Citigroup Bank Tabungan Negara - Initiate with Sell: Balancing Valuations with Risks

 Trading at a Premium — We initiate coverage at Sell/High Risk (3/H). Our Non-consensus Sell is based on 1) expensive valuations and 2) below consensus 2011/12 EPS forecast (15-17%). Forward PER (Consensus) of 17.4x compares with peak or above-peak PER for larger banks, with a weaker deposit franchise. Our EPS growth forecast for 2010-12 of 23% pa is based on 26% pa loan growth (management guidance) and flat NIMs/Credit Costs. In our opinion, consensus expects rising NIMs, in line with management’s goal of improving ROA from 1.4% to 2%. Our DDM-based target price implies 2011F PER of 12x and P/B of 1.9x.

 Changing Business Model — BBTN is a state-owned bank set up to provide 1) mortgages subsidized by the government to mostly civil servants and 2) nonsubsidized mortgages. Future goal is to raise ROA via 1) consumer loans to existing 1.2mn customers and 2) SME banking and 3) build CASA through network expansion and a tie up with the Post Office.

 Will be a Slow Process — The share of Consumer/SME loans must increase from 8% to 20% to lift ROA significantly (40%+ pa growth needed over the next 5 years). This will increase administrative and credit costs, as it requires upgrade of skills and technology. Deposit mobilization through Post Office tie up is slow and branch expansion will compete with other banks like BBRI.

 Competition at High End — The front-end rates have been declining with banks offering fixed rate of c~9% for the first two years. While BBTN operates at the low end of the market, it may face competition in middle market (non-subsidized).

 Pressure Points — LDR is > 100% with CASA only 30% of deposits. Maturities of c~80% of assets is >1 YR and of c~70% of liabilities is upto 1 month. Re-pricing risk is mitigated by floating nature of loans/bonds, but liquidity reversal risk is high. Gross NPLs have are up from 3.4% in Dec 09 to 4.1%, even in low inflation.

CLSA INDO PREVIEW - TUESDAY 31 AUGUST

The market is in the middle of consolidation after its recent record break-ing run. This period of waiting for new catalysts is likely going to be pro-longed, as net-buying foreign institutional investors are being balanced against profit taking

- COAL: more 1H10 earnings are being released. And at face value they do fall a bit short of expectations. ADRO net -49%YoY, and BUMI net -30%YoY. Heavy rainfall and strong IDR were the main causes of lower than expected earnings and have affected the entire coal sector during the same period.

- MACRO: the datapoint most are waiting for is tomorrow's annoucement of the August inflation data (1%MoM, 6.69%YoY forecasted) and the Central Bank's interest rate decision on Friday Sep 3rd. Meanwhile, the Rupiah has fallen back to below 9000 levels after having traded w/ an 8 handle for a month; allthough that currency move was also due to general USD strength.

NISP Timah multiplies net income by 8 times (TINS, Rp2,425)

· Timah net income soared to Rp322.3bn, 652.6% higher from Rp42.8bn last year. Although revenue only rose by 5.9% YoY to Rp3.75tn from Rp3.54tn, lower cost of goods sold enabled the company to book higher operating profit by 140.1%. However these results came below expectation as net income and sales figure only accounted for 29.0% and 44.5% of consensus full year expectation.

· The company suppressed interest expense and forex losses to only Rp 9.2bn and Rp22.8bn compared to Rp34.4bn and Rp95.7bn in the previous period, making bottom line higher.

· On a quarterly basis, cost of goods sold showed signs of increase as gross profit contracted by 13.7% to Rp 319.3bn in contrast to higher revenue by 4.3% to Rp1.91tn. As such gross and operating margins declined by 3.5% and 4.8% to only 16.7% and 8.7%.

· TINS is trading at 2011F consensus PER of 9.1x and EV/EBITDA of 5.1x.

NISP Antam posts superb performance in 1H10 (ANTM, Rp2,050, Buy)

· Antam posted 238.0% YoY growth in net income to Rp756.3bn compared to Rp223.8bn a year earlier. The result may exceed our full year expectation as it came in 60.9% to our 2010F net income estimate at Rp1.2tn while consensus expects Rp1.3tn of full year net income.

· Such increase was largely due to Antam’s ability to improve its profitability where operating margin rose to 32.6% in 1H10 from 10.2% a year earlier. This was a result from the company’s recovery in nickel business in 1H10. During the period Antam sold 52.1% YoY higher ferronickel at 6,082 tons with 70.2% YoY increase on ASP at US$9.4/lb from as low as US$5.5/lb a year earlier.

· Despite such higher volume, COGS was lower at Rp2.9tn, 26.5% YoY lower from Rp4.0tn in 1H09. This was due to small contribution from gold trading business and also stronger Rupiah exchange rate.

· On quarterly basis, revenue leapt by 60.7% QoQ due to delay shipment in 1Q10 that booked in 2Q10 period.

· In all, Antam managed to deliver a positive surprise in 1H10 period. Currently the company is trading at 2011F PER of 11.0x and EV/EBITDA of 5.7x, Buy.

NISP Bumi Resources managed to deliver satisfying 1H10 results (BUMI, Rp1,710, Buy)

· During 1H10, Bumi Resources managed to become the largest coal producer to post a positive growth in its operating income at US$531.8mn, 5.4% YoY higher from US$504.6mn a year earlier. In addition, all of the coal producers in our coverage posted negative growth during the period, due to lower selling price and higher direct cost. Bumi’s result came in inline with our expectation as 1H10 operating income came in at 45.2% to our and consensus’ full year expectation.

· However, as the company kept improving its tax policy in order to cope with recent issue, the company deducts its tax payables that caused a higher effective tax at 48.6% compared to 40.9% in 1H109. Hence, bottom line decreased by 30.0% YoY to US$134.6mn from US$192.3mn. The company’s tax payable position in 1H10 decreased to US$249.0mn from US$590.2mn a year earlier.

· Operational wise, revenue grew by 25.1% YoY on the back of higher sales volume and stronger ASP in 1H10. This improvement managed to overcome stronger COGS as the company boosted its production during 1H10.

· On quarterly basis, the company also managed to demonstrate positive performance on the back of stable sales volume and 14.2% QoQ increase in ASP.

· In all, Bumi Resources managed to post strong results in 1H10 and we foresee it will continue in 2H10 due to stable high selling price as the company is about to deliver another 10mn tons – 12mn tons at US$104/ton to Japan in the next three quarters.

· Currently the company is trading at 2011F PER of 10.9x and EV/EBITDA of 5.1x, Buy.