Bank Jabar (BJBR IJ) earnings downgrade

Bank Jabar (BJBR IJ), Branching Out, Downgrading Earnings

CLSA lowered TP to Rp1,650 (from Rp2,000) but kept BUY rating. After having missed 2010 forecasts due to lower fees and higher costs, our analyst is now lowering earnings by 18%/16% reflecting greater risks as management is attempting to execute its growth aspirations.

A recent branch visit highlights the cost of BJBR’s expansion into microfinance. Bret visited a local BJBR branch near CLSA Jakarta office. This branch is doing both SME and micro. It seems like BJBR spends a lot more money on branches than competitors like BBRI. Spiral staircase and flat screen TV grace this micro and SME branch. A bit too extravagant?

Plus, none of the four employees at the branch were from the area. In micro business, local knowledge is often everything.

Are we seeing a classic sign of a bank overextending itself in trying to grow at too fast of a pace?

Key points from report:
Lowering 11 CL and 12CL earnings forecast by 18% and 16% to Rp1.1tn and Rp1.3tn respectively
Recently reported 2010 earnings missed CLSA estimates due to lower fee income and higher operating expenses
Recent branch visit reiterates that expansion is costly; they are already moving further than anticipated to generate sales, 2 months after opening
At 2.0x PBV and 8.9x PE Bank Jabar looks attractive versus peers
TP cut to 1,650 from Rp,2000; Indicates 46% upside. Maintain BUY.