BFIN Why Did Profit Jump 55% While Cash Flow Went Deeply Negative?

Growth That Outran Its Own Collections

The last post on this company closed with a genuine reversal: the year-end NPL^» improvement that came with a write-off-policy caveat attached. This quarter tells a different but related story - the company grew new bookings 30.0% year-over-year to Rp6,775,000M, net income 54.5% to Rp525,856M, and net interest margin^» 172 basis points to 10.23% - genuinely strong numbers by any measure. But look at the cash flow statement underneath that growth: operating cash flow swung from a positive Rp122,538M in the first half of 2016 to a negative Rp1,004,617M this half - a swing of more than Rp1.1 trillion in twelve months, driven by loan disbursements outrunning collections rather than any real deterioration in economics. The mechanical explanation is straightforward: cash disbursed for new financing transactions jumped to Rp6,775,383M from Rp5,211,247M, tracking the 30% booking growth almost exactly, while cash collected from existing financing barely kept pace. A lender growing bookings this fast will naturally see cash go out the door faster than it comes in - this isn't unprecedented in this backlog (the very first post here showed a similar nine-month outflow) - but the size of this swing is worth stating plainly rather than letting it hide behind a 54.5% profit headline.

The company financed the gap the way a fast-growing lender is supposed to: fund borrowings (net) jumped 30.7% to Rp6,132,765M since December, a new Rp1 trillion bond tranche was issued in March under the "Obligasi Berkelanjutan III" shelf, and - the single biggest financing development this quarter - a USD100 million secured syndicated term loan was signed on 12 June 2017 with Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, and The Bank of Tokyo-Mitsubishi UFJ as mandated lead arrangers (see Beyond the Usual). Growth funded by diversifying, term-matched debt is a defensible strategy for a multifinance company; growth funded by debt while credit quality is quietly softening (see below) is the thing worth watching next quarter.

The Prescription

Keep diversifying the funding base the way this quarter's syndicated loan and bond issuance actually did - a facility led by three separate international banks, secured against receivables rather than the company's general credit, is exactly the kind of funding this business should be adding as it scales bookings 30% a year; relying on the off-balance-sheet joint-financing/channeling arrangements it has been reducing (down 42.5% since December, see Beyond the Usual) would have been the weaker path.

What it should stop doing: leading its own asset-quality narrative with a year-over-year comparison that flatters the number while a quarter-over-quarter reversal sits one line away in the same table. The company's own presentation headlines "NPL ratio improved to 1.09% from 1.51% YoY" - true, but its own disclosed year-end 2016 figure was 0.91%, meaning the ratio has actually been rising since December, not falling, on the company's own metric and denominator. Last quarter's post already flagged that the December improvement carried a write-off-policy caveat; this quarter's YoY framing quietly buries the fact that the reversal it was supposed to represent didn't hold into the new year.

Key Financial Metrics

Six months ended June 30, 2017 vs. six months ended June 30, 2016

FX: Rp13,319 = USD 1 (June 30, 2017, per the company's own financial statements). Both periods are converted at this same rate for comparability; it is not a historical rate for the 2016 column.

Metric	1H2017 (IDR)	1H2017 (USD)	1H2016 (IDR)	YoY
Total Income ("Net Revenue" equivalent)	Rp1,885,498M	~$141.6M	Rp1,559,421M	✅ +20.9%
Profit Before Income Tax ("Operating Income" equivalent)	Rp658,478M	~$49.4M	Rp462,020M	✅ +42.5%
Net Income	Rp525,856M	~$39.5M	Rp340,439M	✅ +54.5%
Total Cash and Cash Equivalents	Rp282,038M	~$21.2M	Rp268,621M	✅ +5.0%

Profit before tax remains the closest real operating-income equivalent. Cost of funds fell 108 basis points year-over-year to 10.33%, and cost-to-income^» improved 399 basis points to 43.48% - both genuinely healthy trends sitting alongside the cash-flow swing above. Note that shares split 10-for-1 this quarter (see Beyond the Usual), so every EPS and per-share figure in this post, including the restated 1H2016 comparative, is already stated on a post-split basis.

