Credit Suisse - BANK DANAMON (BDMN): Flash Report- In Line Strong +23% YoY 3Q09 PPOP- reit Buy

Teddy Oetomo is forecasting average ROE of 23% in 2011F, which justify 3x 2010F PBR Target Price of Rp5,700 (implying 17.5x 2010F PER and 12.3x 2011F PER). Again during Peak Historical PBR in 200F was 4x and average Historical 2007 PBR was 3.5x. At Rp4,800, BDMN is trading on 14.7x 2010F PER with +67% EPS Growth and 2.2x 2010F PBR, on the back of Quality Management, strong back-up from Temasek Group, and clear beneficiary of remained low prospective domestic interest rates historically! Buy BDMN!

· Teddy Oetomo (Flash Report): Robust PPOP growth; FY09-11E earnings revised down by 3.3-4.5%,: BDMN is on track to deliver a robust outlook for 2010, in our view. In 3Q09A, BDMN achieved 100 bp QoQ NIM growth, leading to robust pre-provision profit growth (+13.4% YoY for 9M09A and 23% YoY for 3Q09A). Its normalised 3Q09A net income was up by 4% YoY (+5% QoQ).

· On track for robust 2010E: Including derivative loss write-offs, BDMN’s 9M09A net income was 67% of our old forecasts and 72% of consensus’ estimates. We expect BDMN’s ROE to expand from 14.4% in FY09 to 18.5% in FY10, given: 1) the absence of derivative loss write-offs (which itself may boost earnings by 20%); 2) stronger loan growth (8.7% in FY09 versus 30% in FY10); 3) a robust NIM outlook, supported by a strengthening low-cost funding base. We tweak our FY09-11E earnings down by 3.3-4.5%, given softer than expected loan growth and higher than expected provision expenses.

· Sustainability of profitability: We expect BDMN’s superior 3Q09A NIM to be sustainable in 4Q09A, given the recent agreement by 14 banks to lower deposit rates to a maximum of 7% by December 2009. However, we expect BDMN’s NIM to compress from 11.8% in 3Q09A to 10.7% in FY10E (though remain 90 bps higher than its FY08A NIM of 9.8%). We commend BDMN for its strengthening low-cost deposit base, which puts downward pressure on future funding costs, in our view.

· Reasonable valuations: BDMN is currently trading in line with regional peers (based on P/B and ROE valuations). However, we believe that it offers attractive value with potential for rapid ROE recovery. In 2010, we expect BDMN to achieve 18.5% ROE (11% below its 2007 ROE of 20.9%), while our target price implies 2010E P/B of 3x, remaining at a 14% discount to the average 2007A P/B of 3.5x. We maintain our OUTPERFORM rating and target price of Rp5700.