DBS Bank Rakyat Indonesia: 9M09 results inline (Buy, TP Rp10,400)

At a Glance

· 9M09 net profit inline with our FY09 estimate
· NIM declined slightly, but it should stabilize. Gross NPL still slightly increase but it should normalize.
· Loan should grow strong going forwards.
· Maintain Rp10,400 based on 4X FY10 PBV.

Comment on Results
3Q09 result within expectation. BBRI’s net interest income grew 4.7% while NIM declined slightly to c.9.13% in 3Q09. Interest revenue grew 4.6% q-o-q driven mainly by strong loan growth in 2Q09 that grew 11.7% q-o-q so that 9M09 loan growth was 20.5% YTD. Interest expenses grew 4.6% q-o-q as cost of fund declined to 6.27% from 6.4% in 2Q09. Provision expenses grew 52.4% on the back by strong loan growth. Cost efficiency ratio rose to 43.0% driven by increase in operating expenses by 21.4% q-o-q.

Loans grew higher than the sector. Loans grew 5.0% q-o-q in 3Q09 driven by micro and small consumer segments. While gross NPL increased to 3.92% in 3Q09 from 3.7% in 2Q09, loan quality from medium and corporate deteriorated. However, with provision expenses in 3Q09, banks’ NPL coverage improved to 168.2%. Third party funds grew 2.1% q-o-q with CASA portion relatively stable at 57.9%.

Recommendation
Maintain Buy. Going forward, we expect loans to grow stronger. We foresee BBRI’s loans to grow 22% this year and 25% next year, higher than sector’s average. BBRI’s micro and commercial should become the main drivers. At the same time, loan quality will continue to normalize. We maintain our recommendation and forecast for the stock.