April-May 2017), which can offer up to 8-year tenor with 20% downpayment. For the first four years, customers pay instalment for 50% of the car price; then for the remaining 50%, there are many options. They can continue to pay instalments for the next four years with adjustable rates (a total of 8-year tenor) or they can do trade in for a new car. In addition, ASDF (ACC) also offers VIP Access program which offers same-day approval process.

Figure 25

ASDF (ACC) offers more flexible financing package, namely Kredit Mantap

Source: Astra Sedaya Finance (ACC)

Meanwhile, bank-owned firms usually can offer more competitive lending rates (higher exposure to JF, lower CoF). However, in terms of financing package, it may not be as flexible as auto-owned firms as they are attached to the bank which usually implements stricter procedures.

Figure 26

Comparison of new 4W financing’s lending rates

Tenor BCA Finance (BCAF)

Mandiri Tunas (MTF)

Adira (ADMF)

Astra Sedaya (ASDF)

Fix 1 year 5.6% 6.4% 5.3% 6.6%Fix 2 years 7.3% 7.8% 7.3% 8.6%Fix 3 years 6.8% 8.1% 8.2% 8.6%Fix 4 years 8.3% 8.6% 8.9% 10.3%Fix 5-year 10.8% 10.3% 10.8%Fix 6-year 11.7% 11.0%Fix 7-year 12.2%Fix and Cap 5 years 8.6% Fix 3 years,

10.4% Cap 2 yearsFix and Cap 6 years 11.3% Fix 4 years,

13.4% Cap 2 yearsSource: CLSA, respective companies

Auto-owned firms rely on dealer relationship and more flexible financing

package

ASDF (ACC) can offer up to 8-year tenor with

trade-in facility

Bank-owned firms offer more competitive lending

rate




Among bank-owned firms, BCAF has the most capability to offer the lowest lending rate (BCA’s cost of funding was only 2.0% in 2016). Hence, BCAF has the higher portion of direct sales (based on customer request, not dealer reference).

Figure 27 Figure 28

New 4W financing’s lending rates (1-4 year tenor) Banks’ cost of funding comparison

Source: BCA Source: CLSA, BCA, Mandiri

With these competitive advantages from both auto-owned and bank-owned firms (dealer relationship, competitive rate), their market share shouldcontinue to grow bigger, taking market share from other players, especially in the automotive financing market, which is the big chunk market in the multi-finance industry.

In addition, in August 2016, the Financial Services Authority (OJK) capped the acquisition cost (% dealer commission from one customer) at 15%. This regulation will be a disadvantage for other players (non-auto and non-bankowned) who used to offer much higher commission to dealers so that they can get referrals from the dealers.

Figure 29

Gross financing market share trend (non JF)

Source: CLSA, Financial Services Authority, respective companies.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Fix 1 year Fix 2 years Fix 3 years Fix 4 years

BCA Finance (BCAF)Mandiri Tunas Finance (MTF)Adira (ADMF)Astra Sedaya Finance (ASDF)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2012 2013 2014 2015 2016

BCA's cost of fundingMandiri's cost of fundingDanamon's cost of funding

65.3% 64.4% 62.9% 62.0% 60.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2012 2013 2014 2015 2016

Adira Astra SedayaFIF BCA FinanceMandiri Tunas Toyota Astra FSCIMB Niaga AF BFI FinanceWOM Finance Clipan FinanceOthers (189 companies)

In August 2016, OJK capped dealer

commission, making it more difficult for non-bank/non-auto owned

firms to compete

Both auto-owned and bank-owned firms

continued taking market share from others

Among bank-owned firms, BCAF have the most

capability to offer the lowest lending rate




Figure 30

New financing trend for auto-bank owned multi-finance firms


Figure 31

New financing growth YoY - 2016


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Adira Astra Sedaya FIF BCA Finance Mandiri Tunas

Rp bn2012 2013 2014 2015 2016

24.4%

16.0%14.1%

8.7%

1.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Astra Sedaya BCA Finance FIF Mandiri Tunas Adira

Most of auto-owned and bank-owned firms booked

increasing trend of new financing

In 2016, Astra Sedaya, BCAF and FIF booked

double-digit new financing growth




4-Wheeler to support financing growthAs consumer financing dominated multi-finance’s portfolio, the recovery ofautomotive sales will be the key growth driver (70% of consumer financing is dominated by auto and 70% of auto sales is paid on credit). Among auto segment, we expect 4W to recover faster than 2W, as the 4W market has shown a more consistent recovery signal. Also, according to several key multi-finance firms, the slower demand in 4W is partly just a pending demand (tax, political stability). In addition, 4W penetration is still relatively low. Hence, for 4W, we expect it to grow by at least +4% YoY in 2017.

