DBS BBCA Strong FY08 results

At a Glance
• Bank Central Asia reported FY08 net earnings of Rp5,776bn above our FY08 estimate due to the lower than expected interest expenses as well as lower corporate tax rate.
• BBCA’s c.o.f was resilient despite tight liquidity
• Expect NIM to contract due to declining interest rate
• Maintain Buy with new TP: Rp3,800

Result Highlights
Net interest revenue grew 19.6% q-o-q on the back of improvement in NIM to 6.6% in 4Q08 from 6.3% in 3Q08. The improved NIM was driven by higher average asset yield that increased 39bps to 9.8% and relatively flat cost of fund (c.o.f.).
BBCA’s strong deposit franchise was not affected by tight liquidity in the financial system.
Lower corporate tax rate to 25% from previously 30% as BBCA has qualified for tax incentive for listed companies that meet certain criteria.
Gross NPL ratio had improved to 0.6% in Dec08. With loan provision coverage of 408%, BBCA could withstand any deterioration in loan quality in the future. Low cost deposit declined slightly to 50.3% in Dec 08 from 52.7% in Sep 08 due to the rising
deposit rate as banks compete for liquidity in the market. In 4Q08, gross loan grew 6.9% q-o-q driven by mainly by the commercial & SME and consumer segments.

Recommendation
NIM may contract due to the declining asset yield due to its SBI and variable rate government bonds portfolio that comprise 25% of its earnings assets when combined. However, we believe that BBCA’s business model is relatively defensive during the current financial turmoil on the back of its high liquidity (Dec08 LDR was 53.8% and
CAR was 15.8%) and strong deposit franchise as a transaction bank. Maintain Buy. We revised up our TP to Rp3,700 at 3.6x FY09PBV (Gordon Growth DDM) as lowered ERP assumption to 6% and maintain risk free rate of 10% (ROE: 25% and retention rate:
50%).
ANALYST: Agus Pramono CFA