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.

DBS Bank Central Asia: Hold; Rp5,750; TP Rp5,100; BBCA IJ

Expects 35% growth in sharia unit

Bank Central Asia launched sharia unit on Monday, targeting 35% growth a year in assets, financing, and third-party funds. BCA will use its nationwide network to support transactions for its sharia unit so that consumers can access BCA syariah services in BCA branches. BCA syariah currently has 11 branches, nine are in Jakarta and two are in Surabaya . So far, the bank has Rp776bn in total assets and Rp296bn in working capital. It also has another Rp230bn in additional financing and Rp420bn in consumers’ fund. We see this as neutral to BBCA. BBCA's growth will be focused on cumsumer and SME segments. Corporate loans growth, if at all, would be slower although it could move towards some Tier-2 corporates in addtion to top tier corporates without compromising asset quality.

Maintain Hold, with TP unchanged at Rp5,100 based on the Gordon Growth Model with implied 4.0x FY10 P/BV. Trading at 4.5x FY10 BV makes BBCA the most expensive bank in our regional bank universe. We believe BBCA’s premium valuation has priced in its solid transactional banking franchise.

DBS Bank Central Asia: Hold; Rp5,700; TP Rp5,100; BBCA IJ

At a Glance
• FY09 result was in line; Low provisions in 4Q09 imply significant improvement in asset quality
• Robust earnings reflect strong transaction banking franchise
• Maintain Hold and Rp5,100 TP

Comment on Result
4Q09 net profit of Rp1.7trn brought full year net profit to Rp6.8trn, within expectation. Provisions were significantly lower in 4Q09 at only Rp7bn vs. Rp546bn in 3Q09, and gross NPL ratio improved to 0.7%, reflecting BBCA’s active loan portfolio management. Loan loss reserves surged to 480% with a significant reduction in NPLs. NIM was a tad lower at 6.4% as lending rates dipped marginally due to competition, while cost of funds remained low at 3.5%. Fee based income stayed strong. Loans grew 10% in 4Q09, leading to full year loan growth of 9.5% (loans were in contraction mode in 9M09), while deposit growth was robust at 5% q-o-q and 17% y-o-y. CASA-to-total-deposits remained high at 73%, while loan-to-deposit ratio stayed low at 49%. Cost-to-income ratio was kept low at 44%. The spike in non-operating income from Rp52bn to Rp426bn arose from the sale of Visa shares during the year. Total CAR was healthy at 15.3%.
BBCA intends to start its two-wheeler financing joint venture by Jun-10, and a majority stake or full ownership of the business would likely be considered by 2011. The focus will be consumer and SME loan growth, as corporate loan growth could be subdued as corporates repay loans through bond issuances.

Recommendation
Maintain Hold, with TP unchanged at Rp5,100 based on the Gordon Growth Model with implied 4.0x FY10 P/BV. Trading at 4.5x FY10 BV makes BBCA the most expensive bank in our regional bank universe. We believe BBCA’s premium valuation has priced in its solid transactional banking franchise.