Overall tone generally bullish – ALERT
• Day 1 of the KL Palm Oil Conference. The two-day palm oil conference in KL (9-10 Mar) is being attended by 1,700 participants involving industry players, analysts, fund-managers locally and overseas. The key industry experts/speakers admitted that they had been generally wrong on their bearish view on CPO prices in 2009, as impact of the stimulus packages by governments were underestimated.
• Overall tone generally bullish. Interestingly, CPO US$ contracts will start trading in Chicago on the CBOT in collaboration with Bursa Malaysia Derivates in May-10, which will help improve the profile of palm oil globally. The long-term outlook was positive with palm oil's share of total edible oil global supply forecast to rise from 34% to 40% by 2015 and 46% by 2020. In the nearer term, the speakers were generally bullish with CPO forecast for 2010 ranging from M$2,400/t to M$3,300/t (spot: M$2,680/t), with the higher end of this range being propelled mainly by the risk from adverse weather (i.e. El Nino). Declining Malaysia CPO inventories estimated to fall to 1.6-1.65MT by Apr-10 from a peak of 2.24MT in Dec-09 should support prices.
• Key takeaways. Despite the soybean bumper harvest in 2Q10, the general view remains that this would be more bearish mainly on prices of soy-meal rather than soy-oil given stronger bio-diesel and food demand for the latter. Dorab Mistry (Director of Godrej International) who is well reputed, forecast CPO prices to range M$2,600-2,800/t over Mar/Jul-10, and to trend higher to M$2,800-3,200/t in 2H10 and 1Q11. (This assumes crude oil at US$70-95/bbl). The more bullish view from 2H10 is due to the peak of the soybean flow from South America after 2Q10 and expectations of CPO supply shortfalls by then from the lag adverse impact of the drought/El Nino since mid-09 on output. Hence, CPO output from Malaysia is forecast to fall marginally for the second consecutive year in 2010 (market expectations: 0.8MT rise), while that from Indonesia is forecast to rise 1MT (market expectations: 2.2MT rise). Dorab stated that this will also coincide with the start of the biological tree stress period for palm from 4Q10 on, and he believes it possible that palm oil may hence for a short while trade at a premium to soy-oil during this period due to its tighter supply.
• Comments. Our CPO forecast of M$2,450/t for 2010-11E is at the lower-end of the forecast range by the speakers as we have not priced in the risk premium from weather, though we have pointed out this as the key upside risk besides a rally in crude oil prices. We are OW on KLK and Sime in Malaysia (prefer Sime), Wilmar and First Resources in Singapore, and Astra Agro and London Sumatera in Indonesia.
Selasa, 16 Maret 2010
Mandiri Sekuritas BBTN: Beneficiary of lower interest rates
BBTN recorded higher-than-expected net profit on the back of lower provisioning expenses in 4Q09. Still, we foresee brighter outlook for the bank this year, hence we maintain our buy recommendation on the counter. At the current price, the stock offers 13.2% potential upside.
NIM expanded due to lower cost of funds. BBTN is largely benefited from the agreement among large banks to cap the maximum TD rates at 8% in Aug09 (followed by 7% in Nov09). This led to a significantly lower cost of funds of 6.7% in 4Q09 compared with 8.2% in 3Q09. Consequently, the bank’s interest expenses dropped by 11.1% qoq in 4Q09, causing a 34% qoq increase in net interest income. NIM expanded to 4.7% for! FY09 (vs 4.3% in 9M09).
However, operating expenses increased. Operating expenses increased significantly by 13.8% qoq in 4Q09, bringing total operating expenses to Rp1.8tn for FY09 (+16.9% yoy). Management claimed such high operating expenses was due to investment and MESA (Management and Employee Stock Allocation). This made the bank’s cost-to-income ratio very high at 68.9% for FY09, only a slight decline from 69.3% for FY08.
Higher net profit due to lower provisioning expenses. The bank recorded provisioning expenses of Rp64bn in FY09, lower than our expectation of Rp120bn. Meanwhile, NPL was recorded at 3.4% at end Dec09 (vs 3.2% at end Dec08). Consequently, the coverage ratio was relatively low at 51.4% (vs 54.3% at end Dec08). Management claimed that this coverage ratio is adequate to cover possibility of loan losses given its historical high recovery rate o! n the for eclosed assets. As a result of lower provisioning expenses, net profit grew by 41.7% qoq to Rp171bn in 4Q09, bringing the full-year net profit to exceed our expectations.
