DBS Bank Rakyat Indo: Buy; Rp8,250; TP Rp10,400; BBRI IJ From strength to strength

At a Glance
• FY09 result was within our estimate, but 7% above consensus
• Strong growth drivers expected to spill-over into FY10F
• Maintain Buy and Rp10,400 TP

Comment on Result
4Q09 net profit of Rp2.0trn brought full year net profit to Rp7.3trn. NIM remained strong at 9.2% despite competitive pressures. Loans grew 7% in 4Q09, leading to full year loan growth of 28%, driven by microcredit financial and small commercial loans. Corporate loans also grew, but within the limit of 20% to total loans. Deposits surged 16% in 4Q09 (mainly CASA), bringing FY09 deposit growth to 27%. CASA to total deposits peaked at 60% and BBRI intends to maintain that ratio. Loan-to-deposit ratio fell to 80.2%, but with strong loan growth ahead, it is expected to rise to 85%. Asset quality improved with gross NPL ratio falling to 3.5%. We note that the
NPL stress came from loans to the ‘medium segment’ but BBRI opines that this category is crucial for future cross selling prospects. To limit NPLs in the ‘medium segment’, BBRI plans to: (i) restructure those loans across a few regions, (ii) centralize loan disbursements back to head office, and (iii) gradually write-off NPLs where necessary. BBRI appears to have managed its operating costs well despite expanding outlets and branches, with cost-to-income ratio at 45%.

We expect BBRI’s NIM to remain stable in FY10F as cost of funds is likely to improve with term deposits re-priced lower. BBRI’s loan growth target for FY10 is 20-25% (DBSV: 20%) and for deposit 20% (DBSV: 20%). Total CAR including Rp2trn sub-debt issued in Dec09 (to be included in 1Q10 numbers) will increase to 14.3%.
Recommendation

Maintain Buy and Rp10,400 TP based on the Gordon Growth Model with implied 4x FY10 P/BV. BBRI’s prospects remain healthy with strong NIM (albeit declining), and its ROE profile remains among the best thanks to high yield microcredit loans, which remains BBRI’s forte.