Our bank analyst Bret Ginesky upgrades BCA (BBCA IJ) to BUY and raised his TP to Rp6,000 (from previously UPF and TP Rp5,000). Bret also increases his earnings estimate for 10/11 by 33% and 29% respectively. BBCA currently trades at 2010 PBV and PE of 3.4x and 12.7x, with a 29% ROE this is not expensive compared to its ASEAN peer group (avg. 2.8x, 14.2x, and 15% respectively).
Interestingly, most of Bret’s upgrades come from lower provisioning (he expects a 50% decline in provisions in 2010 YoY) assumptions and higher loan growth rather than changes in NIM assumption. The chart below is worth highlighting as it shows that BCA consumer portfolio has grown 44% CAGR in the past 3 years, from Rp8.7tn to Rp25.4tn. And consumer loans have higher yields than BBCA’s fixed rate bonds. In short, there is still an upside to our numbers, from NIM point of view.
We can see the fact that savings rates decreased in 3Q09, and that this could be another aspect of the balance sheet that BCA can play around with. Look at the middle line, the savings rate. This rate was flat until this quarter and just declined by 50bps (another sign of BBCA’s strong franchise). This is ACCRETIVE to NIM.
Key points from the report:
· With 26% of the fixed rate bond portfolio maturing thru 2011, allowing BCA to reinvest in higher yielding consumer loans.
· Credit metrics are improving, and we expect a 50% decline in provisions in 2010 YoY. The LLP/NPL ratio currently stands at 297%.
· With earnings growth of 28% next year and an ROE of 29%, we are upgrading the stock to BUY and raising our TP to Rp6000.
· We are increasing our earnings estimates for 10/11 by 33% and 29% to Rp361 and Rp410, respectively. BCA currently trades at 2010 PBV and PE of 3.4x and 12.7x, with a 29% ROE this is not expensive compared to its ASEAN peer group.
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