Macquarie Further re-rating for BDMN

Bank Danamon: least expensive bank with top-end growth prospect

Given the strong rally we saw across Indo banks universe, I take a step back to identify which of the bank stock is still worth chasing at this point. Some of the bigger banks are trending towards the upper-end of its PBV trading range. It appears to me that Bank Danamon has some further re-rating to go. Historically, there is a valuation discount for the stock due to its inferior daily trading liquidity, compared to the peers BBRI, BBCA, and BMRI. But note that ex-rights, since 1 April 2009 the stock has traded with an average daily trading value of around US$5mn/day, in-line with that of BBCA and BMRI, while BBRI remains on-top with around US$15m/day.

In terms of fundamental valuation, there is room for BDMN (1.4x FY09) to narrow the PBV disount to BBRI (2.3x FY09), as the company re-deploys its fresh capital into high margin loans. Note that the two banks have comparable NIMs, while the Street has been conservative with BDMN’s loan growth forecast, vis-à-vis BBRI. I would have thought that BDMN should be able to grow its loan book faster than BBRI, given BDMN’s fresh capital and BBRI’s lower Tier-1 ratio. In other words, the RoE uplift for BDMN could surprise the market if Indonesia’s economy is as resilient as expected.