MacQ Bank Rakyat Indonesia – buying opportunity?

Bank Rakyat Indonesia – buying opportunity?

Ferry Wong and Yofi Lasini (analysts) highlighted that BBRI has fallen by 13% over the past four days. One of the issue talked about in the market is its lending to Bakrieland. They flashed out facts on the matter and conclude that the loan poses only a small risk to BRI. They keep BBRI as one of the top five picks for Indo market with Outperform rating, on 2.1x 09 P/BV, healthy ROE of 29%, and dividend yield of 6.4 %. Thesis is that BBRI will benefit most from declining interest rate, its appointment as Indo gov’t Treasury Single Account, and gov’t efforts to stimulate micro and SME loans. The facts on Bakrieland loan:

(1) BRI lends a total Rp532.7bn to Bakrieland. Ferry and Yofi are fairly comfortable with the loan position because: (a) Avenue Capital Luxembourg is the biggest shareholder of Bakrieland with 30.8%, followed by the Bakrie family with 20%, (b) Dubai Limitless owns a 33% of PT Bakrie Swasakti Utama, (c) The loan is secured by land certificate and account receivables, (d) The financed toll-road project will start operations in June, when the revenue stream should flow.

(2) Exposure small for BRI. The loan amount comprises 1.9% of total BRI corporate loans or 0.35% of BRI's total loan book. By this, our perception on BRI remains the same as on the primary micro and SME lender in the country. Management assured us that both projects are progressing on time and there is no sign of loan defaults.

(3) What if the loan turns sour? We believe that the ~ Rp533bn loan amount will not impact BRI's asset quality significantly given its high 198% coverage ratio and Rp8.7tr in accumulated provision. If the loan does go bad, gross NPL will increase to 3.3% from the current 2.9%, and the provision coverage will rise to 186%. We believe this is sufficiently covered by our forecast of 4.7% gross NPL with 141% coverage in 2009 from 2.9% in September 2009.