AAA Company Update_BBNI Decellerating Corporate Loans

BNI has released its 1Q10 last week by posting loan growth by 62% YoY and outpaced our and consensus estimate by 29.6% and 23% because of higher insurance premium income and lower in provision charges. The banks posted lower NPLs in 1Q10 to 4.6%, because of repayment from their several debtors. However, its loan growth showed decreasing by QoQ by 1,64% because of seasonality and repayment some of corporate customer. We like BN because It is the most beneficial bank from infrastructure project. However, If the bank’s assets continue to deteriorate, it will be the main risk for the bank negara share price. Finally, we still maintain our HOLD recommendation with TP –Rp.2462 implies 2.05-1.71X PBV FY10-11E and 10.89-9.93X

Switching To Capital Market Instrument
As hot money is approaching Indonesia brought to higher government bonds and lower yields, bonds and money market paper issuance became popular among top tier corporate to lock their cost of funds for several years ahead before interest rate going up in the next couple of months. Astra Sedaya Finance (ASDF IJ), ASII automotive financing arms, recently succeed to issue 370 days to 5 years bonds, amounted Rp. 1.5 trillion. The bonds will pay interest rate ranging from 8.47% p.a. the shorter and 10.9% for the longest one. We believe that the rate got by ASDF is very competitive, given the rate that given to the tier 1 corporate nowadays is about 9-10% p.a. The phenomenon is affected several banks, which has bigger proportion in whole sale banking, include BBNI. The management said that their two biggest debtors, Cikarang LIstrindo, a 150 MW power plant in Cikarang and Magma Nusantara Limited, a whole owned company by Star Energy who operate Wayang Windu geothermal project in west java have repaid their loan after issued their bonds. We believe that the bank won’t be able to increase their whole sale business until before 2H10, given a lot of corporate bonds in the pipeline.

Better Assets Quality
Although posted negative QoQ loan growth, Bank Negara booked slightly decrease NPLs ratio from 4.7% in 4Q09 to 4.6% in 1Q10. Repayment from its several corporate debtors is the main reasons that the bank is able to increase its asset quality. As the result, the bank’s NPLs for corporate segment down by 0.99% to 3.71% in 1Q10 in QoQ basis. However, its medium, small, consumer and syariah segment are still facing worsening assets quality. We believe that BBNI will be benefited from better economic condition since the bank has the highest provision expense/total expense among big banks.

Right issue in 2H10
The bank has a plan to increase public shares from 24% currently to 40% in order to get 5% tax benefit. According to Bank Negara management, finance minister as well as state owned enterprise minister have approved orally about BNI plan. Thus, they are confident that the corporate action will be held by this year. Although we haven’t calculated it yet, it will increase the bank’s bottom line by 5 – 7% based on our calculation.

Maintain HOLD (TP-Rp. 2462)
We made several revisions in our model, particularly in the area of NPLs and provision expense. As the result, we increase our target price to Rp. 2462 and maintain our HOLD recommendation because we believe that all the good news has already price in. We believe, the success of right issue will be the upward risk, while further assets deterioration will affect bank negara share price. Our target price implies 2.05-1.71X PBV FY10-11E and 10.89-9.93X.