Balance sheet metric	Jun 2017 (IDR)	Jun 2017 (USD)	Dec 2016 (IDR)	Change
Total Assets	Rp14,688,112M	~$1,102.8M	Rp12,476,256M	✅ +17.7%
Net Investments in Finance Lease	Rp8,272,361M	~$621.0M	Rp7,121,175M	✅ +16.2%
Consumer Financing Receivables (net)	Rp5,263,117M	~$395.2M	Rp4,462,184M	✅ +18.0%
Total Liabilities	Rp10,099,666M	~$758.3M	Rp8,221,572M	⚠️ +22.8%
Fund Borrowings (net)	Rp6,132,765M	~$460.5M	Rp4,690,939M	⚠️ +30.7%, syndicated loan and bank borrowings driving new funding
Securities Issued (bonds + MTNs, net)	Rp3,390,137M	~$254.5M	Rp2,965,295M	⚠️ +14.3%, new Rp1 trillion bond tranche in March
Total Equity	Rp4,588,446M	~$344.5M	Rp4,254,684M	✅ +7.8%

A six-month interim isn't directly comparable to the full fiscal year in the last post, and this business doesn't carry meaningful calendar-driven seasonality the way a retailer or harvest-cycle-linked bank would - vehicle and equipment financing demand tracks Indonesia's broader economic cycle more than any pattern within the year.

Key Operational Metrics

• Net investment mix: finance lease is 61.1% of the combined finance lease + consumer financing net book, essentially flat with December's 61.5% - the first quarter in this backlog where the multi-year march toward finance lease didn't advance further quarter-over-quarter, even though it's still up from roughly 58.9% a year earlier.
• Receivables overdue more than 90 days (calculated from the filed statement's own overdue-day disclosure, the same convention used every quarter in this backlog): finance lease 0.75% of gross investment (Rp77,640M of Rp10,292,743M), up from December's 0.61% low; consumer financing 1.05% (Rp80,262M of Rp7,646,206M), up from December's 0.90%. Both segments reversed the December improvement in the same direction - see Beyond the Usual for how this compares to the company's own headlined NPL trend.
• Debt-to-Equity Ratio (DER)^»: ~2.08x on a gross basis (fund borrowings plus securities issued, both net of unamortized costs, against equity), up sharply from ~1.80x in December as the new syndicated facility, bank borrowings, and bond tranche all drew down in the same half. The company's own disclosed gearing ratio (net debt including bonds/MTNs over total capital) moved from 1.8x to 2.1x over the same period - still comfortably inside the regulatory maximum of 10x, but the largest single-period jump in this backlog.
• Branch network: 316 outlets (210 branches, 106 kiosks) as of June 2017, up 3.6% from 305 outlets in December - 1 new branch and 10 new kiosks opened in the half.
• Headcount: 9,545 employees (5,698 permanent, 3,847 non-permanent), up 6.8% from 8,941 in December.
• Geographic mix: 52.4% of the half's revenue came from Java, with Sumatera (18.5%) and Sulawesi (17.3%) next, and Kalimantan at 10.9% - essentially unchanged from the split reported all year.
• Earnings per share: Rp35 basic and diluted (already stated on a post-split basis, see Beyond the Usual), up 59.1% from Rp22 - growing faster than net income (+54.5%) as the net treasury-adjusted share count stayed flat.
• Return on average assets/equity: ROAA 9.84% (up from 7.92%), ROAE 23.62% (up from 16.84%) - both improving on the company's own disclosed figures, consistent with the profit growth above.
• Not available this quarter: no transcript has been located for this earnings call, so management's own framing of these results comes only from the presentation deck cited throughout this post.

Two Segments, One Balance Sheet

Still just finance lease and consumer financing, plus the residual "others" category for unallocated finance income and corporate items.

Finance lease - segment income of Rp1,077,254M for the half, up 38.2% year-over-year, on segment assets of Rp8,310,271M (up 32.0% YoY). This remains the segment carrying the business's growth, and the one whose credit-quality trend needs the same caveat as consumer financing this quarter (see above).

