DBS Bank Central Asia: Hold; Rp5,700; TP Rp5,100; BBCA IJ

At a Glance
• FY09 result was in line; Low provisions in 4Q09 imply significant improvement in asset quality
• Robust earnings reflect strong transaction banking franchise
• Maintain Hold and Rp5,100 TP

Comment on Result
4Q09 net profit of Rp1.7trn brought full year net profit to Rp6.8trn, within expectation. Provisions were significantly lower in 4Q09 at only Rp7bn vs. Rp546bn in 3Q09, and gross NPL ratio improved to 0.7%, reflecting BBCA’s active loan portfolio management. Loan loss reserves surged to 480% with a significant reduction in NPLs. NIM was a tad lower at 6.4% as lending rates dipped marginally due to competition, while cost of funds remained low at 3.5%. Fee based income stayed strong. Loans grew 10% in 4Q09, leading to full year loan growth of 9.5% (loans were in contraction mode in 9M09), while deposit growth was robust at 5% q-o-q and 17% y-o-y. CASA-to-total-deposits remained high at 73%, while loan-to-deposit ratio stayed low at 49%. Cost-to-income ratio was kept low at 44%. The spike in non-operating income from Rp52bn to Rp426bn arose from the sale of Visa shares during the year. Total CAR was healthy at 15.3%.
BBCA intends to start its two-wheeler financing joint venture by Jun-10, and a majority stake or full ownership of the business would likely be considered by 2011. The focus will be consumer and SME loan growth, as corporate loan growth could be subdued as corporates repay loans through bond issuances.

Recommendation
Maintain Hold, with TP unchanged at Rp5,100 based on the Gordon Growth Model with implied 4.0x FY10 P/BV. Trading at 4.5x FY10 BV makes BBCA the most expensive bank in our regional bank universe. We believe BBCA’s premium valuation has priced in its solid transactional banking franchise.