What surprised us
BRI reported its FY08 net earning of Rp 5.96 tn, 6% higher than our/Reuterbased consensus forecast.
On the positive side: (1) Improved liquidity, LDR 80% (90% if including government re-cap bonds), thanks to its strong deposit growth (15% qoq); (2) FY08 provision expense was Rp 2.8 tn, down from our forecast of Rp 3.7tn; NPL ratio at 2.8%. However, NPL coverage ratio slightly dropped to 177% (from 198% in 3Q08).
On the negative side: (1) NIM declined 43bps to reach 10.2% FY08 due to higher deposit cost; BRI aims to keep its NIM at 9%-10% in 2009; (2) CAR dropped to 13.2%, tier 1 ratio 11.8%; BRI stated it is in talks with its key shareholder (e.g., government) to potentially cut the dividend payout to preserve more capital in-house; (3) NPL in corporate / commercial loan slightly rose, in line with industry trend, echoing our cautious view on potential asset quality deterioration in the wholesale banking sector.
What to do with the stock
We maintain Buy and 12-m Camelot-based target price of Rp 5,500 (2.7X ‘09E BVPS), as we still prefer its domestic, micro/retail-focused business model. Downside risk is severe NIM contraction from low loan pricing.
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