BFIN The Quarter a Consumer Lender Quietly Became an Equipment-Leasing Company

From Motorcycles to Machinery

This company built its business on financing motorcycles and cars for Indonesian consumers - a high-volume, short-tenor lending model that scales with the country's growing middle class. But this quarter's numbers show a company visibly repositioning: net investments in finance lease^» - financing for heavy equipment and machinery used by businesses, not consumers - grew 53.5% in nine months, while consumer financing receivables actually shrank 12.0% over the same period. Finance lease income more than doubled year-over-year (+113.4%) while consumer financing income fell 7.1%.

That's not a company drifting - it's a company actively reallocating capital away from a business it built its name on and toward a newer, corporate-facing one. The question this quarter's numbers raise: is this a smart pivot into a segment with better credit quality (see the segment comparison below), or a company chasing growth in a newer book it understands less well, funded by a rapid build-up of foreign-currency borrowing from banks in Qatar, South Korea, and the UAE that didn't exist on its balance sheet a year earlier?

This is the company's first-ever quarterly report on this backlog - the nine-month period ended September 30, 2015, filed October 29, 2015. Indonesia's economy was in a genuine slowdown through 2015 (GDP growth had fallen to its lowest since the 2009 financial crisis, and the Rupiah had weakened sharply against the US Dollar over the prior year), the exact environment in which a consumer lender pulling back from vehicle financing and a corporate lender leaning into equipment leasing would both make intuitive sense.

The Prescription

The finance lease pivot is the right call, and the numbers back it: finance lease's non-performing ratio improved to 0.93% (from 1.43% at the end of 2014) even as the book grew over 50%, while the shrinking consumer financing book's non-performing loan (NPL)^» ratio worsened to 2.15% (from 1.50%). A lender should lean hardest into the segment where growth and credit quality are moving in the same direction, not the one carrying the brand name. The company should keep shifting balance-sheet weight toward equipment and machinery leasing for corporate customers, and use the same disciplined, fully-hedged approach to funding it (see Beyond the Usual) to scale that book faster.

What it should stop doing: leaning on wholesale foreign-currency bank debt as the primary growth engine for a domestic-currency lending book. Fund borrowings nearly doubled in nine months (+47.5%) and gearing (interest-bearing debt to equity) rose from roughly 1.6x to 1.9x in the same window - manageable today, and the FX risk itself is fully swapped out, but a funding mix this dependent on a rotating cast of syndicated foreign banks is a structural fragility the company doesn't need to keep growing. A pivot this good on the asset side deserves a less opportunistic funding mix on the liability side.

Key Financial Metrics

Nine months ended September 30, 2015 vs. nine months ended September 30, 2014

FX: Rp14,657 = USD 1 (September 30, 2015, per the company's own financial statements).

Metric	9M 2015 (IDR)	9M 2015 (USD)	9M 2014 (IDR)	YoY
Total Income ("Net Revenue" equivalent)	Rp2,070,270M	~$141.2M	Rp1,677,647M	✅ +23.4%
Profit Before Income Tax ("Operating Income" equivalent)	Rp564,768M	~$38.5M	Rp543,003M	✅ +4.0%
Net Income	Rp454,822M	~$31.0M	Rp408,073M	✅ +11.5%
Total Cash and Cash Equivalents	Rp812,907M	~$55.5M	Rp276,208M	✅ +194.3%

Profit before tax is the closest real equivalent to an operating-income line here. Operating cash flow is negative as the company grows its loan and lease book this fast: cash used to originate new financing exceeds cash collected from existing receivables, which is expected during a growth phase, not itself a cause for concern - see the balance sheet comparison below for how that cash gap is being funded.