For leasing/commercial vehicle, we see pick up in sales, starting in Feb-2017,along with rising commodity price. However, it may take slightly longer than passenger cars to recover, as the higher commodity price needs to be sustainable enough before the impact can be translated into much higher demand. For multi-purpose/refinancing, it should help to support financing growth, but the contribution should be still insignificant to total financing.

Auto outlook: Recovery signalIn terms of auto penetration, if we compare with Thailand which has relatively the same GDP/capita with Indonesia, 4W penetration in Indonesia is still relatively low at 8% in 2014, showing a huge potential market.

Figure 32 Figure 33

Indonesia’s 4W penetration vs other regions Indonesia’s 4W penetration trend

Source: CLSA, World Development Indicators (2014) Source: CLSA, Central Bureau of Statistics (BPS)

Figure 34 Figure 35

Quarterly 4W sales Monthly 4W sales

Source: CLSA, Gaikindo Source: CLSA, Gaikindo

However, due to economic slowdown, 4W sales growth declined and bottomed at -22% YoY in 2Q15. Lately, in the last three quarters, we started to see pick up in car demand. In April 2017, 4W wholesale sales reached 89.6k units,

China

PhilippinesIndonesia

Korea

Malaysia

Pakistan

Thailand

India

Singapore

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

- 20,000 40,000 60,000 80,000 100,000

4W penetration

(GDP per capita, US$ PPP)

Vietnam

0%1%2%3%4%5%6%7%8%9%

10%

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

4W penetration

190,000

240,000

290,000

340,000

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

units 4W sales

0

20,000

40,000

60,000

80,000

100,000

120,000

Jan-1

4Fe

b-1

4M

ar-1

4Apr-

14

May

-14

Jun-1

4Ju

l-14

Aug-

14

Sep

-14

Oct

-14

Nov-

14

Dec

-14

Jan-1

5Fe

b-1

5M

ar-1

5Apr-

15

May

-15

Jun-1

5Ju

l-15

Aug-

15

Sep

-15

Oct

-15

Nov-

15

Dec

-15

Jan-1

6Fe

b-1

6M

ar-1

6Apr-

16

May

-16

Jun-1

6Ju

l-16

Aug-

16

Sep

-16

Oct

-16

Nov-

16

Dec

-16

Jan-1

7Fe

b-1

7M

ar-1

7Apr-

17

units 4W sales

The recovery of automotive sales will be

the key financing growth driver

4W penetration in Indonesia is still low at 8-

9%

Higher commodity price needs to be sustainable

before the impact can be translated into much

higher leasing demand

In the last three quarters, we started to see pick up in wholesale car demand




+5.7% YoY. 4M17 sales were 372.2k units, +5.7% YoY (same growth as in 1Q17), and came in line at 34% of Gaikindo’s target, 1.1m units (+4% YoY).

One of the main 4W sales growth drivers came from LCGC (Rp99-179m price range). As of 4M17, LCGC sales rose by +52% YoY to 84k units and accounts for 23% of the car industry (vs 22% in FY16 and 15% in FY15). In terms of brand, 4W market is dominated by Japanese brands due to good resale value.

For truck/commercial vehicle sales, it finally booked a positive growth starting in Feb-2017, after continuing sales decline in the past two years. This brings average monthly sales in 1Q17 to 18.0k units/ month (vs 15.5k units in FY16). However, the higher commodity price needs to be sustainable before the impact can be translated into much higher leasing demand.

Figure 36 Figure 37

Agriculture and mining proportion to total financing Average monthly truck sales

Source: CLSA, Financial Services Authority (OJK) Source: CLSA, Financial Services Authority (OJK)

For 2W, in May 2017, we started to see more positive signals. Indicative May2017 2W wholesale sales rose by 37% MoM and 15% YoY to 531k units. 2W Association AISI stated that the sales recovery was driven by relatively-benign food and stable good prices. Furthermore, there has been a shift in harvesting period from March-April 2016 to April-May 2017. Strong sales inMay 2017 were also due to pre-Lebaran purchases. Given the shift in Lebaran, the May sales was still a 2% increase from June 2016. In terms of penetration, 2W penetration has reached 40% penetration to Indo population. Hence, the potential growth may not be as high as in 4W. On the back of high penetration in 2W, Adira, one of the leading players in 2W, started to shift its focus to 4W business.

