Mandiri Sekuritas BBTN: Targets met, yet remained cautious

Our latest meeting with the management affirmed that most of the targets have been met and the bank expects to have its growth sustained despite concern over rising interest rates and lower margin from new subsidized loans. However, we remained cautious with the bank’s outlook as we are concerned with the negative impact from high inflationary pressures this year which will affect banks with high exposure to the middle-low income people. We therefore maintain our TP at Rp1,600/share, and consider any weaknesses in the price as good buying opportunity.  

Rp1.6tn of funds have been placed by the government to support subsidized mortgage … Related to the new liquidity facility scheme to support the subsidized mortgage, the government has placed Rp1.6tn in BBTN in Oct10. This will translate into Rp2.7tn of new subsidized mortgage as BBTN will also  provide 40% internal funds to support this loan scheme. So far around 50% has been disbursed. This year, the bank expects to get additional Rp3tn of funds from the government to support this scheme or equivalent to Rp5tn of new subsidized mortgage. This new subsidized mortgage will account for 25% of total targeted new loans this year. Please note tha t BBTN t argets its loans to grow by 25-30% yoy this year.  

.. which will give around 4.25% NIM. This new subsidized mortgage will give a margin of 4.25% to the bank. Despite such low margin, BBTN still expects its NIM to be around 5.5% - 5.7% this year enabled by higher yield from other loans (i.e. commercial mortgage and other consumer/commercial loans). We actually expect the bank’s NIM to decline to 5.3% this year  due to (1) tighter competition in the mortgage segment and (2) tightening liquidity in the banking sector, which will put pressure on banks with high TD composition like BBTN.

Aggressive kiosk expansion. To support the growth in funding, BBTN has been quite aggressive in growing its kiosks (small outlet with only 3-5 officers). Last year, the bank managed to open more than 100 kiosks (from the target of 100 kiosks) and obtain Rp600bn from these outlets. This year the bank expects to open another 150 – 200 outlets.

TP maintained at Rp1,600/share. BBTN’s share price has declined substantially post our sell call on 29Dec10. Even though everything seems to be on track, we  remain concerned with the bank’s funding constraint and possible rising NPL due to inflationary pressures. We therefore maintain our sell recommendation on the counter, yet believe that any weaknesses in price may serve as a good buying opportunity for the stock.