AAA BBTN company Update

Bank Tabungan Negara hosted its first analyst meeting last Monday, which reported its full year 2009 performance. Their net income increase 13.9% YoY and surpassed consensus estimated by 10%. Their good result is delivered by top line performance, net interest income, which increased by 15.6% YoY. However, BTN has increased its provision significantly by almost Rp. 60 billion, which made operating profit only increased by 10.4%. For the future, the management is aiming for better efficiency, aggressive loan growth which will be derived to better profitability.

Rebalancing Portfolio
BTN management aims to have 75% : 25% proportion by 2012 for its mortgages and non-mortgages loan, from current proportion by 93.99% : 6.01%. By increasing their non-mortgages loan they want to increase their margin. According to them, non-mortgages loans such as syariah loan and consumer loan, give better margin than mortgages loan, which the price has already pegged by government since more than 49% of their mortgage loans are dominated by subsidized mortgages loans. In addition, non-mortgages loan has shorter maturity than mortgages loan, which will decrease their miss match maturity risk, since most of their funding comes from customer deposits. Furthermore, by decreasing their mortgages loan, they are willing to reduce their concentration risk. We see that BTN management is willing to balance between risk and profit. On one side, mortgages loan offer good collateral but less margin, while non-mortgage loan gives more margin but higher risk. So, we agree with the composition that BTN’s management has been decided since its offer less risk with potential upside on its profitability.

Efficiency Program on Progress
Compare with other commercial banks, which has cost to income ratio (CIR) around 45% - 55%, BTN has stated CIR ratio by 68.69% . Their management blamed its manual system to do loan origination and collection that make their inefficiency. So, they have piloted E-Loan (Loan origination system) and E-Loss (Collection and Recovery System) since January 2010 to make them more efficient in term of cost and time. From this automation system, they hope that they will have CIR ratio by 57.87% 2012, or decrease 10.82% along two years ahead.

NPLs Has Touched Its Peaked
BTN has reported lower NPL by 3.36% in FY09 than 4% in 3Q09 because of aggressive loan growth and better assets quality. The management said that its mortgage debitors are sensitive by increasing interest rate charge. It is happen since most of their subsidized mortgage customers have monthly income around Rp. 1-2.5 million, which are relatively vulnerable to the weakening economic condition. However, since 78% of their subsidized housing loan borrowers are civil servant, so we are no worry about BTN lower coverage ratio, which stood at 51.34% level in FY09.

No Longer Cheap
Currently, BTN share is traded at 1.5X PBV FY10E, or relatively expensive compare to its peers. Bank Negara, Bank CIMB Niaga or Bank Bukopin, which have expected ROE higher, is exchanged for 1.2X, 1.56X and 0.87X PBV FY10E. However, given BTN nice market, lower risk of collateral, and potential bottom line upswing from efficiency, we believe that BTN can be one of alternatives for mid term stock investment.