Indopremier BDMN (HOLD - TP Rp 2,600)

From the 1Q09 BDMN financial result, we may conclude several points:

1. Company’s intention to move conservatively this year has been reflected on the 1Q09 financial performance. The credit slowed 5% QoQ, fuelled by falling loan book for corporate and SME lending which fell by 18% QoQ and 8% QoQ, respectively. The success of almost Rp 4trn rights issue would overcome liquidity and capital adequacy problem. Hence, BDMN might not enforce the funding from third party fund, which on 1Q09 tumbled 1% QoQ. Mild growth on credit and third party fund would stabilize the NIM, in our view.

2. As we expected, soaring NPL has been an embedded risk for BDMN. The NPL ratio in 1Q09 rose to 2.9%, compare with 2.3% in 4Q08. Higher NPL ratio in 1Q09 came from corporate and SME lending. Loan book under special mention category depicted discouraging movement, where the corporate lending has bigger portion under this category in 1Q09. BDMN would need more provisioning than our earlier expectation. We expect bad debt might also come from motorcycle financing and consumer mass market. Moreover, the NPL coverage in 1Q09 has tumbled nearing 100%, from 136% in 4Q08, which means the bank would need more provisioning to cushion the bad debt.

3. Loss on derivative transaction still shadowed BDMN’s performance. In 1Q09, the bank booked Rp 31billion of realized cost of unwound foreign exchange forward contracts and provisioning of the outstanding contracts. As of end of March 2009, there are a US$23 million marked to market value of outstanding contract from 15 customers, while the unwound contracts have total receivable of Rp 2.3trn.

Responding the 1Q09 figures, we revised the NPL ratio assumption to become 4% from the previous assumption of 3%. Meanwhile, for the NPL coverage, we assume 120% coverage would be sufficient. Growth estimation for loan book and third party fund remained the same, referring to BDMN’s guideline and our estimation. Under Gordon Growth Method, the fair value for BDMN is at 1.4x PBV09, translated into Rupiah, at Rp 2,600. We maintain our HOLD recommendation.