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Credit Rating: -/BBB/-
Republic of the Philippines
- Region: Philippines
- Bond: ROP 1.648 31 5.276%ROP 4.375 30 5.158%ROP 4.625 28 5.061%
- Credit Rating : -/BBB/-
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Country Overview
AS OF 13 Jan 2025- The Philippines is one of the fastest-growing economies in the world, expected to grow by an annual rate of 6.2% in 2025 and 2026. This growth is underpinned by a resurgence in capital formation, increased infrastructure spending, and robust consumer spending.
- A 75-basis-point rate cut to 5.00% is projected by end 2025, given the steady improvement in the inflation rate, which is expected to decline to 3% in 2025 due to lower retail prices.
- The current account deficit is expected to narrow, driven by a lower fiscal deficit as the government targets a reduced debt-to-GDP ratio in the coming years.
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Search topics about wealth insights and investments.Pertamina Persero PT
- Sector: Energy
- Sub Sector: Oil and Gas
- Region: Indonesia
- Bond: PERTIJ 3.1 30
- Indicative Yield-to-Maturity (YTM): 5.339%
- Credit Rating : -/BBB/-
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Fundamental View
AS OF 30 Dec 2024- Pertamina enjoys very strong linkages with the Government of Indonesia (GoI) and is assured of extraordinary support in times of distress.
- Slightly higher YoY FY24E Brent crude prices could lift upstream margins and overall EBITDA (given the upstream business accounts for >65% of consolidated EBITDA).
- Although leverage typically remains low, Pertamina incurs large capex spending that could pressure its free cash flow generation.
- High persisting dividend outflows could restrain free cash flow improvements.
Business Description
AS OF 30 Dec 2024- Pertamina is involved in a broad range of upstream and downstream oil, gas, geothermal and petrochemical operations.
- In the upstream sector, it engages in the exploration, development and production and supply of crude oil, natural gas and geothermal energy.
- As for the downstream sector, the company carries out refining, marketing and distribution of oil, gas, fuel products and petrochemical and other non-fuel products.
- As of 31 December 2022, its total proved oil reserves stood at ~1,289 mmbbl (mn barrels of oil) and gas reserves stood at ~817 mmboe (mn barrels of oil equivalent). Its average daily oil and gas production was ~1,044,000 boe per day in FY23. The company owns and operates 6 refineries in Indonesia.
- Under the Public Service Obligation (PSO) mandate, Pertamina is responsible for providing certain grades of motor gasoline, automotive diesel oil, kerosene and LPG at subsidized prices. The subsidized retail price is often times lower than the cost of production, creating a shortfall, for which it receives reimbursements from the GoI.
Risk & Catalysts
AS OF 30 Dec 2024Pertamina’s profitability is materially affected by volatility in oil & gas prices. Prolonged periods of low oil prices could hurt upstream earnings that form the bulk of overall EBITDA (>65%).
As retail prices of certain fuel products are regulated, realized prices may be below its cost of sales.
Pertamina has to initially absorb the shortfall between the regulated retail price and the cost of producing and distributing certain fuel products. If the price of crude oil exceeds the price ceiling set by the GoI, the company may receive insufficient subsidy reimbursements.
Capex typically remains elevated and which pressurizes its free cash flow generation.
Key Metric
AS OF 30 Dec 2024| $ mn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 36.2% | 38.5% | 41.2% | 42.1% | 37.6% |
| Net Debt to Book Cap | 22.4% | 18.9% | 21.9% | 12.5% | 8.5% |
| Debt/Total Equity | 56.8% | 62.5% | 70.0% | 72.7% | 60.4% |
| Debt/Total Assets | 26.4% | 28.3% | 29.9% | 30.8% | 27.4% |
| Gross Leverage | 2.2x | 2.4x | 2.5x | 1.9x | 1.9x |
| Net Leverage | 1.3x | 1.2x | 1.3x | 0.6x | 0.4x |
| Interest Coverage | 8.1x | 7.8x | 8.7x | 11.2x | 8.9x |
| EBITDA Margin | 14.9% | 19.9% | 16.0% | 16.7% | 17.7% |
CreditSight View Comment
AS OF 06 Jan 2025We have a Market perform recommendation on Pertamina. Pertamina’s Jan-30/31 bonds trade 22 bp/24 bp wider than Petronas’ 30/32 bonds, while its longer-dated bonds trade an average of 42 bp wider. We see this differential as fair given Petronas’ solid net cash position, larger EBITDA, and stronger financial reporting quality; we believe the wider differential for the longer-dated bonds is attributable to Petronas’ notes trading tight. We remain comfortable with Pertamina’s full state-ownership, timely fuel subsidy and compensation from the Indonesian government, our expectation for Pertamina’s strategic policy role to sustain, positive free cash flow generation, robust credit metrics and adequate liquidity. That said, its capex remains elevated amid a ramp up in energy transition goals.