Maintain a buy. Despite higher operating expenses last year, we foresee better outlook for the bank due to the following factors: (1) lower interest rate environment will enable BBTN to maintain a sound margin. We project NIM to reach 5.1% this year (2) the bank’s serious efforts to grow its low cost funding through the opening of many kiosks (67 kiosks until now) and (3) the rolling out of pilot project on loan origination system and loan collection & recovery system will improve efficiency and risk manage! ment with in the organization. We expect the bank to book a net profit of Rp742bn this year (+51.3%yoy), translating into ROAE of 13.2%. Maintain buy.
NIM expanded due to lower cost of funds. BBTN is largely benefited from the agreement among large banks to cap the maximum TD rates at 8% in Aug09 (followed by 7% in Nov09). This led to a significantly lower cost of funds of 6.7% in 4Q09 compared with 8.2% in 3Q09. Consequently, the bank’s interest expenses dropped by 11.1% qoq in 4Q09, causing a 34% qoq increase in net interest income. NIM expanded to 4.7% for! FY09 (vs 4.3% in 9M09).
However, operating expenses increased. Operating expenses increased significantly by 13.8% qoq in 4Q09, bringing total operating expenses to Rp1.8tn for FY09 (+16.9% yoy). Management claimed such high operating expenses was due to investment and MESA (Management and Employee Stock Allocation). This made the bank’s cost-to-income ratio very high at 68.9% for FY09, only a slight decline from 69.3% for FY08.
Higher net profit due to lower provisioning expenses. The bank recorded provisioning expenses of Rp64bn in FY09, lower than our expectation of Rp120bn. Meanwhile, NPL was recorded at 3.4% at end Dec09 (vs 3.2% at end Dec08). Consequently, the coverage ratio was relatively low at 51.4% (vs 54.3% at end Dec08). Management claimed that this coverage ratio is adequate to cover possibility of loan losses given its historical high recovery rate o! n the for eclosed assets. As a result of lower provisioning expenses, net profit grew by 41.7% qoq to Rp171bn in 4Q09, bringing the full-year net profit to exceed our expectations.
Maintain a buy. Despite higher operating expenses last year, we foresee better outlook for the bank due to the following factors: (1) lower interest rate environment will enable BBTN to maintain a sound margin. We project NIM to reach 5.1% this year (2) the bank’s serious efforts to grow its low cost funding through the opening of many kiosks (67 kiosks until now) and (3) the rolling out of pilot project on loan origination system and loan collection & recovery system will improve efficiency and risk manage! ment with in the organization. We expect the bank to book a net profit of Rp742bn this year (+51.3%yoy), translating into ROAE of 13.2%. Maintain buy.
Ciptadana BBNI - Strong ’09 results
Maintain BUY on BNI
We maintain BUY on BBNI with target price of Rp2,500/share. The bank still managed to deliver high net income growth in FY09. Net income grew Rp103% in FY09 to Rp2.4 trillion, slightly below our FY’09 net income expectation of Rp2.6 trillion. Net interest income grew 12.3% in FY09 to Rp11.3 trillion, below our expectation of Rp11.9 trillion. We expect the bank will continue to realize high net income growth in FY10 as we expect net income will grow more than 40% in this year.
Capital may be a constraint
Insufficient capital could be a problem for BBNI to expand its loan book optimally. FY09 CAR was 14.1% but Tier-1 CAR was at a restricting level of 10.3%. This is the major reason why BBNI it is not too aggressive for projecting its FY10 loan growth, in our view. The bank is only expecting 14-17% of loan growth in FY10 despite its relatively low LDR of 64%.
Subdebt and rights issue
For boosting its capital, BBNI has plan to issue subdebt or rights issue this year. For the subdebt, the plan is for a US$300 million of US dollar subdebt issuance in 2010. The BI regulation that required the bank to get permission from BI before paying its subdebt obligation is a major problem for the plan. BBNI is still trying to resolve this. The second option is the rights issue pf Rp3-4 trillion, which is better in our view. However, the need to obtain permission from the legislative body (DPR) is a major risk for delay.
