Target price upgrade to Rp1,500 (from Rp1,250); maintain Buy
We raise our Bank Jabar target price to Rp1,500 (from Rp1,250), implying 2.7x 11F book and 13.6x 11F earnings (at par to the sector's current valuations). Despite thestock's strong performance, Bank Jabar remains our top pick in our small banking universe. This reflects our earnings upgrades of 18% for 2010F to Rp952bn, 10% for 2011F to Rp1,082bn and 8% for 2012F to Rp1,280bn, which are in line with management's IPO guidance. These would imply a higher ROAE of over 20% than industry average, despite Jabar's exceptionally high Tier I, exceeding 20%.
Earnings upgrades by 8-18% for 2010-12F
Based on 1Q10 results, we raise our earnings forecasts by 8-18% for the 2010-12F forecast years. Our revised forecasts are now in line with management IPO guidance, and imply an ROAE of more than 20%. With the IPO proceeds in July2010, we expect a stronger 2H10, providing further upside risk to our forecasts.
High profitability compares to peers
On Tier I adj ROE (using Tier I of 15% as a reference), with Tier I of more than 20%, the adj ROAE would have exceeded 25% - easily making Jabar the mostprofitable bank. In addition, the bank also has one of the lowest NPL ratios, at approximately 2.0%. Its large consumer loan portfolio (75% of total loan book), ofwhich 95% are to civil servants whose payrolls are distributed through the bank’snetwork, has an NPL ratio of just 0.2%. The bank’s strategic decision toincreasingly capture pensioners’ loans would enhance future earnings.
Target price Rp1,500 (from Rp1,250); risks: two-region exposure, competition
Our target price is derived from a Gordon growth model (see page 5). Risks areexposure to WJB/Jakarta economic development, competition and higher NPLs.
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