DBS BBCA 9M09 result in line

At a Glance
• 9M09 net earnings were in line at Rp5,090bn
• BBCA had not benefited from declining interest rates, but loan have started to grow
• Downgrade to Hold.

Comment on Result
Did not benefit from declining interest rates. Net interest income fell 4.5% q-o-q driven by both growth of third party funds and flat cost of fund. The bank’s earning asset yield fell 29 bps in 3Q09 while cost of fund slid only 2 bps. This was because the bank’s strong deposit franchise enabled it to offer low deposit rates to its customers in a rising interest rate environment such as in 1H09. But this meant that when interest rates fall, BBCA would also benefit less. Operating expenses rose 2.8% q-o-q, which caused cost efficiency ratio to rise to 41.5%. But given lower provision charges, 3Q09 net earnings grew 6.9% q-o-q.

Loans starting to grow. In 3Q09, loans grew 5.0% q-o-q but were flat YTD (-0.4%). Consumer loans grew 12.5% q-o-q, so that it comprised 22.6% of loan mix in 3Q09 - the stronger growth of this segment is healthy considering the lower risks. Meanwhile, despite BBCA’s strong deposit franchise, its CASA portion had been declining gradually to 73.5% from 73.7% in 2Q09 and 74.7% in 4Q08. However, NPL improved, with gross NPL down to 1.3% from 1.9% in 2Q09 and NPL coverage rising to 296.5%.

Recommendation
Downgrade to Hold. BBCA should benefit from stronger loan growth, especially the corporate segment, as the bank’s LDR remained at 47.8%. But with the counter currently trading at 3.7x FY10F PBV, we downgrade BBCA to Hold. Our target price is
unchanged at Rp5,000, or 4x PBV.