Recommendation Reviewed: January 06, 2025
Recommendation Changed: May 16, 2023
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Search topics about wealth insights and investments.Bank Negara Indonesia
- Bond: BBNIIJ 5.28 29
- Indicative Yield-to-Maturity (YTM): 5.385%
- Credit Rating : -/BBB/-
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Fundamental View
AS OF 12 Dec 2023- Bank Negara Indonesia (BNI) is the fourth largest commercial bank in Indonesia by assets, and is rated Baa2(stable)/BBB-(stable)/BBB-(stable).
- The bank is majority-owned by the Indonesian government (60%) and receives strong state support in the form of well-established relationships with SOEs, an area that the bank heavily loans to.
- BNI’s asset quality is showing a steady improvement after COVID headwinds in Indonesia, mainly driven by its corporate loan book. It is de-risking its loan portfolio by focusing growth on top tier private corporates.
Business Description
AS OF 12 Dec 2023- Bank Negara Indonesia was founded in 1946, initially as a central bank, before becoming a commercial bank in 1968. It is now the 4th largest commercial bank in Indonesia by assets.
- The bank is majority-owned by the state (60%) and focuses its lending toward SOEs and domestic corporates. The loan book is split 52% corporates, 29% small and medium enterprises and 18% retail, with the remaining coming from its subsidiaries at end-September 2023.
- BNI employs ~27,000 staff across its ~1,800 outlets. It also has over 170,000 E-channels and over 13,000 ATMs across Indonesia as of end-September 2023.
Risk & Catalysts
AS OF 12 Dec 2023- BNI’s NIM is much lower compared to Mandiri and BRI, and it is likely to remain so as the bank is shifting its loan mix towards safer but lower yielding top tier private corporates, focusing on the risk-adjusted NIM (net of credit costs) instead. Credit costs remain higher than Mandiri so profitability is slightly weaker, but is still generally quite strong with ROE at >15%.
- Growth momentum is expected to hold up well in 2023 which would support asset quality and loan growth; management targets 7-9% FY23 loan growth and credit costs of <150 bp.
- The COVID-19 impact is still being played out with regulatory forbearance measures being selectively extended to March 2024. However, similar to Mandiri, BNI is looking into pare down its LAR and NPL coverage ratios back to pre-pandemic levels starting next year so lower credit costs of ~100 bp are expected by 2025, along with an ~18% ROE. Capital is solid with a >19% CET1 ratio.
Key Metric
AS OF 12 Dec 2023| IDR bn | FY19 | FY20 | FY21 | FY22 | 9M23 |
|---|---|---|---|---|---|
| PPP ROA | 3.33% | 3.20% | 3.35% | 3.42% | 3.43% |
| ROA | 1.9% | 0.4% | 1.2% | 1.8% | 2.1% |
| ROE | 13.5% | 2.9% | 9.9% | 15.0% | 15.7% |
| Equity/Assets | 14.49% | 11.56% | 12.07% | 12.32% | 13.92% |
| CET1 Ratio | 18.7% | 16.0% | 17.4% | 17.5% | 19.6% |
| NPL Ratio | 2.27% | 4.26% | 3.70% | 2.81% | 2.27% |
| Provisions/Average Loans | 1.60% | 4.21% | 3.23% | 1.83% | 1.37% |
| LDR | 90.6% | 81.4% | 79.9% | 84.0% | 88.8% |
CreditSight View Comment
AS OF 01 Nov 2023BNI is the 4th largest commercial bank in Indonesia by assets with a 60% government shareholding. The bank thus has well-established relationships with SOEs and benefits from a strong domestic franchise. Despite its corporate-focused loan book, its asset quality was weaker than Bank Mandiri with a higher NPL ratio and credit costs. The bank switched its growth strategy to focus growth on better quality segments and risk-adjusted NIM (net of credit costs) in 2021 which is bearing fruit. Funding cost pressure has eroded the NIM but this appears to have turned a corner, and profitability is generally quite strong. The CET1 ratio is high at ~19%. We affirm our M/P recommendation on the $ Tier 2 as it does not have senior bonds outstanding. The $ AT1 however is on our preferred AT1s list.
Recommendation Reviewed: November 01, 2023
Recommendation Changed: July 26, 2023
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SM Investments Corporation
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