Consumer financing - segment income of Rp790,284M, up 3.8% year-over-year - the first quarter in this backlog where this segment's income grew year-over-year rather than shrinking, on segment assets of Rp5,251,697M (up 19.3% YoY).

Comparing the two: finance lease still grows roughly ten times faster than consumer financing on the income line, and keeps taking share of both revenue and the balance sheet on a year-over-year view. But the quarter-over-quarter picture is more mixed than in the last four posts: the net-investment mix barely moved since December (61.1% versus 61.5%), and consumer financing posted its first income growth in this backlog rather than continuing to shrink. Whether that's a genuine stabilization of the "safer" segment or just base-effect noise from a smaller comparison book isn't yet clear from one quarter's data.

Beyond the Usual

Shares now trade on a 10-for-1 split basis

In May 2017, the company's shareholders approved reducing the par value of its shares from Rp250 to Rp25 - a 10-for-1 stock split, taking total issued shares from 1,596,711,562 to 15,967,115,620. The company's own presentation describes the split as "completed successfully in Jun-17." All of this filing's own figures - the Rp35 basic EPS, the 14,964,383,620 weighted-average share count net of treasury stock - are already stated on the post-split basis, with the comparative 1H2016 EPS of Rp22 restated retrospectively per the applicable accounting standard. The company's treasury-stock buyback program, which stopped completely in the fourth quarter of 2016, stayed stopped through this half: the 1,002,732,000 shares held in treasury as of 30 June 2017 are the identical (post-split) share count as December 2016's 100,273,200 (pre-split) shares - no further repurchases.

A year-over-year NPL improvement obscures a quarter-over-quarter reversal already underway

The company's own H1 2017 results presentation headlines "NPL ratio improved to 1.09% from 1.51% YoY" - true on its own terms, using the company's total-managed-receivables denominator (including off-balance-sheet channeling and joint financing). But the same presentation's own ratios table shows the year-end 2016 figure was 0.91%, meaning the NPL ratio has actually risen from 0.91% to 1.09% since December on the company's own measure - the opposite direction from the YoY framing being emphasized. This lines up with the overdue-90-day ratios calculated directly from the filed statements (see Key Operational Metrics): finance lease rose from 0.61% to 0.75% and consumer financing from 0.90% to 1.05% since year-end. The last post flagged that December's improvement carried a write-off-policy caveat rather than confirmed cleaner underwriting - this quarter's data suggests that caveat was warranted, since the reversal it hinted at has now shown up on every measure available.

Operating cash flow swung more than Rp1.1 trillion negative as bookings grew 30%

Operating cash flow went from +Rp122,538M in the first half of 2016 to -Rp1,004,617M this half - driven almost entirely by cash disbursed for new financing transactions (Rp6,775,383M, up from Rp5,211,247M) tracking the 30.0% booking growth the company is reporting as a headline positive. This isn't a solvency concern - the company raised Rp4,121,375M in new fund borrowings and Rp1,000,000M from a new bond tranche in the same half, comfortably financing the gap - but a reader looking only at the 54.5% net income growth wouldn't see that the business is currently consuming cash to fund its own growth rather than generating it, a pattern last seen at this scale in this backlog's opening post.

A new USD100 million syndicated loan is mostly still undrawn

On 12 June 2017, the company signed a secured syndicated term loan facility for USD100,000,000 with Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. acting as mandated lead arrangers and bookrunners, Standard Chartered Bank (Hong Kong) as facility agent, and PT Bank Central Asia as security agent - secured against the company's own net investments in finance lease and consumer financing receivables, repayable quarterly over 36 months. As of 30 June 2017, only USD15,000,000 (Rp199,785M) had actually been drawn, leaving roughly USD85 million of committed but undrawn capacity - a sizable funding cushion signed right at quarter-end that will show up as further borrowing growth in whichever future quarter the company actually draws on it.

