Flavour (Indo): Banking and Plantations - Nomura Indonesia

Our banking analyst, Anand Pathmakanthan, visited 5 banks – BRI, BCA, Danamon, BNI, and BTN - in Indonesia last week for an update on macro and operational trends. The most striking disconnect is the negligible impact the inflation scare that has spooked foreign investors over 1Q has had on on-the-ground macro stability and growth expectations – broad optimism prevails and loan growth, margin (NIM) trend expectations are relatively unchanged from our last round of visits in Dec10.

Anand still prefers the relatively underperforming state-owned banks over the now-expensive private-sector banks.

Visit highlights:

Management teams, seemingly role-playing as the bullish analysts community, continue to reel off positives, the most-repeated being: 20%-25% loan growth range (ex-BNI), stable NIM (ex-Danamon), inflation coming under control, investment grade status, infrastructure-boosting land acquisition reform law, strong and sustainable commodities / rural income dynamic, and broadly solid fiscal credentials.

Two risks flagged: firstly, regulatory “noise” and secondly, sustained robust lending is pushing up LDRs (liquidity is ample but held by a few large banks). More aggressive competition for deposits is a downside risk for NIM projections.

Bank Mandiri (BMRI IJ – BUY). Macro proxy, aggressive management.

Bank Rakyat Indonesia (BBRI IJ – BUY). Rural income proxy, best PE-ROE dynamic. Rakyat says read my lips - “no rights issue!”

BNI (BBNI IJ – BUY). Infrastructure financing proxy, overly-discounted valuation. BNI is likely to say “no” to Bahana.

BCA (BBCA IJ – Neutral). Interest rate proxy status already priced in, most expensive PB multiple in region. BCA (BBCA IJ) gets the credit card blues: the group may lose up to 320k (out of a total 2.1mn) co-branded credit cards in 2Q when its agreement with Carrefour expires.

Danamon (BDMN IJ – Neutral). Boosted by M&A speculation, organic growth priced in. Danamon is monitoring inflation, liquidity and costs.