CLSA Bank Rakyat (BBRI IJ): not so inspiring

Bank Rakyat (BBRI IJ): not so inspiring …, from Nico Oentung

Our bank analyst Nico Oentung looked at Bank Rakyat (BBRI IJ) FY08 results. Nico lowers his 09-10 earnings by 4-5%, assuming more conservative NIM, slower growth environment, and higher NPL risks. Nico still maintains OPF call and TP Rp4,500.

BBRI booked Rp5.9tn net profit for FY08, which is at first glance in line with our expectations.

HOWEVER …
Results include several one-off items.
There was Rp729bn forex gain due to windfall from wide rupiah/US$ bid-ask spread.
Plus, there was Rp442bn non operating income (accounting adjustment)

Excluding the above one-off, FY08 earnings would be flat YoY and 10% below our estimates. Even comparing against peers such as BCA and Mandiri, BRI's core earnings were also the weakest (pls see the chart below). Is BBRI dressing up earnings to meet consensus (Rp5.7tn)?

Other key takeaways from the report:
Sharp margin contraction a surprise.
NIM declined by 110bp in 4Q08 to 9.1%, the lowest level since 2003.
Funding cost rose sharply, +160bps to 5.8%, while asset yields up by only 30bps.

While interest rates are now trending down, BBRI is now focusing on lower margin loans to state-owned companies and KUR program.