Figure 38 Figure 39

Indonesia 2W penetration trend 2W monthly sales

Source: CLSA, Central Bureau of Statistics (BPS) Source: CLSA, AISI

0%

1%

2%

3%

4%

5%

6%

7%

2011 2012 2013 2014 2015 2016

Agriculture Mining27,576

26,104

21,738

18,705

13,333 12,980

17,312 17,967

0

5,000

10,000

15,000

20,000

25,000

30,000

2013 2014 2015 1Q16 2Q16 3Q16 4Q16 1Q17

units Ave. monthly truck sales

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2W penetration

150,000200,000250,000300,000350,000400,000450,000500,000550,000600,000650,000

Jan-1

5

Mar

-15

May

-15

Jul-

15

Sep

-15

Nov

-15

Jan-1

6

Mar

-16

May

-16

Jul-

16

Sep

-16

Nov

-16

Jan-1

7

Mar

-17

May

-17

units

For leasing /commercial vehicle, we see pick up in

sales, starting in Feb-2017

For 2Ws, in May 2017, we started to see more

positive signals

One of the main 4W sales growth drivers came from

LCGC




Multi-purpose/refinancing: Encouraging, but insignificantIn the past few years, the Financial Services Authority (OJK) has given several relaxations to expand the business scope of the multi-finance industry. In 2014, OJK issued a regulation (No.29/POJK.05/2014) that allows multi-finance firms to conduct the multi-purpose financing business. Multi-purpose financing can be used to finance house renovation, education, health care, holiday, marriage, and other consumptive purpose. Multi-purpose financing is usually backed with vehicles/land/housing as collaterals. For non-collateralised multi-purpose financing, multi-finance firms disburse only to existing borrowers with minimum six-month participation and a good credit record.

Then, in Sept-15, OJK gave another relaxation by allowing multi-finance firms to conduct refinancing business. Refinancing means disbursing new loans before the borrowers fully repaid the previous loan. For refinancing, financing size is limited to max Rp200m and 70% of collateral value.

These multipurpose/refinancing financing should help to support the financing growth of multi-finance firms, especially in a weakening economy. However, the contribution may be still insignificant to total financing portfolio (below 5%), as the multi-finance firms are still reviewing the asset quality risk.

∑ BCAF targets its multi-purpose financing to reach Rp200bn (1% of total financing) in 2017. BCA Finance only offers its non-collateralised multi-purpose financing to existing customers with maximum loan size of Rp 30m/borrower.

∑ As of Feb-2017, ASDF’s multi-purpose loans contributed 2% of total new financing.

Figure 40

ASDF’s multi-purpose financing promotion

Source: CLSA, Astra Sedaya Finance

In 2014, OJK allowedmulti-finance firms to

conduct multi-purpose financing business

The contribution may be still insignificant to total

financing portfolio

In Sep-2015, OJK allowed multi-finance firms to

conduct refinancing business




Multi-finance firms’ portfolio breakdownMost of the key multi-finance firms’ FY16 new financing portfolios were still dominated by the 4W segment. Meanwhile, for the new 2W financing business, it shows a declining trend, partly due to high 2W penetration and partly due to weaker purchasing power (commodity related issue). We can see these declining trends in the new 2W portion in Adira and FIF, which are the two main players in the 2W financing business.

Figure 41

Multi-finance firms’ new financing value breakdown by business segment (2016)


To offset the weak 2W financing growth, Adira started to focus more on 4W business, especially in used 4W business, which offers higher lending yield. Since 2015, Adira also started to develop the durable/electronic goods financing business. Meanwhile, for FIF, the used 2W business seems to grow stronger, offsetting the weaker new 2W segment. Also, in 2014, FIF started to enter the 4W business to support its financing growth.

