Credit Suisse BANKS SECTOR: Rising Inflation but Top-3 BBCA, BMRI, BBRI more reselient

Any weakness due to inflation concerns on share price are good entry level for both BMRI and BBRI, which are our Top-Picks in Indonesia Market.


Teddy Oetomo : Although we foresee potential for inflation rate uptrend, it is likely to remain manageable. We estimate that FY10 inflation will be 5.5%, though some market participants expect it to be as high as 6.5%. The potential for inflation rate uptrend is due to seasonality effect during Ramadhan and a potential increase in electricity tariff.

Inflation rate uptrend may subdue market’s sentiment on Indonesian banks. However, the upside risk on inflation rate remains manageable and, hence, we believe it is unlikely to deter the medium-term outlook of Indonesian banking stocks. Historically, during an inflation rate uptrend (though at much larger magnitudes), Indonesian banks have delivered negative absolute share price returns. However, on a relative basis (to JCI), BMRI, BBCA and BBRI have historically delivered a more resilient performance during inflation rate uptrend periods. However, given BBCA’s more demanding valuation, we prefer BMRI and BBRI.