A related-party working-capital loan grew again after its ceiling was tripled

The working-capital loan from PT United Tractors Tbk, which had been redrawn to Rp217,529M as of December 2016 after appearing to amortize ahead of schedule the quarter before that, now stands at Rp317,942M - a new high for this facility in this backlog. The increase follows an amendment signed 10 March 2017 that tripled the facility's ceiling from Rp300,000M to Rp800,000M, well ahead of the balance actually drawn. The facility remains secured by the company's own finance lease and consumer financing receivables and structured as 12 quarterly installments, but the repay-then-redraw pattern flagged across the last two posts has now continued into a third consecutive period, on a facility whose capacity just grew nearly threefold.

Off-balance-sheet joint-financing and channeling commitments nearly halved

The company's disclosed "significant agreements and commitments" - joint financing and channeling arrangements with banks including Bank Mandiri, Bank Rakyat Indonesia, Maybank, and Bank Tabungan Pensiunan Nasional, kept off the balance sheet under these cooperation agreements - fell to a net Rp724,426M as of 30 June 2017 from Rp1,260,617M at year-end 2016, a 42.5% decline. This is consistent with the presentation's own disclosure that "managed receivables" (which include these off-balance-sheet arrangements) grew 15.1% year-over-year while "net receivables" (on-balance-sheet only) grew a faster 27.7% - the company is increasingly keeping financing on its own books rather than parceling it out through bank cooperation arrangements, the opposite direction from what the "hidden leverage" concern in this playbook usually flags, and worth noting as a genuine reduction in off-balance-sheet reliance.

The cross-currency swaps flipped back to a net liability for the third time in this backlog

The company's fully-hedged cross-currency swaps flipped to a net derivative liability of Rp29,594M this half (from a Rp41,301M asset at year-end 2016) - the third direction-flip in this backlog, still just a Rupiah-Dollar mark-to-market swing rather than any change in the underlying (fully hedged) FX exposure.

Target Valuation Range

Market cap ~Rp7,781,479M (~$584.2M) at ~7.9x trailing P/E and ~1.7x P/B - the multiple has expanded from cheap to fairly-valued-and-climbing, a meaningfully richer valuation than December's ~6.7x and ~1.2x, and the share price has now outrun even this quarter's genuinely strong earnings growth.

Shares split 10-for-1 during this quarter (see Beyond the Usual above), which complicates a simple price comparison. On a pre-split-equivalent basis (multiplying by 10 to match the terms used in every prior post in this backlog), shares closed around Rp5,150 by the end of May 2017, up sharply from Rp3,500 at year-end 2016 - a roughly 47% rise in five months. Following the split, shares closed at Rp520 on 30 June 2017, the company's own actual quoted price on that date with no further adjustment needed - equivalent to about Rp5,200 on the same pre-split basis, meaning the rally continued modestly through the split itself rather than being interrupted by it. Using 14,964,383,620 shares outstanding net of treasury stock and the Rp520 closing price:

Market cap buildup	Q2 2017
Share price (period-end)	Rp520 (post-split)
Shares outstanding	14,964,383,620
Market capitalization	Rp7,781,479M (~$584.2M)
Book value (total equity)	Rp4,588,446M

Peer-multiple sanity check	Q4 2016	Q2 2017	Change
P/E	~6.7x	~7.9x (trailing-twelve-month)	up
P/B	~1.2x	~1.7x	up

Both multiples have expanded meaningfully from December's ~6.7x P/E and ~1.2x P/B - the share price rose roughly 47-49% over the two quarters covered by this post while trailing earnings grew a smaller amount, so the stock is no longer the "fairly valued, tilting cheap" read of the last three posts in this backlog. A full multi-year DCF still isn't included here: five data points across roughly 21 months is progress, but a real multi-year lending-growth and cost-of-funds model needs several more full fiscal years to anchor a terminal growth assumption with confidence. The peer-multiple read above remains the honest valuation lens for now, and it's the first time in this backlog that lens points toward "priced for continued strong execution" rather than "cheap for the growth on offer."

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