Figure 42 Figure 43

Adira’s new financing portfolio trend FIF’s new financing portfolio trend

Source: CLSA, Adira Source: CLSA. FIF

0%

20%

40%

60%

80%

100%

120%

Adira(ADMF)

AstraSedaya

FIF BCAFinance

MandiriTunas

ToyotaAstra FS

CIMBNiaga

AF

BFIFinance

WOM(WOMF)

Clipan(CFIN)

New 4W Used 4WNew 2W Used 2WMultipurpose/refinancing/durable Leasing (HE)

43% 38% 40% 38% 38%

17%18% 18% 20% 18%

28% 31% 28% 23% 24%

12% 13% 14% 18% 18%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016

New 2W Used 2W New 4W Used 4W Durables

82% 78% 77% 74% 71% 67%

12% 15% 16% 20% 21% 24%

6% 7% 7% 6% 6% 7%

0%

20%

40%

60%

80%

100%

120%

2011 2012 2013 2014 2015 2016

New 2W Used 2W Multipurpose

New 4W Used 4W

Most of the key multi-finance firms’ FY16 new

financing portfolios were dominated by 4Ws

Declining trends of new 2W portion in Adira and

FIF




In terms of market share, for new 4W market, Astra Sedaya Finance-ASDF (75% owned by Astra Intl) dominated with 15.3% market share, followed by BCA Finance-BCAF (100% owned by BCA) at 15.0% market share in 2016.

In 2016, Toyota Astra Financial Services – TAFS’s (50% owned by Astra Intl) and BCAF’s market share increased the most by 177bps and 166bps YoY, respectively. TAFS’s market share increased significantly as it started to enter the Daihatsu market in 2016 (taking some pie from Astra Sedaya (75% owned by Astra Intl, 25% owned by Permata).

For used 4W market, among key multi-finance firms, BCAF has the highestfinancing units (82k units) in 2016, followed by Adira (62k units) and Astra Sedaya (52k units). While ASDF prefers to focus more on new 4W, Adira prefers to expand more its used 4W business.

Figure 44 Figure 45

Multi-finance market share in new 4W credit sales Key multi-finance firms in used 4W financing

Source: CLSA. Gaikindo, respective companies Source: CLSA, respective companies

For new 2W, FIF (100% owned by Astra Intl) dominated with 31.7% market share, followed by Adira (92% owned by Danamon) at 16.0% market share in 2016. For used 2W, FIF also seemed to dominate the market with 1.2m new financing units. Adira seemed to hold back its 2W financing disbursement (asset quality issue), resulting in declining market share in 2W.

Figure 46 Figure 47

Multi-finance market share in new 2W market share Key multi-finance firms in used 2W financing

Source: CLSA, Gaikindo, respective companies Source: CLSA, respective companies

12.2% 13.9% 15.4% 14.3% 15.3%

12.8% 13.0% 11.2% 13.3% 15.0%5.8% 8.3% 11.8% 14.9% 13.3%7.0%

7.2% 8.2%9.2% 11.0%

8.1%7.7%

7.6%7.0% 6.3%

54.2% 50.0% 46.0% 41.3% 39.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2012 2013 2014 2015 2016

ASDF BCA FinanceMandiri Tunas Toyota Astra FSAdira Others (260 companies)

61 71 66 84 82

42 45 52

61 62 50

56 63 46 52

18 13 6

3 -

0

50

100

150

200

250

2012 2013 2014 2015 2016

k units

BCA Finance Adira Astra Sedaya Mandiri Tunas

24.0% 24.2% 26.6% 31.5% 31.7%

22.4% 18.1% 18.1% 17.2% 16.0%8.0% 7.3% 7.8% 7.6% 5.2%

53.2% 57.4% 55.1% 51.1% 52.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2012 2013 2014 2015 2016

FIF AdiraWOMF Mandiri TunasOthers (260 companies)

427 522 776

917 1,174

723 786

796 776

682

108

142

167 74

49

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2012 2013 2014 2015 2016

k unitsFIF Adira WOMF

For 2016 new 4W, Astra Sedaya dominated 15.3% market share, followed by

BCAF

In 2016, Toyota Astra FS and BCAF’s market share

increased the most

In used 4W, among key multi-finance firms, BCAFhas the highest financing

units followed by Adira

For new 2W, FIF dominated with 31.7%

market share, followed by Adira




Standing out: Astra-owned firms and BCA FinanceFor auto-owned, Astra-owned firms Astra Sedaya Finance (ASDF) and Toyota Astra Financial Services (TAFS) have the strongest dealer network (30% penetration to dealers or equivalent to 14,600 dealer partnership) and solid asset quality (below 1% NPF ratio). Although their lending rates may not be as competitive as bank-owned firms, their close relationship with dealers will help them to design more flexible and attractive financing packages (ie, trade in for a new car) for their customers.

