Indopremier BBCA (HOLD TP Rp 5.100)

Premium Quality, Premium Valuation

Both BBCA PE and PBV currently trading above its +1 standard deviation level which is relatively premium in our view. But we are aware that BBCA historical PE and PBV band should not overshadow its strong fundamental, good earnings assets mix and low loan losses, which all translates to higher growth and valuation in the future. Finally it is better to remain on margin of safety. HOLD

Better and Cleaner Book in FY10F
BBCA 3Q09 net profit came in at Rp5.1 trillion, 27% increase from a year ago supported by robust non-operating income 697% at Rp408 billion due to gain in Visa and MasterCard shares. Better and cleaner balance sheet and income statement should be on the way in FY10F because: 1) Macro side signaling upward adjustment on BI rate. 2) The likelihood of positive carry on marketable securities thanks to BBCA cost of fund is well below BI rate. 3) Light NCO rate and above average loan restructuring this year will lead to lower provisioning charge in FY10F hence bottom line should inflate

Consumer Step Forward
We notice that the bank set to move its core lending into consumer loan since 2Q07 where since then it grew on average by 48.2% YoY from 2Q07 to 3Q09. As a result, portion of consumer loan to showing an improvement from 17.3% in 2Q07 to 22.6% in 3Q07 outpacing portion of commercial loan which keep declining from 43.9% to 37.9% in the same period. This is positive since consumer loan generating higher yield than commercial loan and moreover, inelastic to BI rate.

Strong Capital to Cope Market Risk
BBCA continue to display strong capital. In 3Q09 CAR ratio at 16.3% most of which is Tier-1, 15.4% while Tier-2 only 0.9% which means surpass Bank Mandiri at 14.2%. Given strong capital position (CAR ratio 16.4% in FY09F) we view no additional fund needed to cope market risk and loan growth target at 15% YoY and we expect BBCA retains dividend pay out ratio at 50% this year.

Valuation and Recommendation
We initiate our coverage of Bank Central Asia with HOLD recommendation as recent share price run limits potential upside to our TP Rp5,100. We derived our TP Rp5,100 based on Gordon Growth valuation method using 9.97% risk free rate, 0.81 assets beta, and 5.5% market premium with conservative long term ROE at 23%, implying 14.5x PE and 3.6x PBV FY10F.