Panin Financial conducts the business of business consulting services, management and administration, particularly to its subsidiaries. PNLF’s subsidiaries & associates are as follows:
PT Panin Internasional
One of its major businesses, Panin Dai-chi Life, is a life insurance company. According to management, they aim to make their insurance business the top 5 in Indonesia.
In the 2016 annual report, management expects Panin Dai-chi Life to not have much growth in income for 2017-18 as they are making investments for the long-term. However, management said that they expect that Panin Dai-chi Life to increase their after-tax profit by 30% each year from 2019 and beyond.
Other than the life insurance business, PT Panin Internasional also owns several mutual funds.
2017F Profit att. to Parent = Rp363bn
Panin Bank (PNBN) – Rp1100/sh – Rp26,499bn – P/BV: 0.8, P/E: 9.7
Panin Bank is a Buku III Bank.
Value of ownership in PNBN judged by the market: 46.12% x 26,499 = Rp12,221bn
Value of ownership in PNBN in the books (9M2017): Rp15,428bn
PNLF – Financial Performance
PNLF have showed a decent profit growth, with an 8-year net income CAGR of 19.5%, and a 5-year net income CAGR of 10.6%. PNLF manage to report net income growth in every year except for 2015. However, this is also attributable to the fact that they have never distributed a dividend.
PNLF’s profit figures are very closely related to PNBN, with PNBN contributing more than 70% of PNLF’s net profit.
ROE: While PNLF does not report very high ROE (at 8.8% for TTM Sep’17), their ROE record are still slightly better than PNBN’s. In addition, I believe PNLF achieves this level of ROE with a lower risk compared to PNBN, as it is more diversified. In addition, this low ROE figure is also attributable to the fact that PNLF has more than Rp3T of its assets placed in time deposits, which means that some of these returns are earned at no risk.
PNLF – Valuation
Equity att. to Parent: 19,751bn
At 236/sh, Market Cap = 7,557bn – P/BV = 0.38x, P/E = 4.5x
- Insurance business based on 8x PE: Rp2,904bn
- Panin Bank (Equity method) based on 0.8x P/BV: Rp12,221bn
Fair Value = Rp15,125bn x 80% [Diversification Discount] = Rp378/sh
This TP reflects 6.9x 2017 P/E and 0.61x P/BV.
Will the stock price re-rate?
Stocks within the Panin group are well-known for trading at very low valuations, which can be partly attributable to their unwillingness to pay a dividend. In addition, in Panin we have a very conservative owner, who likes to keep a large cash hoard, and this is evidenced by Panin companies’ unwillingness to pay out a dividend. While this policy have allowed them to survive times of financial crises, I believe their conservatism is excessive, and has led to their depressed share prices.
However, I believe PNLF’s stock price is way too cheap at this price, given its good record of profit, and its high asset allocation in low risk assets.