KimEng Bank Central Asia - Conservative stance to limit loan book growth; Maintain Sell [update1]

What’s New
􀂃 Bank Central Asia (BCA) recorded in‐line FY09 net profit of Rp6.8t (+18% y/y). The bank’s 50% LDR was below the industry average of 73%, as deposits outgrew loan book. Regardless its low NPLs and the Central Bank’s plan to disincentivize low LDRs, BCA keeps 2010 loan growth target at 15%, below Bank Indonesia’s target of 17‐20% for the industry.

􀂃 Consumer and SME lending would be the main loan drivers from 2010 and BCA also has plans to acquire a motorcycle financing arm by YE11. The bank has yet to announce details of the acquisition.

Our View
􀂃 BCA has potential to expand. However, its conservative stance in disbursing loans would hold back loan book growth. Our loan growth estimate for 2010 at 12.3% y/y is lower than the bank’s guidance.

􀂃 We raise our estimate on asset yields to 9.9% (from 9.2%), underpinned by BCA’s plan to increase its market share in the car financing and mortgage businesses. We also assume lower provision as NPLs are expected to remain below 1%. Based on these assumptions, we increase our 2010 earnings estimate by 18% to Rp8t.

Action & Recommendation
􀂃 We raise our TP by 18.8% to Rp4,800 (14.5x 2010E PER, 3.7x 2010E PBV); however, we maintain our SELL recommendation as valuations are rich at 17.4x 2010E PER and 4.5x 2010E PBV. Key upside risk is the acceleration of loans expansion.