Macquarie BCA: 20-40% upgrade to FY09 consensus?

I met with Mr. Raymon Yonarto, corporate secretary of Bank Central Asia, ahead of the analyst meeting tentatively scheduled for 18 March. Based on the meeting, I suspect there could be significant upgrade to 2009 consensus EPS, in the order of 20 to 40%, depending on how conservative the sell-side analysts choose to be. Currently consensus net profit estimate for 2009 stands at Rp5.8trn, placing the stock on 11.4x P/E (long term trough P/E multiple is around 10x). The key swing factors are: 1) bad debt provision, 2) net interest margin, and 3) loan growth. Among Indo banks, I think BCA offers strongest EPS revision momentum and mis-pricing, hence my personal top pick (along with Bank Danamon, on slightly longer time horizon). Macquarie research rates BCA as Outperform with PxT Rp3,500.

Key take-aways:

1. Net interest margin has continued to creep up in January and February (after a big 4Q08!). Tight liquidity and fear of insufficient foreign funding have kept lending rates high, despite falling BI rate. No signs of abating risk aversion among Indo bankers, the high NIM could last until July. Average NIM of above 7.0% for 2009 a reasonable assumption.

2. NPL trend remains encouraging up to today (except for Mobile-8 and CSM/Citra Marga loans), no signs of major provisioning needed in 1Q09. Perhaps this is specific for BCA rather than a reflection of Indo bank sector. The bank has been very selective in lending, given 3.5% cost of funds vs. SBI placement yielding around 8%.

3. The bank will NOT guide for bad debt provision or NIM target for 2009. Each sell-side analyst can make their own guesstimate. Only guides for loan growth target, which will be set at 15%.

4. The 2008 un-audited results use 30% tax rate. Audited results will use 28% tax rate, once official confirmation from the tax office is received. The 2009 effective tax rate should be 23%. Audited 2008 NPAT could come in at Rp5.4trn vs. consensus 2009 NPAT of Rp5.8trn.

5. Bad exposure to Mobile-8 bonds and CSM loans have been fully provided for in 4Q08, but they are not necessarily a write-off. Each one has company specific problems, and their non-performance has nothing to do with broader economic performance.