As expected, 1Q09A saw deterioration in asset quality, though the magnitude has not been as soft as we initially expected. We have also seen early signs of stabilisations started to emerge in 1Q09A, earlier than our expectation of late 2Q09E or 3Q09E. We also expect 10E economic outlook not to be as soft as 09E.
We cut 09E NPL ratio by 200bps to 5.1%, credit costs by 20bps to 2.8% and anticipate 22% 10E loans growth (Vs 13% in FY09E). We increase our 09E-10E earning estimates by 9.4%-14.4%.
We maintain BBRI (OUTPERFORM) as our top pick and Neutral rating on BBCA, BMRI and BDMN as the latter are already trading at mid-cycle PBR.
However, we see the risk for share prices to overshoot on the upside should liquidity inflow into the sector continues. In the previous cycle, BBRI and BDMN overshot to 52% and 50% above their mid-cycle PBR (see Figure 4 and 5t), respectively. Thus, BBRI and BDMN may be attractive for investor looking for momentum play.
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