CLSA Bank Rakyat (BBRI IJ) ahead of our and consensus expectations

BRI released FY09 results after the market close yesterday and the headline number beat our estimates by 5% and consensus by 7%. We are maintaining our Outperform rating and will be revising up our 2010 estimates due to higher than anticipated loan growth and lower provisioning expectations in 2010

FY09 earnings of Rp. 7.3tn were up 23% YoY, however after adjusting for forex gains of 700bn, earnings were below our estimates.

BRI continues to take market share on lending and deposit gathering, but credit issues remain a challenge and with BMRI and BCA moving into growth mode we believe the deposit gains will be difficult to maintain going forward.

NIM of 9.14% represents a 100bp decrease YoY. We expect the NIM to come down slightly to 9% in 2010 as the lending mix continues to move away from core micro business. Corporate loans currently stand at 20% of total, lower yielding commercial continue to increase as well.

NPL's improved by 40bps on the back of a write down of Rp2.5tn. The medium size portfolio continues to pose problems with NPL's rising to 12%+. With PSAK 55 coming into play for 2010, we expect provision write backs at BRI, and upwards earnings revisions. The bank has reserve level (LLR/Loans north of 5.5%.

The CIR reflects that the bank is understaffed and will need to higher new employees (upwards of 16k in 2010). This will likely slow earnings growth in 2010.

INVESTMENT CONCLUSION: We remain at OUTPERFORM on BRI, we believe BMRI and BCA provide better options and less likelihood to disappoint. BRI remains the best value play in the banking sector at 10x 2011 estimates.