■ Strong 1Q10: BBRI reported solid 1Q10, with a net income of Rp2,151 bn, up 25% YoY and 7% QoQ, representing 23% of our and 24% of consensus’ FY10 estimates. BBRI’s 1Q10 PPOP was strong at Rp4,560 bn, up 40% YoY and 54%QoQ, representing 26% of our FY10E PPOP, largely driven by lower-than-expected operating expenses.
■ Asset quality is our only criticism: BBRI’s robust 1Q10 PPOP was supported by a robust NIM (on lower funding costs) and a healthy cost-toincome ratio (39.4% in 1Q10 versus 45.4% in FY09 and 47.8% in 1Q09). Our only criticism on BBRI’s 1Q10 results is a 58 bp increase QoQ in NPL ratio. Medium-size loans’ 1Q10 NPL ratio worsened to 14.06%, though we see potential for medium-size loans’ NPL ratio to improve in 2H10E, as the bank moves its medium-size loan approval back to head office. Medium-size loans represented only 7.1% of BBRI’s total loans in 1Q10. The bank maintained a provision coverage of 132.2% in 1Q10, leading us to believe that its asset quality position is still well under control.
■ Potential for further positive surprise in 2010E NIM: In our 21 February 2010 report, Fundamentals remain intact, we highlighted that a higher-thanexpected NIM could be the key catalyst. In 1Q10, BBRI’s NIM was at 8.9%, up from 8.3% in FY09, versus the market’s expectations of NIM compression.
■ Undemanding valuations: BBRI is trading at a discount to its peers. Based on our P/B minus ROE measure, BBRI is trading at a 39% discount to MSCI Indonesia. We maintain our OUTPERFORM rating on BBRI and target price of Rp11,000. Our target price is based on Gordon’s growth model and implies 4.2x 2010E P/B and 14.3x 2010E P/E
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