CIMB Company Update – Bank Negara Indonesia – “Rights or haircuts, Sir?

We upgrade BNI to Outperform from Neutral. Going by recent progress, we see an increasing probability of parliamentary approval for BNI’s rights issue in the near term. Of its two proposals − rights issue and haircuts − submitted almost in tandem, we anticipate parliamentary approval for at least one, with chances higher for the former, we believe. If so, BNI could then resume its long-term growth, which has prompted us to upgrade our long-term ROE assumption to 21.2% from our previous growth-capped assumption of 18.6%, and raising our target price to Rp4,000 from Rp2,875 (GGM, unchanged discount rate of 15.8%). As the cheapest of the major banks, we see BNI catching up with the valuations of peers once concerns over its thin capital evaporate. We expect stock catalysts from parliamentary approval.