BNI Securities BBCA Smooth Passing among Hurdles

Investment Highlights:
+ Ability to boost lending growth up to 12%, with limited funding growth
+ Better loan to deposit ratio of 59% (2009F) from 55% (2008F)
+ Better Net Interest Margin (NIM) amid loosening benchmark interest rate
+ Maintaining Non Performing (NPL) ratio Improving Capital Adequacy Ratio
+ No additional provision to IDR 475 billion due to Citra Margatama Surabaya default
+ Lower Cost to Income ratio

The declining economic activity has not necessary affected BBCA's performance in disbursing loan. The liquidity source streams come from loosening reserve requirement, matures government bonds, which BBCA prefers to place it to BI's products, and last undistributed fund from last year. BBCA, however, as one of the biggest branches in nation, will remain able to collect public fund.

Although the monetary authority call to cut lending rate by reducing BI rate, worrying of asset quality, BBCA keeps relatively unchanged loan rate. Combined with higher LDR 2009F, it makes BBCA's interest income to increase to IDR 20 trillion (2009F) from IDR 18 trillion (2008F). The central bank call, however, is responded by lowering cost of fund by bank, including BBCA that translated into BBCA's NIM improves by 1% to 6% (2009F) from 5% in 2008F. Thus, BBCA's net
interest income rises to 27% in 2009F from IDR 12 trillion in 2008F to IDR 15 trillion 2009F.
Although BBCA always conduct prudent way in granting credit, as the bank managed its NPL to remain below 2% over terms, we deem, after economic downturn it will a bit up to 0.7% for gross NPL.

Other good news is, BBCA has fully provisioned Citra Margatama Surabaya (CMS) loan. CMS reported failed to meet its obligation to complete its installment payment. As it has been fully provisioned, we view the news unchanged much on BBCA's operation wise. Adding on loan activity usually affects on CAR. After more BI products placement that and we do not see a specific change in CAR in 2009F. It retains in 15% level.

Valuation We use dividend discounted method to compute BBCA's fair value. The calculation is using 19.4% discount factor after assuming 12% risk free rate, beta 1.0x and country premium risk 6.5%. We use 14% as BBCA terminal value and we get IDR 3450 is the fair price of BBCA.