Kim Eng BCA Steady growth supports LDR

What’s  New
BCA  posted  Rp3.9t  profit  for  1H10, which  is  in  line  with  our  estimate. At  6.2% YTD, BCA’s  rate  of  loan  expansion  is  running  parallel  to  that  of the  industry. But  with  respect  to  LDR, BCA  is  running  at  two ‐thirds  the banking  average  of  75%. The  reason  stems  from  its  huge  deposit franchise  that  has  continued  to  grow, in  spite  of  the  bank’s  low  rates. 

Aiming  to  promote  lending, Bank  Indonesia  is  planning  to  link  its reserve  requirements  with  a  measure  related  to  the  LDR. The indicated  ideal  LDR  range  is  75 ‐105%. This  new  policy  is  likely  to  be fully  implemented  in  2011. BCA’s  strategy  for  mitigating  LDR constraints  is  to  expand  its  loans, while  keeping  its  NPL  rate  in  check.

Our  View
The  low ‐cost  deposit  remains  BCA’s  forte. Supported  by  sufficient CAR  (16.5% in  1H10), coupled  with  solid  risk  management, the  bank has  the  necessary  ingredients  to  boost  its  loan  book. Therefore, we will  not  place  an  undue  emphasis  on  the  modest  shortfall  in  its  LDR until  we  receive  further  details  on  the  upcoming  regulation.  

We  have  lifted  its  FY10  loan  growth  estimate  by  200bp  to  14% y/y  on a  seasonality  factor. Early  contributions  from  expanding  further  into motorcycle  financing  and  life  insurance  should  be  minimal. In addition, we  have  cut  our  provisioning  assumption  for  2010  by  28% to  Rp1.1t  on  the  back  of  an  improvement  in  loan  quality.

Action  & Recommendation  
Our  revision  increases  our  profit  forecast  by  ~4% to  Rp8.4t  and  Rp9.3t  
for  2010F  and  2011F, respectively. The  bank  has  a  strong  growth  
prospect  that  is  reflected  in  its  rich  valuation  relative  to  its  peers. 
Rolling  our  estimate  base  forward  to  2011, we  arrive  at  the  TP  of  
Rp7,000/share  (18.3x  2011F  PER; 4.6x  2011F  PBV). Maintain  BUY.