dbs BDMN Minor improvements

At a Glance
• 2Q10 net profit was in line with expectations.
• Loans growth picked up to 10% q-o-q, while provisions were flattish. CASA to total deposit remains low versus peers.
• Issuing fixed rate bonds to diversify its funding sources and for asset and liability management.
• Maintain Hold and Rp5,300 TP.

Comment on Results
2Q10 net profit of Rp732bn (+4% q-o-q, +53% y-o-y) was in line with market expectations. We believe that the huge increase y-o-y was due to the absence of non-recurring provisions set aside for foreign exchange forward contracts that related to defaults on derivatives contracts last year. Loan grew 10% q-o-q in second
quarter, bringing cumulative growth to 12% in 1H2010. Growth was mainly from the mass-market segment (micro and auto loans), while there was also a significant pick up in wholesale loans (but its composition is only 12% of total loans). NIM was a tad lower at 11.6%, while provisions were flat q-o-q. NPL ratio was lower at 3.4% in 2Q10 compared to 4.0% the previous quarter. Meanwhile, deposits grew by 4% q-o-q, but low cost deposits (CASA) at 39% of total deposits still remained lower compared to the larger banking peers. Total CAR was lower at 18.0% compared to19.7%,
believed to be due to increase in loans.

BDMN will be issuing fixed rate bonds of up to Rp3trn with a 3 and 5-year tenure. Proceeds will be utilised as part of the bank’s strategy to diversify funding sources as well as for asset and liability management.

Recommendation
TP of Rp5,300 is based on the Gordon Growth Model with the following assumptions: 20% sustainable ROE, 10% long-term growth and 15% cost of equity and implies 2.2x FY11 BV and 12.4x FY11 EPS. BDMN has the highest beta among the four banks in our coverage.

CIMB 2QFY10 Results - Bank Danamon - Here comes the growth

Maintain Outperform on Danamon. 1H10 results met consensus and our expectations, with net and core profits forming 48% and 49% of our FY10 forecasts, respectively. 1H10 EPS grew 48% yoy, with the resurging growth boosting its loans by 10.2% qoq and 12.3% year to June, making its FY10 loan-growth target of 20% easy to beat. With its NIM sustaining at double digits and growth renewing, we believe Danamon deserves better valuations. Given its lagged share performance in 1H10, a faster re-rating than peers could be expected in 2H10, in our view. We maintain our earnings forecasts and target price of Rp7,250 (DDM-based, discount rate 15.8%), with catalysts expected from its continuous growth momentum

Mansek Bank Danamon:1H10 results above our expectation,yet inline with consensus estimates (BDMN,Rp5,350,Neutral,TP:Rp,4,900)

Bank Danamon reported net profit of Rp1.4tn in 1H10,above our expectation,yet inline with consensus estimates.The bank reported lower than expected provisioning expenses enabled by improvement in NPL.In terms of Pre-provision operating profit (PPOP),the bank ’s financial result was actually in line with our expectation.

The bank ’s loans improved by 10%qoq in 2Q10 to Rp71.1tn with wholesale and massmarket segment posted the highest loan growth of 14%qoq and 12%qoq respectively.Despite srong growth in wholesale segment,mass market still dominated the total loans (56%of total loans at end Jun10). This allowed the bank to maintain a high NIM of 11.6%in 1H10,the highest in the sector.

The bank targets loans to grow by 20%yoy this year and believed that it will be achieved.

At the current price,the stock is trading at 2011F P/BV of 2.3x and PER of 13.0x,We are currently reviewing our forecast on the bank.

Mansek Bukit Asam : New JV with Lanco Infratech – Unlikely to realize ((PTBA, Rp16,350,Buy,TP:Rp18,750)

Investor Daily quoting Business Standard reporting that Lanco Infractech is ready to develop 600MW coal fired power plant in Muara Enim,South Sumatera through a BOT (Build,Operate,Transfer)with PLN, with investment of US$751.3mn in a JV with Bukit Asam.We deemed it is unlikely. Bukit Asam has already a plan to build 4x600MW US$3bn power plant with China Huandian Corp.The problem with its 4x600MW is no take- up in demand in South Sumatera.PLN firstly need to build connecting cable to link Sumatera grid with Java grid,where most of the demand is located.Until the grid plan is developed it is unlikely for the project to start.

At Rp16,360,PTBA is trading at PER10F,and PER11F of 16.9x,and 11.7x, respectively with EV/EBITDA10F and EV/EBITDA11F of 11.1x,and 7.3x, respectively.

JPM Research call – Buy Bank Danamon

2Q10 net profit of Rp732bn came in below Aditya’s preview of around Rp850bn, but still looking strong YoY and QoQ (if we smooth out the expensing of management stock options). Key surprise is the Rp90bn stock option expense, half of which should have been expensed in 1Q10. Key achievement is the 10% QoQ growth in loans, declining cost of funds with a recent 3-year money costing BDMN 8.5% and 1-2 year money costing sub 7%, after swapping into Rupiah. With an average lending rate still above 21%, BDMN stands to benefit from continuing inflow into IDR bonds. 1H10 net profit of around Rp1.4trn is tracking slightly ahead of consensus of Rp2.8trn; full year profit of Rp3.0-3.1trn is looking more likely. A more detailed research note to follow.