Increasing LCGC and Astra market share (Toyota, Daihatsu) should also benefit them. In 2016, the ASDF’s managed financing portfolio comprised 2% new car financing under Astra automotive division, 17% used car financing, 5% new car financing from other brands and 6% heavy equipment financing and others. With increasing car sales volume marketed by Astra’s automotive division, ASDF booked an increase in total financing value of 24% YoY in 2016.

Figure 48 Figure 49

Monthly LCGC sales 4W’s key brands market share

Source: CLSA, Gaikindo Source: CLSA, Gaikindo

For 2017, ASDF, which has the highest new 4W market share, targets its new financing to grow relatively flat YoY to Rp27tn in 2017 as its sister company TAFS also started to enter the Daihatsu market (since 2016). According to ASDF’s management, its market share in Daihatsu declined slightly from 60% to 52% after TAFS enter the market. However, if we combined those twocompanies, they dominated with 70% market share of Toyota in 2016, which means higher Toyota market share for Astra.

TAFS’s strategic business expansion initiative for offering Inventory Financing to Toyota dealers and financing the purchases of Daihatsu cars boosted an improvement in its 2016 financial performance. TAFS realised total financing of Rp13.5 trillion or growth of 37% YoY in 2016, with a total of 81,522 units of car (+25% YoY). For 2017, TAFS targets to increase its Daihatsu financing to 20,000 units (from previously 6,000 units or equivalent to Rp842bn). For total new financing unit, TAFS targets it to grow by 22% YoY in 2017.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000 units

0%

10%

20%

30%

40%

50%

60%

70%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

1Q

17

Toyota DaihatsuAstra MitsubishiSuzuki Honda

From auto-owned, ASDFand TAFS have the

strongest dealer network and solid asset quality

Increasing LCGC and Astra market share

(Toyota, Daihatsu) should also benefit ASDF and

TAFS

ASDF and TAFS dominated with 70% market share of

Toyota in 2016

TAFS targets to increase its Daihatsu financing to 20,000 units in 2017 (vs

6,000 units in 2016)




Meanwhile, for bank-owned, BCA Finance (BCAF) has competitive lending rates, high ROAE and good asset quality. BCAF, which had the second-biggest financing market share in the new 4W segment (15% in FY16), has more than enough funding capability to finance stronger 4W demand. Through joint financing with BCA, BCAF can get as low as 2.0% CoF, which also means itcan offer competitive lending rates in the industry, but still get the highest ROAA and ROAE. In terms of asset quality, BCAF has the lowest cost of credit (CoC) at 0.6% (vs 3.8% peers’ average CoC). For 2017, BCAF targets its new financing to grow by +10% YoY to Rp34tn (vs Gaikindo new 4W sales growth target of 4-5% YoY).

Figure 50

New financing growth YoY vs ROAA (2016)


Figure 51

New financing growth YoY vs ROAE (2016)


Astra Sedaya Finance

BCA Finance

FIF

Mandiri Tunas Finance

Adira Dinamika MF

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

New financing growth YoY

ROAA


BCA Finance

FIF


Adira

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

ROAE

New financing growth YoY

From bank-owned, BCAFhas competitive lending

rates, high ROAE and good asset quality

Through JF with BCA, BCAF can offer

competitive lending rate in the industry, but still

get the highest ROAA and ROAE




Figure 52

NPF ratio vs cost of credit (2016)


Figure 53

Multi-finance firms’ FY16 net profit


Figure 54

FY16 multi-finance firms’ net profit contribution to parent entity



BCA Finance

FIF


Adira

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8%

Cost of credit

NPF ratio

1,806

1,139 1,009 934

798

351 335 205

60

0200400600800

1,0001,2001,4001,6001,8002,000

FIF BCAFinance

Adira AstraSedaya

BFIFinance

ToyotaAstra FS

MandiriTunas

ClipanFinance

WOMFinance

Rp bn

34.8%

11.9%

5.5% 4.6% 4.4%2.1% 1.2% 1.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Danamon- Adira

Astra Int'l- FIF

BCA -BCA

Finance

Astra Int'l- AstraSedaya

Panin -Clipan

Maybank- WOMFinance

Mandiri -MandiriTunas

Finance

Astra Int'l- ToyotaAstra FS

In terms of asset quality, BCAF has the lowest cost

of credit (CoC) at 0.6%

Adira’s FY16 net profit (Rp1.0tn) contributed

35% of FY16 Danamon’s net profit, the highest contribution to parent

entity

BCAF generated Rp1.1tn net profit (NP), while

Astra’s owned firms contributed Rp2.7tn NP to

Astra Intl in 2016 (18% of ASII’s net profit)




Standout among listed firms: BFI Finance and AdiraYet, among listed companies, BFI Finance (BFIN) and Adira have high ROAE, successful portfolio shifting and well-managed asset quality.

