CLSA Bank Tabungan Negara (BBTN IJ), 1Q10 results

Our analyst Bret Ginesky looked at Bank Tabungan Negara (BBTN IJ) 1Q10 results. BBTN reported solid 1Q10 numbers in a seasonally weak 1Q. We reiterate our BUY rating and TP of Rp2000.

Key points from the report:

* Loan growthof 6%, NIM of 5.6% and CIR falling to 59% fuelled higher revenues. 1Q10 net profit +72% YoY.
* Complete financialswill be released later today.
* Credit weakened slightlyas gross NPL's increased 64bps to 4% partly due to a timing issue. The bank does not charge late fees on some loans, so the borrower can withhold payment until later in the year. From our understanding this applies only to a minor segment of the loans outstanding, they are legacy loans.
* No changes to our numbersat this point and we will update our model when the full financials are released.
* We reiterate our Buy rating and TP of Rp2,000.


Comment:
Net profit up by 72% looked strong but pre provision profitwas even stronger, up 142% YoY based on higher net interest income. NII up 69% YoY. The NIM also contributed to this, as it rose to 5.6%, an increase of 170bps as deposit costs decreased by 243bps from 7.80% to 5.43%, primarily a function of the deposit pricing agreement from Aug. 2009.
One key concern is that the LDR increased to 114%, and remains elevated. That elevated shareholders equity makes this less of a concern, particularly with a CAR north of 20%. The main driver of thehigher LDR is the removal of Rp3.5tn in government deposits from YE09. The new subsidy scheme, if in the form of a direct deposit would bring this ratio down substantially.
That being said, the higher LDR is not a concern until capital is deployed further. The bank plans a bond issue in the coming months, and Tier 1 accounts for 95% of total capital.

Our chart of the day below places the significant growth in mortgages into perspective (average mortgage rates were north of 15% aside from 2007 and 2009). Looking out over the next 6 years with lower rates in Indonesia, growth should be even more substantial. Our research view is that Indonesia's mortgage marketwill be at least US$40bn by 2014 vs. US$13bn for 2009. Growth is not linear, expect a J-curve. BBTN will be one of the main beneficiaries.

Chart of the Day: Mortgage loans outstanding - growth will not be linear, expect a J curve - Rp400tn by 2014 is the minimum