DBS Bank Central Asia: Hold; Rp5,750; TP Rp6,200; BBCA IJ Tapping two-wheelers financing

BBCA through its subsidiary, PT BCA Finance, will establish a multi finance company specializing in two-wheelers financing namely PT Central Sentosa Finance. Based on BI regulation, a bank is allowed to participate in equity stake in a company that has been founded for more than two years. BBCA then will only acquire 25% stake in the new company through PT BCA Finance and will execute the option to take 50% ownership in the second year at par value. This decision is taken after considering significant potential market of two-wheelers financing in Indonesia where motorcycle sales reached six million units this year. BBCA targets to tap 10% share of the financing market or about Rp5tr revenue with joint financing schemes of 95% from BBCA and the rest 5% by BCA Finance. In the initial year, BBCA will inject Rp100bn capital in CSF and will consider lowering the interest rate from the current 26%-30% prevailing financing rate to boost profitability after second year of operation.

We do not expect this new venture to contribute much in the first two years, as it would involve a fair bit of infrastructure investments. Currently, BBCA has a small scale auto financing business via its subsidiary BCA Finance, which is believed to have the lowest financing rates in the market.

Maintain Hold and TP of Rp6,200 based on the Gordon Growth Model with the following assumptions: 26% sustainable ROE, 10% long-term growth and 14% cost of equity. Our TP of Rp6,200 implies 4x FY11 BV and 16.1x FY11 EPS.