Balance sheet metric	Sep 2015 (IDR)	Sep 2015 (USD)	Dec 2014 (IDR)	Change
Total Assets	Rp11,768,938M	~$803.0M	Rp9,682,534M	✅ +21.6%
Net Investments in Finance Lease	Rp4,781,523M	~$326.2M	Rp3,115,372M	✅ +53.5%
Consumer Financing Receivables (net)	Rp4,790,348M	~$326.8M	Rp5,443,217M	⚠️ -12.0%
Total Liabilities	Rp7,833,734M	~$534.5M	Rp6,115,581M	⚠️ +28.1%
Fund Borrowings	Rp5,800,027M	~$395.7M	Rp3,932,558M	⚠️ +47.5%
Total Equity	Rp3,935,204M	~$268.5M	Rp3,566,953M	✅ +10.3%

The nine-month period is naturally not directly comparable to a full fiscal year, and Indonesian multifinance companies don't carry the same seasonality a bank or retailer would - vehicle and equipment financing demand tracks the broader economic cycle more than any calendar pattern within the year.

Key Operational Metrics

• Net investment mix: finance lease grew from 36% to essentially half (50.0%) of the combined finance lease + consumer financing net book in nine months, up from a clear minority position at the end of 2014 - the clearest single number behind this quarter's pivot.
• Debt-to-Equity Ratio (DER)^»: ~1.90x (interest-bearing debt of Rp7,480,085M against Rp3,935,204M equity), up from ~1.56x at the end of 2014 - comfortably inside every lender covenant disclosed (which cap DER between 5x and 10x), but a meaningful one-year jump.
• Branch network: 204 branches and 60 kiosks as of September 2015, up from 184 branches and 59 kiosks a year earlier.
• Headcount: 7,656 employees (4,665 permanent, 2,991 non-permanent), up 9.3% from 7,005 a year earlier.
• Geographic mix: 46% of nine-month revenue came from Java, with the remaining 54% spread across Kalimantan, Sumatera, and Sulawesi - a meaningfully de-concentrated footprint for an Indonesian financial company.
• Not available this quarter: a standalone loan-loss coverage ratio and a reverse-DCF-ready long-term growth guidance figure - neither was disclosed in the filed financial statement, and no separate earnings presentation, press release, or transcript has been located for this quarter.

Two Segments, One Balance Sheet

The company reports two operating segments internally: finance lease (equipment and machinery financing for corporate customers) and consumer financing (vehicle and, increasingly, housing financing for individuals). A residual "others" category captures unallocated finance income and corporate items.

Finance lease - segment income of Rp752,116M for the nine months, up sharply from a much smaller base a year earlier as the company actively grew this book. Asset quality improved alongside the growth: the non-performing ratio on gross finance lease receivables fell to 0.93% (from 1.43% at year-end 2014), even as gross lease receivables grew from Rp3,886,569M to Rp6,024,697M.

Consumer financing - segment income of Rp1,255,957M, still the larger of the two segments by both income and asset base (Rp4,809,918M in segment assets vs. finance lease's Rp4,878,562M - nearly a dead heat now, from a much wider gap a year earlier). But this is the segment being deliberately shrunk, and its credit quality is moving the wrong way: the non-performing ratio rose to 2.15% (from 1.50% at year-end 2014). One notable pocket of growth inside an otherwise-shrinking segment: housing (KPR) financing, still small in absolute terms, jumped from Rp67,917M to Rp238,750M in nine months - a new, longer-tenor (up to 180 months) lending line for a company historically built on much shorter vehicle-financing terms (6 to 48 months).

Comparing the two: finance lease is growing faster and getting safer at the same time; consumer financing is shrinking and getting riskier at the same time. That's about as clean a signal as a lender gets that capital is moving in the right direction - the segment carrying the company's namesake business isn't the one carrying its credit quality.

Beyond the Usual

An eight-year-old Supreme Court judgment over the company's own shares, still unresolved

A lawsuit from PT Aryaputra Teguharta (APT) demanding the return of 111,804,732 of the company's own shares, plus dividends and damages, obtained a legally binding Indonesian Supreme Court verdict against the company and its directors back in February 2007. As of this filing, the fight isn't over the merits anymore - it's over whether the judgment can actually be executed: a district court declared it non-executable in 2007, reversed that in September 2014, and then found in mid-2015 that execution still couldn't proceed because the central securities depository (KSEI) has no record of the disputed shares being held under APT's name at all. Management states it doesn't expect the case to materially affect operations - but an eight-year-old Supreme Court judgment against the company that still can't be enforced, over shares whose registered custody doesn't match the claimant's story, is not a footnote a reader should have to dig for.

