Reality check; BUY retained
We raise our 3-yr CAGR loan growth estimate to 23% p.a., driven largely by brisker micro loans expansion, supported by stronger consumption growth and benign inflation. This is a reasonable estimate, we believe, since BBRI’s micro loans have grown 23% over the past 5 years, exceeding the industry average of 21%. BBRI’s uncontested rural presence, with 4,500 micro outlets, has helped the bank grow its high yielding loans - and deposits too. This shall remain the case going forward, in our view. Along with higher loans growth, we raise our provisioning expenses to around 2.0-2.5% of average loans to be on the conservative side and trim our NIM to 8.7% - lower yes, but still far above the industry’s average. Our FY10-11 EPS estimates are therefore lowered by 6-14%. However, we still arrive at a higher TP of Rp9,900 thanks to the increase in our loans growth estimate. Our new DDM derived TP implies 3.9-3.3x P/BV 2010-11, at the high-end of its trading range, but justified by the bank’s above-industry loan growth, superlative NIM and robust ROE.
Plenty of room to grow its micro loans
We expect BBRI’s micro loans to grow 24% over the next 2 years, accounting for 28% of the total loans portfolio. Competition to extend micro loans has admittedly escalated in recent years - with banks attempting to extend higher yielding loans to the growing middle-low income population – amidst stronger consumption growth. However, BBRI remains ahead of the pack thanks to its extensive infrastructure and, in particular, its rural network. This year, the bank will open another 50 micro outlets. Some of them will even be in major cities with the idea of garnering cheap deposits so that they can later be channeled to borrowers in rural areas as high yielding fixed rate loans. With an estimated LDR of 86%, the bank has to search for more deposits. The prospects in this segment are good and it is important to realize that it is far from mature - micro loans per borrower are estimated to be only Rp2.2mn in 2009, or far below BBRI’s average of Rp10mn per borrower and significantly below BI’s limit of Rp50mn/ borrower.
Cross selling shall help the bank grow its deposits
The bank’s NIM shall inevitably decline this year (to 8.7%, in our estimates). Larger deposits are needed, especially if BBRI is to grow its loans in excess of 20% p.a., but the focus is more on growing its low cost funds. Opening micro outlets is an alternative, but corporates is another option. The idea is to lend to corporates at 50bps below the normal rate of 11-12% or at the prime rate, with the aim of attaining greater fee-based income and deposits. The lending rate will be low, but with the overall lending to corporates kept at about 18-20% of the bank’s total loan portfolio, there will be minimal impact on BBRI’s overall asset yield. The focus will be on SOE companies, for which NPLs are virtually zero.
Sub-debt issuance is a likely scenario
There is potential risk to BBRI’s CAR of 13% - in particular since implementation of the Basel II accord on operational risk shall cut its CAR by 1.5-2.0%, in our estimates. BBRI views 12% as a minimum level for CAR, although this is insufficient if it seeks to grow its loans in excess of 22% p.a. Unlike other SOE banks, the issuance of sub-debt - rather than raising equity – is the best option for the bank given that the latter would result in potential earnings dilution with no extra tax benefits (one downside though is the higher COF from the additional cost of debt). While we believe that the bank’s capital is sufficient this year (partly due to last year’s Rp2trn sub-debt issuance), a further decline in capital is expected next year. For now, there is no definite plan for additional sub-debt issuance although the bank’s management hasn’t ruled out the possibility of a sub-debt issuance in 2H10.
Tidak ada komentar:
Posting Komentar