Poor 4Q08 results
Two important highlights from the bank’s performance in the last quarter of 2008: a jump in NPL which drove substantially higher provisioning expenses and improvement in liquidity which led to lower NIM. We believe pressure on NPL and liquidity will remain this year, hence maintaining our sell recommendation on the counter.
The lowest quarterly net profit. PNBN’s NPLs increased by Rp338.9 bn in 4Q08, representing 4.3% of total loans at end Dec08. Consequently, the bank allocated substantial provisioning expenses during the quarter of Rp317.0bn leading to total provisoning expenses of Rp408.9bn for FY08, higher than our expectations. As a result of such high provisioning expenses, the bank only recorded net income of Rp29.8bn in 4Q08, the lowest quarterly bottom line for the year.
Focus on liquidity…. PNBN seems to focus more on improving liquidity in the second semester of 2008 amid the global financial turmoil. Since Jun08, the bank has agressively expanded its deposits by 21.2% qoq in 3Q08 and 6.2% qoq in 4Q08, leading to a significant improvement in LDR from 92.4% at end Dec07 to 83.8% at end Sep08 and 78.9% at end Dec08.
…. at the expense of NIM. Such improvement in LDR caused NIM to narrow in 4Q08 to 4.2% in 4Q08 from 5.2% in 3Q08. Despite the improvement in the bank’s core deposit ratio from 33.4% at end Sep08 to 36.5% at end Dec08, PNBN in fact recorded an increase in average cost of funding from 6.6% in 3Q08 to 8.4% in 4Q08, higher than the increase in average SBI rates during the quarter.
Concern over rising NPL remains. We are currently reviewing our forecast on the bank. However, we believe that the possibility of rising NPL will remain high for PNBN given its aggressive loan growth in the past few years. At current price, PNBN is trading at 2009F P/BV of 1.3x and PER of 17.2x. We are maintaining our sell recommendation.
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