Nicolaos Oentung lowers our earnings estimate for on Bank Central Asia (BBCA IJ). No change in recommendation, though. Maintain OPF call and TP at Rp2,800.
Limited upside, but defensive fundamentals (excellent franchise: large, stable, and low cost funding base) will support profitability under current weak environment. Not cheap at 2.6x 09 P/B, but under this kind of environment the stock is a safe heaven (relatively speaking).
Nico highlights 1 interesting point: BBCA’s deposit margin (risk free margin, i.e. SBI minus cost of funds) is likely to fall going forward. It has peaked and will start to contract in 09, in our view. We now assume deposit margin to contract by 90bp in 09 and remain stable in 2010.
We downgrade our 09-10 earnings by 12-13% due to slower revenue production resulting from a more modest NIM expansion. Despite lower deposit margin, NIM will still expand
from 5.8% in 08 to 6.1% vs. 6.8% previously due to steady loan growth. We forecast earnings to be flat in 09, before rising by 19% in 2010.
Key points from the report:
- We believe BBCA’s deposit margin has peaked and will start to contract in 09 given cost of funds is at all time low and interest rates are falling rapidly.
- Provision for loan losses will also rise to as exporters suffer from falling commodity prices and weakness in global growth
- We downgrade earnings by 12-13% in 09-10 to reflect lower NIM due to deposit contraction
- Maintain O-PF as BCA has defensive fundamentals and perceived as safe haven under current weak environment
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