1Q09 Results In-line, Re-Rating

1Q09 Results In-line, Re-Rating

Net Income Growth 22% on Higher Volume

Bank Rakyat Indonesia reported its 1Q09’s net profit inline with our estimates at Rp1.72 tn, comprising 25% of our full year target. Net profit was escalated by higher volume on loan despite lower pricing. Loan growth was 3% QoQ and 41% YoY or ran at 81.4% of its capacity. Going forward we see savings account will grow exceeds time deposits as reference rate is in downtrend thus LDR will be scaled back to 78.2%. 82% of total loan portfolio is still in high yield sector, MSME. BBRI is benefited from lower BI rate, as 75% government bond are FR at 13-14% coupon rate. In 1Q09, gain from bond marked-to-market valuation was Rp50 bn (+1222.8% YoY).

A Straight Flush Decline on NIM, NPL Starts to Rise

NIM continue to drop at 9.46% in 1Q09, a straight flush since FY04 due to tight pricing competition in corporate & MSME lending as BDMN stepped in. Cost of fund rose to 5.68%, highest since FY06 to catch in time deposits which successfully increased by 14% QoQ while demand deposits and savings account, decreased by -12% and -5% respectively. NPL inflated to 3.24% in 1Q09 vs 2.8% in 4Q08, but still at manageable level. Rapid restructuring already has been taken amounting Rp239.8 bn (23% of our estimate, Rp1.03 tn). We see NPL in end of year FY09 at 3.1% with ample coverage ratio 198.1%.

“A Likely” 35% Div. Payout, CAR at Stable

In 1Q09 BBRI’s CAR stood at 14.9% vs 4Q08 at 13.18% of which the increased was due to cyclicality slumped on loan growth in 1Q09. As loan begins to flame in 2Q09, we believe CAR ratio will drop. 35% dividend payout of FY08 net profit is likely although the bank itself hinted that management asking for lower dividend cut to the government in regard to save the bank’s capital. With 35% div. payout, we view capital adequacy ratio will remain at 13.2% vs 12.7% if BBRI maintain 50% div. payout.

Valuation: We change our recommendation from HOLD to BUY, TP:Rp6.700

Despite the fact that official dividend payout ratio has not been declared yet however we are already incorporated ”a likely” 35% dividend payout ratio into our valuation resulting in higher valuation as sustainable growth increased from 13% to 16%. Year-to-date, the bank share price ran 27%, placed the second best after Bank Mandiri. We derived our TP of Rp6,700 based on Gordon Growth methodology with 11.5% risk free rata and 16% long term growth implying 8.8x F09 P/E and 2.2x F09 P/BV thus we re-rating our view of Bank Rakyat Indonesia from HOLD to BUY.

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