Figure 55

Listed multi-finance firms in Indonesia

Listed Multi-finance company

Ticker Market Cap (US$ m)

3M ADTO (US$)

Current Price

(Rp/shr)

Floating shares

(%)

Current P/B (x)

Current P/E (x)

ROE (%) ROA (%)

Adira Dinamika ADMF 520.2 68,301 6,900 7.9 1.39 6.84 21.6 3.6

BFI Finance BFIN 599.9 76,953 5,000 57.2 16.63 95.42 21.0 7.2

Mandala Multifinance MFIN 102.6 94,694 1,030 24.5 0.75 5.34 14.9 6.3

Indomobil Multi Jasa IMJS 97.5 51,833 300 10.4 0.69 9.43 7.7 1.2

Clipan Finance CFIN 84.4 12,197 282 92.0 0.30 5.47 5.7 3.1

Buana Finance BBLD 74.2 234 600 26.6 0.90 18.49 4.9 1.6

Batavia Prosperindo BPFI 59.5 126 500 14.6 1.35 20.06 6.8 3.4

Intan Baruprana IBFN 41.7 7,596 175 22.4 0.98 (2.32) 0.2 0.0

Wahana Ottomitra WOMF 39.5 176,980 151 13.8 0.64 8.72 8.2 1.0

Danasupra Erapacific DEFI 35.0 473 690 58.5 7.47 52.91 16.2 16.0

Radana Bhaskara HDFA 34.7 700 198 12.6 0.90 18.00 5.1 0.8

Tifa Finance TIFA 14.0 12,050 172 25.7 0.60 10.55 5.3 1.3

Trust Finance TRUS 11.7 4 195 35.0 0.66 14.65 4.6 3.8

Verena VRNA 7.8 7,448 101 70.2 0.35 15.74 2.3 0.4

Magna Finance MGNA 6.3 2,000 84 100.0 0.65 (1.21) (6.7) (2.1)Source: CLSA, Bloomberg (price closed at 15June2017)

BFIN was set up in 1982, a joint venture between Manufacturers Hanover Leasing Corporation from the United States and local partners. In 2011, Trinugraha Capital SA (which consist, amongst others, of TPG and North Star Group) acquired 42.8% stake in BFIN.

In terms of business model, BFIN focuses more on multi-purpose/refinancing business. This distinctive market has shielded BFIN from intensifying competition in new 4W auto financing, especially with bank/auto-owned multi-finance firms.

Figure 56

BFIN’s financing description

Notes Average loan size (Rp m)

Non dealer - used 4W multipurpose/refinancing 85Non dealer - used 2W multipurpose/refinancing 6Dealer - new 4W multipurpose/refinancing 150Dealer - used 4W auto financing 90Others - equipment and machineries leasing 550Others - property multipurpose/refinancing 250Source: CLSA, BFI Finance

Among listed companies, Adira and BFI are

standouts

In 2011, Trinugraha Capital SA (TPG and North

Star Group) acquired 42.8% stake in BFIN

BFIN focuses more on multipurpose/refinancing

business




In addition, BFIN also has been successfully shifting from ‘dealer new 4W business’ to higher yield ‘non-dealer 4W business’. This higher yield has translated into higher ROAE for BFIN. In 1Q17, BFIN booked 35% YoY new financing growth with financing yield increased by 67bps YoY (driven by higher portion of non-dealer financing) and ROAE increased to 23.3%. In 2017, BFIN plans to open 50 new branches, mostly in Java, targeting 20% new financing growth.

