Reaffirms deposit-taking business. Recent cases of global investment banks’ failures linked to their inability to take deposits have made BCA’s management even more committed to its current focus. BCA has done an excellent job as a deposit bank, with its deposit market share rising, particularly for low-cost deposits (Dec 05: 10.9%; Sep 09: 13.0%). Its liquidity outlook for 2009 remains bright, reinforced by additional liquidity of Rp11.5tr from maturing government bonds (or 11% of loans).
NIM down, but profit might not. BCA’s balance sheet has been structured such that its NIM correlates positively with SBI rates. Although we expect NIM to ease on declining SBI rates (by 1bp for every 50bp rate cut under our simulation), we believe its net profit is unlikely to contract, just as in 2007 (NIM -1.7%, net profit +5.8%). Loan growth and loan-deposit ratio management should be able to counter the impact. Variable-rate bonds have also gone down to make up only 12% of earning assets, from 20% at Dec 06. Furthermore, excessive provisioning coverage of 350% (vs. an average of 211% in the last 15 quarters) offers some buffer. If not consumed by NPLs, the coverage could translate into Rp316bn of write-backs for every 50% pt of lower coverage, ceteris paribus. BCA also appears eligible for an additional 5% tax rate cut, potentially contributing some Rp380bn.
Share performance lags peers. BCA has underperformed its big banking peers and JAKFIN by 3-25% YTD, mainly on fears of NIM decline. We believe such worries are unwarranted as profits should continue to grow. BCA’s deposit-taking strength is particularly commendable in the current liquidity-sensitive environment.
We upgrade it to Outperform from Neutral on the unwarranted correction. Our target
price remains Rp3,425, still using DDM valuation with a discount rate of 16.4%.
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