Indopremier In Its Best & Comfortable Seats BTPN (BUY - TP Rp4.100)

BTPN reported weak 3Q09 results. Net profit surged aggressively on QoQ by 51% but trimmed down by 18% YoY hit by higher operating expense charge as the bank continues expanding franchise sending signal of lower earnings this year. However going forward as operating expenses subdued, strong and positive growth is on the way. BUY

Strong Franchise in Provinces Where Retiree Will Come
Data from Central Statistic Agency disclosed that retiree (age > 65 years old) will increase from 4.7% in 2008 to 8.5% out of total Indonesia population in 2025 with the highest contribution coming from East Java province, Yogyakarta, East Java, Bali and Sulawesi. The data is somewhat congruent with current province earnings contributor for BTPN which coming from East Java and Central Java as the highest, Sumatera in the second, Kalimantan Sulawesi in the third and West Java as the least contributor. Going forward, we believe the bank already in its best comfortable seats to see an outgrowing number in pension loan.

Ample Capacity to Grow
The bank’s capacity to expand is widening given LDR ratio down to 83.0% from the same period year ago at 85.6%. However we expect LDR ratio is gear up at 84% level to attain Rp15.2 trillion outstanding credits at this full year 2009. Our forecast is justified by current BTPN’s CAR in 3Q09 21.3% more than enough than BI red standard level 8%.

Earnings - Under Pressure, Upsurge Going Forward
BTPN posted net profit in 3Q09 or 18% YoY subdued from the same period year ago sent signal of lower bottom line result in FY09F amidst sound growth by quarters. Nevertheless FY10F would probably provide substantial positive circumstances for BTPN because: the new elected government will raise salary of civil servant including retiree of about 5%; The bank’s marketable securities mostly tied up in SBI, upsurge in BI rate next year gives more optimism earnings from marketable securities will also inflate; loan pricing is likely to shift upward; lower cost-to-income ratio.


Valuation and Recommendation
We shift forward our target price using FY10F as cut point valuation and increased our target price from Rp3,035 to Rp4,100 implying 6.8x PE and 1.6x PBV FY10F based on Gordon Growth Methodology. We view BTPN as a growth bank with visible income stream, expertise in least competition and high yield segment, low loan losses, high degree of strong core capital and good management. BUY.