Justified by high quality; Buy retained
Despite the recent stock price rally, we reiterate BCA as one of our top picks in
the Indonesian banking space. Our revised target price of Rp7,000 (up from
Rp5,700) implies FY11F PB of 4.6x and PER of 18.6x. Most of the stock's 27%
potential upside, to our Target Price, is being driven more by earnings (given its
ROAE of 26.5%) than a valuation re-rating. We believe the bank's high earnings
quality, in terms of pace and stability of growth, justifies its premium valuations.
Strong pace of growth and low ROAE volatility
Over the last decade, BCA has delivered among the fastest growth in book value,
with average ROAE of over 23%. The high quality of earnings is also reflected by
its low ROAE volatility, which demonstrates BCA’s ability to weather various
business cycles. We believe BCA’s pace and stability of growth to be primary
reasons justifying its premium valuations. On the back of this, our current target
price implies that over 70% of the stock’s potential upside to our TP will be driven
by earnings growth (plus dividend).
Earnings upgrades: 7.7% in 2010F and 8.8% in 2011F
The upgrades are primarily due to lower provision charges. We believe BCA’s
earnings growth will become more visible under the new accounting standards
pertaining to provision charges (see our January 10 report). BCA’s largely undergeared balance sheet (with LDR at 50%) will allow it to gain loan market share and sustain three-year earnings CAGR of 17.5% with implied ROAE over 26.0%.
TP Rp7,000 (from Rp5,700); risks: lower loan growth/asset yields, higher NPL
Our TP is derived from the Gordon growth model, using 2011F book as reference
(from 2010F previously. Risks are lower loan growth and asset yields, higher
funding costs and larger NPL formation increase. (see pages 5 & 6 for more on
valuation & risks
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