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BBTN registered higher than expected net income growth of 97.11% to Rp 391 bn in 1H10. Negatively, NPL also jumped significantly to 4.12% in June 2010, compared to December 2009 at 3.36%. We observe that the aggressive loan growth with inadequate risk management was the major driver of NPL heating. Positive view came from 1H10 CIR improvements to 59.1% from 70.4% in 1H09 due to cost efficiency, especially in human resources. We maintain our BUY recommendation for BBTN at TP Rp 2,100 per share, implies 12.3% potential upside.

Strong Loans Growth
BBTN reported Rp 46.4 tn loans book in 1H10, grew 29.61% YoY from 1H09 of Rp 35.8 tn. Non-housing loans was leading the robust growth of 34.9% YoY, where housing loans grew 23.6% YoY. An abrupt increase of construction and commercial loans are the catalyst for non housing loans growth going forward given this two sectors contributed remarkable growth in last six months. Additionally, Subsidized mortgage loans are expected to benefit from new pattern of government subsidized program for housing loans.

CIR – Improvement in Cost Efficiency
1H10 cost to income ratio-CIR improved to 59.1% from 70.4% in 1H09. The improvement was driven by new efficiency program that utilize 60% of employees to engage in business while 40% are supporting. We expect BBTN to book CIR of 57.8% and 51.7% in 2010 and 2011 respectively.

Net Income looks Promising, but High NPL is Awaiting
1H10 net income has jumped 97.11% to Rp 391 bn from Rp 198 bn in 1H09 due to robust loans growth and cost efficiency. Negatively, NPL also jumped significantly to 4.12% in 1H10, and signified that the aggressive commercial loan growth was not accompanied by adequate risk management. We forecast BBTN to book Rp 782 bn net profit in 2010 with NPL of 4.1%.

BUY Recommendation
We maintain BUY recommendation to BBTN with TP Rp 2,100 per share based on strong loans growth and cost efficiency. We upgrade our PPOP to Rp 1,389 bn from 1,039 previous to reflect cost efficiency. Higher than anticipated NPL has let us to estimate high provision expense of Rp 353 bn in 2010, or implies 54.3% coverage ratio. Currently BBTN is traded at 2.6x and 2.3x of PBV10F and PBV11F respectively