BCA released 6M10 result last evening after the market close. No change in our earnings, our recommendation and target price are under review and will be addressed in a follow up note..
profit of Rp3.9tn (+21% YoY) accounts for 42% of our full year estimate. These results are in line with our estimates. Net profit increased 6% QoQ driven by lower expenses and strong loan growth even with NIM contracting slightly (5.46%).
Key highlights:
Strong loan growth led by consumer. Our estimated pickup in lending is being realized with annualized 2Q loan growth of 36%. Loan growth in 2Q10 was 9% QoQ and 23% YoY as consumer lending increased to 24% of total loans, and is up 39% YoY. Strong growth in the quarter was reported in commercial and corporate, both increased by nearly 9% QoQ.
Funding cost flexibility. As the charts below indicates, BCA’s asset sensitive balance sheet is experiencing greater impact from earning asset yield (EAY) compression in the lower rate environment. This should change in 2H10 and BCA should begin to experience NIM expansion. In addition, BCA lowered the maximum rate paid for its demand deposit accounts for the first time in six years, impacting transaction accounts that are sticky in nature. We believe BCA could lower these rates by an additional 25-50bps in the coming months to help maintain the margin.
Credit remains pristine. Credit remains solid, with gross NPL’s flat QoQ at 0.8%. The bank released some reserves in the quarter. As we anticipated, PSAK 55 is limiting the banks ability to maintain a high coverage ratio, and we have modelled this into our earnings assumptions. The coverage ratio decreased by 9% to 334% QoQ and we anticipate that this ratio will continue to decrease, as we are forecasting this ratio to be below 300% by YE10.
Positive traction on expenses. BCA lowered operating expenses QoQ by 7% to Rp2.5tn. The decrease is attributed to lower personnel expenses in the period, helping to drive the cost to income ratio (CIR) down by 370bps to 52.9%.
Conclusion: BCA is currently trading at 3.9x and 15.2x our 11CL PBV and PE, respectively.. We believe upside is limited in the shares at this level given the valuation. We will review our recommendation in a full follow up note.
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