Figure 57 Figure 58

BFIN’s managed financing receivable by geography BFIN’s New financing breakdown

Source: CLSA, BFI Finance Source: CLSA, BFI Finance

Besides high ROAE, BFIN has well-managed asset quality (1.0% NPF, 1.6% CoC in 1Q17), supported by its strong back-end capability (payment collection activity). To lower the asset quality risk, BFIN has been gradually moving focus away from Kalimantan and Sumatera to other lower risk area. In 2016, its % write-off increased due to changing write-off policy to 210 days overdue from 270 days. Going forward, management guided stable CoC. Last but not least, BFIN’s high dividend payout policy (~49%) also presents attractive dividend yield (5% dividend yield).

Figure 59 Figure 60

BFIN’s ROAE BFIN’s non-performing financing ratio and % write-off

Source: CLSA, BFI Finance Source: CLSA, BFI Finance

25% 24% 22% 19% 19% 19%

20% 21% 21% 22% 19% 17%

23% 23%20% 18%

15% 12%

24% 21% 26%24%

28% 31%

8% 10% 11% 17% 19% 21%

0%

20%

40%

60%

80%

100%

120%

2011 2012 2013 2014 2015 2016

Sumatera Sulawesi and East IndonesiaKalimantan Java and BaliGreater jakarta

15% 12%3% 2%

19% 18%18% 17%

47% 49%54% 55%

9% 9% 11% 13%

8% 10% 12% 11%2% 1% 2% 2%

0%

20%

40%

60%

80%

100%

120%

2014 2015 2016 1Q17

Dealer New 4W Dealer Used 4WNon Dealer 4W Non Dealer 2WLeasing Other

18.7%

16.4%17.3% 17.1%

19.3%

23.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2012 2013 2014 2015 2016 1Q17

1.1%

1.4%1.5%

1.3%

0.9%1.0%

0.8% 0.9%

1.4%

1.8%

2.2%

1.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2012 2013 2014 2015 2016 1Q17

NPF ratio % Write-off

Besides high ROAE, BFIN has well-managed asset

quality

BFIN has been successfully shifting from ‘dealer new 4W business’

to higher yield ‘non-dealer 4W business’




Meanwhile, for Adira, despite its new financing only grew by 1% YoY in 2016, the company’s success in shifting to lower-risk 4W business has resulted in better controlled expenses. Adira also managed to reach a total saving of 12% in interest expenses through funding diversification and favourable domestic rate environment. To improve its opex efficiency, Adira reduced itsnumber of outlets and digitalised its operations in the last 2 years, resulting in lower opex (-4% YoY) and declining cost to income ratio (41.9% CIR in 2016 vs. 48.24% CIR in 2015). With better managed expenses, Adira couldgrow its net profit by 52% YoY in 2016.

Figure 61 Figure 62

Managed financing breakdown Adira’s ROAE

Source: CLSA, Adira Source: CLSA, Adira

In April 2017, Adira has started to show stronger new financing growth at +6% YoY. To support its financing growth, Adira expanded its financing service for durable goods since 2016. The effective interest rate charged for these financing products was approximately 50-54% pa.

Asset quality would continue improving, as Adira has gradually lowered its high-risk 2W business and expanded more in 4W business, especially passenger car (lower risk). Related to its 4W business, since few years ago, the company began to focus on financing passenger cars. Two years ago, the majority of the company’s 4W new financing was for the commercial segment by 56%. In 2016, the major contributor to the company’s 4W new financing was the passenger segment by 58%.

Note that Adira Finance (founded in 1990) was 92% owned by Bank Danamon. Bank Danamon itself is a subsidiary of Asia Financial Indonesia Pte Ltd whose ultimate shareholders is Temasek Holding Pte Ltd, a Singapore based Investment Company solely owned by the Government of Singapore.Aside from lower cost of funding (40% JF with Danamon, 5.2% CoF), we can expect more cross-selling opportunities with Danamon’s customer base. Adira’s high dividend payout policy (~50%) also present attractive dividend yield (7-8%).

62% 56% 52% 50% 49% 48%

38% 44% 48% 50% 51% 51%

0%

20%

40%

60%

80%

100%

120%

2011 2012 2013 2014 2015 2016

2 wheeler financing 4 wheeler financing Durables30.6% 31.2%

15.8% 15.8%

21.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2012 2013 2014 2015 2016

Adira gradually lowered its high-risk 2W business

and expand more in 4W business, especially

passenger cars

Better-managed expenses allowed Adira to grow its

net profit by +52% YoY in 2016

In April 2017, Adira has started to show stronger new financing growth at

+6% YoY

Adira Finance was 92% owned by Bank Danamon




Clipan (CFIN) has attractive valuations (0.3x current PB). However, its asset quality and declining ROAE are a concern. It has relatively high exposure to the leasing business for the commodity/mining-related sector (tugboat, barge/tongkang). CFIN management mentioned that sustainable commodity/mining price recovery will be the critical key for them.

