BBCA Good to See but Still at Premium

Declining Assets Quality but Still Manageable

As expected, NPL jumped to 1.6% of total loan from 0.6% in 4Q08 which we believe most of which booked from loss on CMS’s loan (Citra Margatama Surabaya), Rp475 bn and also coming from bond default on FREN amounting Rp100 bn. As NPL jumped and loan growth detracted 5% QoQ thus coverage ratio fall to 192.2%. We see a tardy loan growth in 1Q09 due to cyclicality factor, corporate and commercial loan growth slow down by -2% and -9% while consumer +0.3% QoQ benefited from lower mortgage rate lending. But we believe given better outlook on export and depreciating rupiah, 15% loan growth in FY09 could be met as businesses start to make new loan and disbursed loan facilities aided by lower interest rate thus in effect could lessen NPL to 1.3% with 209.0% coverage ratio in FY08.

1Q09 Results Inline at Slow Start

Bank Central Asia 1Q09’s results inline with our estimate comprising 26% of our full year target. Net profit grew at slow start in 1Q09 -8% QoQ, Rp 1.63 tn compared with 1Q08 +2% but outperfoming the industry which posted negative growth 66% QoQ. Meanwhile as 73.4% BBCA’s government bond are interest rate sensitive, BBCA posted loss on bond marked-to-market amounting Rp2 bn after recorded gain at Rp11 bn in 4Q08 (AFS account 27% of total bond holding). Fee based income slipped slightly -0.6% QoQ as savings accounts & demand deposits drop 13% QoQ and 2% QoQ respectively.

NIM Would Drop Slightly From Current Level but Still in Uptrend

NIM grew to 7.1% level, highest since 4Q06. Cost of fund remained stable at 3.64% while yield on assets grew to 10.85% on the back of higher lending rates which always lagged behind pricing on time deposit rate. Declining BI rate is negative to BBCA earnings assets, thus going forward NIM is likely to detract at 6.9% in FY09 to catch in liquidity as third fund deposits detracted 3%QoQ.

Valuation: Upgrade TP from Rp3,350 to Rp3,800, BUY

Based on P/BV valuation, BBCA still ranked at premium among other banks which clarified 3% return ytd compared with 30% for BBRI and 55% for BMRI. However given declining yield on 10-year gov’t bond from 11.8% to 11.5%, we increased our TP from Rp3,350 to Rp3,800 based on gordon growth methodology using 0.81 assets beta, and 4.5% market premium. On the back of better NIM, ROE and strong capital position at 15% thus we change our recommendation from HOLD to BUY, new TP Rp.3,800.

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