We reiterate our buy call on Bank Negara Indonesia (BNI)for four reasons (1)improved profitability (2)better asset quality (3)stronger management team and (4)cheap valuation.Furthermore,what has been less appreciated from this bank,in our view,is its strong determination to improve asset quality through better organization structure.
BNI ’s ROAE improved from 7.3%in 2008 to 20.3%in 1H10,supported by strong loan growth and improvement in CASA proportion.
Even though NPL from the medium segment will remain a challenge,we noticed management ’s serious efforts to deal with this issue by reducing loan growth and tightening monitoring practices.In addition to that,it is also worth to see the bank ’ s improved loan yield and coverage ratio.This should help cushion the negative impact from further deterioration on its asset quality,in our view.
The new addition to the BOD is expected to strengthen the bank ’s performance going forward.Two of the new BOD members were tapped from outside the bank (Honggo Widjojo Kangmasto and Darmadi Sutanto), while the remaining two are from inside the state-owned lender (Sutanto and Adi Setianto).In addition,the bank also introduced new role in its organization called Chief Business Risk Officer (CBRO)who will deal with business risks (related to loans)and loan remedial and recovery.
At the current price,BNI is trading at 2011F P/BV of 1.8x and PER of 8.6x,far below the averages of banks under our coverage of 2.7x and 11.6x, respectively.We still believe such discount is unwarranted for the bank; hence our buy call on the counter remains.
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