New accounting rules impact
BBNI management do not see that the new accounting rules that will impact the bank provisioning policy will have a significant impact for the bank book value in FY10. The new accounting rules that will be implemented in first quarter this year will shift the bank provisioning policy from cushion building to loan impairment.
We maintain BUY on BBNI with target price of Rp2,500/share. The bank still managed to deliver high net income growth in FY09. Net income grew Rp103% in FY09 to Rp2.4 trillion, slightly below our FY’09 net income expectation of Rp2.6 trillion. Net interest income grew 12.3% in FY09 to Rp11.3 trillion, below our expectation of Rp11.9 trillion. We expect the bank will continue to realize high net income growth in FY10 as we expect net income will grow more than 40% in this year.
Capital may be a constraint
Insufficient capital could be a problem for BBNI to expand its loan book optimally. FY09 CAR was 14.1% but Tier-1 CAR was at a restricting level of 10.3%. This is the major reason why BBNI it is not too aggressive for projecting its FY10 loan growth, in our view. The bank is only expecting 14-17% of loan growth in FY10 despite its relatively low LDR of 64%.
Subdebt and rights issue
For boosting its capital, BBNI has plan to issue subdebt or rights issue this year. For the subdebt, the plan is for a US$300 million of US dollar subdebt issuance in 2010. The BI regulation that required the bank to get permission from BI before paying its subdebt obligation is a major problem for the plan. BBNI is still trying to resolve this. The second option is the rights issue pf Rp3-4 trillion, which is better in our view. However, the need to obtain permission from the legislative body (DPR) is a major risk for delay.
New accounting rules impact
BBNI management do not see that the new accounting rules that will impact the bank provisioning policy will have a significant impact for the bank book value in FY10. The new accounting rules that will be implemented in first quarter this year will shift the bank provisioning policy from cushion building to loan impairment.
CIMB Bank Tabungan Negara Result note - Good asset quality
(BBTN IJ / BBTN.IJ, OUTPERFORM - Maintained, Rp1,060 - Tgt. Rp1,450, Financial Services)
Maintain Outperform on BTN. FY09 results were ahead of consensus and our expectations, on lower-than-expected provisioning charges. Net and core profits formed 112% and 110% of our forecasts, respectively. Quarterly ROA strengthened to 1.2% from 0.9% in 3Q09, mainly on margin and cost-ratio improvements. On adjusting the beginning balance for 2010, we raise our FY10-12 EPS estimates by 4-5%, which lifts our Gordon Growth-based target price to Rp1,450 from Rp1,300. BTN remains one of our sector picks given its sustainable dominance of the mortgage market.
Maintain Outperform on BTN. FY09 results were ahead of consensus and our expectations, on lower-than-expected provisioning charges. Net and core profits formed 112% and 110% of our forecasts, respectively. Quarterly ROA strengthened to 1.2% from 0.9% in 3Q09, mainly on margin and cost-ratio improvements. On adjusting the beginning balance for 2010, we raise our FY10-12 EPS estimates by 4-5%, which lifts our Gordon Growth-based target price to Rp1,450 from Rp1,300. BTN remains one of our sector picks given its sustainable dominance of the mortgage market.
AAA BBTN company Update
Bank Tabungan Negara hosted its first analyst meeting last Monday, which reported its full year 2009 performance. Their net income increase 13.9% YoY and surpassed consensus estimated by 10%. Their good result is delivered by top line performance, net interest income, which increased by 15.6% YoY. However, BTN has increased its provision significantly by almost Rp. 60 billion, which made operating profit only increased by 10.4%. For the future, the management is aiming for better efficiency, aggressive loan growth which will be derived to better profitability.
Rebalancing Portfolio
BTN management aims to have 75% : 25% proportion by 2012 for its mortgages and non-mortgages loan, from current proportion by 93.99% : 6.01%. By increasing their non-mortgages loan they want to increase their margin. According to them, non-mortgages loans such as syariah loan and consumer loan, give better margin than mortgages loan, which the price has already pegged by government since more than 49% of their mortgage loans are dominated by subsidized mortgages loans. In addition, non-mortgages loan has shorter maturity than mortgages loan, which will decrease their miss match maturity risk, since most of their funding comes from customer deposits. Furthermore, by decreasing their mortgages loan, they are willing to reduce their concentration risk. We see that BTN management is willing to balance between risk and profit. On one side, mortgages loan offer good collateral but less margin, while non-mortgage loan gives more margin but higher risk. So, we agree with the composition that BTN’s management has been decided since its offer less risk with potential upside on its profitability.
