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Kamis, 13 Januari 2011

AAA Securities PT Bank Rakyat Indonesia (Persero) Tbk Focusing on ROE not NIM

BBRI share price declined 15% vs 8% JakFin in a recent month due to among others the negative views of the market on its declining trend in NIM and weak CAR ratio. Despite that, we are still positive on BBRI on the basis of its solid ROE. BBRI currently traded at 17% discount to peers based on 2011F PBV. BUY

±     Possible Reasons of the Decline in BBRI Share Price
For the last one month, BBRI share price has declined by 15% compared to Jakarta Financial Index that fell 8%. These were probably due to, firstly, BBRI plans to trim down micro lending rate to boost volume micro lending, a move that could bring down overall NIM this year by 50 bps-100 bps to 8%-8.5%. Secondly, weak capitalization ratio at 13.9% - 14% for 2010-2011F. With floating already at 40%, there is no other way to jack up capitalization ratio than cutting dividend payout or issuing subdebt (which only 50% of the subdebt will be recognized as tier-2 capital). Thirdly, higher interest rate regime in 2011F will only slightly lift up BBRI’s earnings by 0.5% vs peers 1.3% (mainly because of its relatively costly deposit and fixed rate funding). Lastly, failed planned inorganic growth after unsuccessful attempt in acquiring Bank Bukopin.

±     Should Focus on ROE not NIM
Being market leader in micro banking with the widest coverage in Indonesia (4,581 micro outlets vs peers 1,711), lowering micro lending rate should give signal to other micro banking players to also decrease their lending rate. Hence, lower NIM trend in overall micro banking industry is expected. However, NIM only captures bank’s profitability metric in the upper line not in the bottom line. For the bottom line, ROE is actually a superior profitability metric for investor. So far, BBRI has demonstrated that with declining NIMs since 1Q05, its ROE remains stable at 33% (the second highest in the industry after BTPN). That said, it means that lower NIM will not automatically result into lower ROE, since BBRI with its higher client base, could maintain high ROE through higher fees and other incomes from its debtors.

In dealing with low capitalization ratio, BBRI is likely to cut down dividend payout from 35% to 30%, which will slightly reduce dividend yield from 3.6% to 3.1%, but will lift total CAR up by 46 bps to 14%. This will be enough to sustain 20% annual loan growth for the next 4-5 years. With current lower RWA in micro lending at 75% (from 85% previously), we believe that BBRI will have no difficulty achieving 22% loan growth in 2011F.

±     Valuation, at Deep Discount. BUY
Currently BBRI is traded at a deep discount of only 2.8x PBV, 9.5x PE vs peers at 3.4x PBV, 14.1x PE 2011F, while we believe BBRI fundamental remains solid (high ROE, declining NPL). We already adjust our TP to recent BBRI stock split 1:2, and we arrive at our new TP at Rp6,500 implying 35.4% potential upside. BUY. 
Posted by Saham Pilihan at 05.37

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