A funding spree from an unusually international set of lenders, fully hedged

Fund borrowings grew from Rp3,932,558M to Rp5,800,027M in nine months, and a large share of the new money came from banks that hadn't previously appeared on the balance sheet at all: Qatar National Bank, Emirates NBD, and The Korea Development Bank each extended fresh USD 50 million secured term loans in 2015, alongside an existing relationship with Standard Chartered and a smaller facility from Japan's JA Mitsui Leasing. Every one of these foreign-currency loans is paired with a matching cross-currency swap, and the company's own risk disclosure confirms its net exposure to foreign currency was exactly zero as of September 30, 2015 - a textbook example of using foreign capital markets for cost and diversification without importing currency risk.

A related-party footnote with nothing to hide

The related-party transactions note discloses only routine items - key management compensation and employee stock options - with no loans to or from affiliated parties, no related-party sales propping up revenue, and no asset transfers at non-market terms. For a company operating in a market where related-party dealings are a recurring problem elsewhere, a clean footnote here is itself worth noting.

A tiny buyback dwarfed by much larger stock-option dilution

The company bought back 1,552,800 shares for Rp3,991M, framed as boosting EPS - but its MESOP^» program added 16,025,000 new shares over the same nine months, roughly ten times as many.

Off-balance-sheet joint financing keeps growing alongside the on-balance-sheet book

Disclosed joint financing/channeling^» commitments with BRI, Bank Mandiri, BTPN, and Bank Internasional Indonesia grew from Rp2,495,964M to Rp2,658,405M in nine months - a meaningful amount of activity the headline balance sheet doesn't capture, though cleanly disclosed.

Target Valuation Range

Market cap ~Rp4,693,220M (~$320.2M) at ~7.7x annualized P/E and ~1.2x P/B - reasonably valued against its own growth, not obviously cheap or expensive, for a lender growing net income low double digits while shifting its book toward a segment with improving, not deteriorating, credit quality.

Shares closed at approximately Rp3,000 on September 30, 2015 (the company's actual quoted price on the Indonesia Stock Exchange at the time; converted from a market-data pull that reflects the company's later 10-for-1 stock split in June 2017, since price data fetched today for this period is retroactively split-adjusted). Against this quarter's own numbers, using 1,564,406,762 shares outstanding net of treasury stock:

Market cap buildup	Q3 2015
Share price (period-end)	Rp3,000
Shares outstanding	1,564,406,762
Market capitalization	Rp4,693,220M (~$320.2M)
Book value (total equity)	Rp3,935,204M

Peer-multiple sanity check	Q3 2015
P/E (annualized nine-month EPS, Rp292 × 4/3 = Rp389)	~7.7x
P/B (vs. Rp3,935,204M total equity)	~1.2x

This is the first quarter in this backlog, so there is no prior-quarter reading to compare against yet. Both multiples sit well below what a high-growth Indonesian bank typically commands - consistent with multifinance companies generally trading at a discount to banks, given their reliance on wholesale funding rather than cheap deposits. A full DCF isn't included here - this is the company's first quarter on this backlog, and a multi-year lending-growth and cost-of-funds model needs more history than one quarter provides. The peer-multiple read above is the honest valuation lens for now.

Shares moved from a low of roughly Rp2,100 (late 2013 and again in mid-2014) to a high of roughly Rp3,000 by this quarter - a rise of about 43% peak-to-trough over the trailing two years, with the bulk of the gain concentrated in the second half of that window as the finance lease pivot became visible in the numbers. That's a large enough move to be worth naming, though it reads more as a steady re-rating than a dramatic swing.

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