Efficiency Program on Progress
Compare with other commercial banks, which has cost to income ratio (CIR) around 45% - 55%, BTN has stated CIR ratio by 68.69% . Their management blamed its manual system to do loan origination and collection that make their inefficiency. So, they have piloted E-Loan (Loan origination system) and E-Loss (Collection and Recovery System) since January 2010 to make them more efficient in term of cost and time. From this automation system, they hope that they will have CIR ratio by 57.87% 2012, or decrease 10.82% along two years ahead.
NPLs Has Touched Its Peaked
BTN has reported lower NPL by 3.36% in FY09 than 4% in 3Q09 because of aggressive loan growth and better assets quality. The management said that its mortgage debitors are sensitive by increasing interest rate charge. It is happen since most of their subsidized mortgage customers have monthly income around Rp. 1-2.5 million, which are relatively vulnerable to the weakening economic condition. However, since 78% of their subsidized housing loan borrowers are civil servant, so we are no worry about BTN lower coverage ratio, which stood at 51.34% level in FY09.
No Longer Cheap
Currently, BTN share is traded at 1.5X PBV FY10E, or relatively expensive compare to its peers. Bank Negara, Bank CIMB Niaga or Bank Bukopin, which have expected ROE higher, is exchanged for 1.2X, 1.56X and 0.87X PBV FY10E. However, given BTN nice market, lower risk of collateral, and potential bottom line upswing from efficiency, we believe that BTN can be one of alternatives for mid term stock investment.
Rebalancing Portfolio
BTN management aims to have 75% : 25% proportion by 2012 for its mortgages and non-mortgages loan, from current proportion by 93.99% : 6.01%. By increasing their non-mortgages loan they want to increase their margin. According to them, non-mortgages loans such as syariah loan and consumer loan, give better margin than mortgages loan, which the price has already pegged by government since more than 49% of their mortgage loans are dominated by subsidized mortgages loans. In addition, non-mortgages loan has shorter maturity than mortgages loan, which will decrease their miss match maturity risk, since most of their funding comes from customer deposits. Furthermore, by decreasing their mortgages loan, they are willing to reduce their concentration risk. We see that BTN management is willing to balance between risk and profit. On one side, mortgages loan offer good collateral but less margin, while non-mortgage loan gives more margin but higher risk. So, we agree with the composition that BTN’s management has been decided since its offer less risk with potential upside on its profitability.
Efficiency Program on Progress
Compare with other commercial banks, which has cost to income ratio (CIR) around 45% - 55%, BTN has stated CIR ratio by 68.69% . Their management blamed its manual system to do loan origination and collection that make their inefficiency. So, they have piloted E-Loan (Loan origination system) and E-Loss (Collection and Recovery System) since January 2010 to make them more efficient in term of cost and time. From this automation system, they hope that they will have CIR ratio by 57.87% 2012, or decrease 10.82% along two years ahead.
NPLs Has Touched Its Peaked
BTN has reported lower NPL by 3.36% in FY09 than 4% in 3Q09 because of aggressive loan growth and better assets quality. The management said that its mortgage debitors are sensitive by increasing interest rate charge. It is happen since most of their subsidized mortgage customers have monthly income around Rp. 1-2.5 million, which are relatively vulnerable to the weakening economic condition. However, since 78% of their subsidized housing loan borrowers are civil servant, so we are no worry about BTN lower coverage ratio, which stood at 51.34% level in FY09.
No Longer Cheap
Currently, BTN share is traded at 1.5X PBV FY10E, or relatively expensive compare to its peers. Bank Negara, Bank CIMB Niaga or Bank Bukopin, which have expected ROE higher, is exchanged for 1.2X, 1.56X and 0.87X PBV FY10E. However, given BTN nice market, lower risk of collateral, and potential bottom line upswing from efficiency, we believe that BTN can be one of alternatives for mid term stock investment.
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