Figure 63 Figure 64

CFIN’s NPF ratio and % write off CFIN’s ROAE

Source: CLSA, Clipan Finance Source: CLSA, Clipan Finance

CFIN is 51.5% owned by Panin Bank (PNBN) and 9.6% owned by Fidelity. In 2016, the financing receivables managed by CFIN were dominated by consumer financing (57%), followed by finance lease (22%) and factoring (20%).

For consumer financing, CFIN focuses more on used passenger cars(Japanese brands). Since 2016, CFIN developed new car financing with PaninBank (channelling). For the leasing business, it is mostly for commodity andtransportation sectors. In terms of asset quality, CFIN’s NPF ratio slightly improved to 1.9% in April 2017. To lower the asset quality risk, CFIN will focus on passenger cars.

Figure 65 Figure 66

CFIN’s managed financing receivable breakdown CFIN’s auto and non-auto financing portion

Source: CLSA, Clipan Finance Source: CLSA, Clipan Finance

1.3%

0.9%

1.4%

2.0% 2.0%

1.0%

0.7%0.5%

1.5%

2.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2012 2013 2014 2015 2016

NPF ratio% WO of gross financing receivables

14% 15%13%

8%

6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014 2015 2016

24% 18% 19% 21% 22%

50%45%

53%57% 57%

27%37%

29% 22% 20%

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016

Leasing Consumer Financing Factoring

77% 78% 80% 82%

23% 22% 20% 18%

0%

20%

40%

60%

80%

100%

120%

2013 2014 2015 2016

Automotive financingNon-automotive financing

Clipan has attractive valuations but its asset

quality is a concern

CFIN is 51.5% owned by Panin Bank


Important disclosures Financial Services


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Companies mentioned Adira Dinamika (N-R)Adira Quantum Multifinance (N-R)ANZ Indonesia (N-R)Asia Financial Indonesia (N-R)Astra Intl (ASII IJ - RP8,875 - BUY)Astra Sedaya Finance (N-R)Bank BJB (BJBR IJ - RP2,230 - SELL)Bank Danamon (N-R)Bank Intl Indo (N-R)Bank Mandiri (BMRI IJ - RP12,500 - OUTPERFORM)Bank of Tokyo-Mitsubishi (N-R)Batavia Prosperindo (N-R)BCA (BBCA IJ - RP17,550 - BUY)BFI Finance (N-R)BNI (BBNI IJ - RP6,500 - OUTPERFORM)BNI Multifinance (N-R)BNP Paribas Singapore (N-R)BRI (BBRI IJ - RP14,675 - OUTPERFORM)BRI Finance (N-R)BTPN (N-R)Buana Finance (N-R)Central Santosa Finance (N-R)CIMB Niaga (N-R)CIMB Niaga Auto Finance (N-R)Citibank (N-R)Clipan Finance (N-R)Commonwealth Indonesia (N-R)Daihatsu (N-R)Danasupra Erapacific (N-R)Federal International Finance (N-R)Honda Motor (7267 JP - ¥3,077 - BUY)HSBC Indonesia (N-R)Indomobil (N-R)Intan Baruprana (N-R)Magna Finance (N-R)Mandala Multi (N-R)Mandiri Tunas Finance (N-R)Mandiri Utama Finance (N-R)Manufacturers Hanover Leasing Corporation (N-R)Maybank Indonesia Finance (N-R)Mitsubishi (N-R)Mizuho Indonesia (N-R)North Star Group (N-R)Panin Bank (N-R)Permata Bank (N-R)Qatar National Bank (N-R)Radana Bhaskara (N-R)Standard Chartered Indonesia (N-R)Sumitomo Mitsui Indonesia (N-R)Suzuki Motor (7269 JP - ¥5,203 - OUTPERFORM)


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Temasek (N-R)Tifa Finance (N-R)Toyota Astra Financial Services (N-R)Toyota Motor (7203 JP - ¥5,794 - BUY)TPG Capital (N-R)Tri nugraha Capital (N-R)Verena (N-R)Wahana Otto (N-R)

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