CLSA Panin Bank downgrade, higher NPL risks

Panin Bank downgrade, higher NPL risks

Nico Oentung downgrades Panin Bank (PNBN IJ) from BUY to SELL. New TP is Rp450 (from Rp800). Nico also downgrades PNBN’s earnings by 5-26% reflecting weaker revenue dynamics (slower loan growth, thus lower NIM) and higher NPL.

One of the main reasons to buy PNBN is the M&A catalyst. As global banks continue to de-leverage and focus on the domestic market, M&A catalyst is unlikely to return in the near future.

Key points from the report:
Higher NPL risk due to aggressive loan growth.
PNBN has almost doubled its loan book in the last two years vs. 65% for banking sector.
New loans now account for 50% of its total loan portfolio vs. 39% for the sector.
Sharp pick-up of NPL and special mention loans in 4Q08.
Weak revenue dynamics + higher volatility: expect NIM to be under pressure as loan growth continues to slow from tightening of underwriting.
PNBN has the lowest provisions in the sector at 79%. We expect provisions to almost double in 09.
Valuation not attractive. PNBN trades at 1.5x P/B and ROAE about 8% (due to weak revenue dynamics + rising provisions). As a comparison, Bank Danamon (BDMN IJ) also trades at 1.5x P/B but ROE is higher at mid-teen percentage.