CLSA BCA (BBCA IJ), anticipating downturn, maintain OPF

Research Today: BCA (BBCA IJ), anticipating downturn, maintain OPF

Our bank analyst Nico Oentung wrote a report on BCA (BBCA IJ), following recent meeting with management. Nico maintains his OPF rating for BBCA with TP of Rp2,800.

BBCA has an excellent franchise, as evident by BBCA’s strength in deposit growth. There is flight to quality now, and with some foreign banks likely to reduce the presence, BBCA can take more market shares. This bank is one of the survivors that will come out of this crisis stronger.

Excellent franchise + strong capital ratio + conservative controlling shareholders mean we don’t have to worry about capital raising. That alone is hugely appealing for investors, in our view. Buy the stock on weakness.

Reasons to like BBCA:
(1) High quality balance sheet
Liquidity is strong, deposits +9% QoQ (CASA +6%). Flight to quality + BBCA’s strong position as a leading transaction bank.
Liquid assets +32% QoQ, now account for 29% of total assets, the highest in the sector.
Loan loss reserves + 24% QoQ despite nominal NPL relatively flat (NPL cover: 453%).
(2) Prudent management, feedback from corporate clients indicates improvement
Provisioning is expected to more than double in 09, NIM should remain healthy at 5-6% with incremental loans of Rp15tn per annum or equivalent to 13-15% loans growth.
Feedbacks from corporate customers have been quite positive so far, which help ease previous concerns on rapidly deteriorating market conditions.
NPL is expected to tick up from current 0.6% to 1.5% in 09, but still manageable.
Capital ratio is strong at 16%, mainly Tier 1.
(3) Decent valuations (10.8x 09 CL PE, 2.2x CL P/B, ROE one of the highest in the banking sector at 22-23%).