Indonesia Banks' Foreign Ownership - Feb 2011: Ownership Rising while EPS Growth Cut Marginally - Citigroup

 Preference for positive correlation — Foreign investors turned net buyers of BBCA, BMRI, BBNI and BDMN. The first three have positive EPS correlation with rising rates while BDMN remains in the news as a potential acquisition target. Foreigners were net sellers in BBRI and BBTN, for the fourth consecutive month. Relative to the free float, foreign ownership in BDMN is now at peak levels (since Jan 2008). Foreign ownership increased in BMRI due to the govt. placement but declined as a % of free float, as a higher portion was allocated to local investors. In value terms, ownership in BMRI and BBRI is almost the same at c~USD4.5bn.

 Consensus EPS forecast trends — Consensus (MSCI Factset) has revised down sector weighted avg. EPS growth for 2010F and 2011F. For 2011F, EPS growth has been cut for all except BBNI. The 2011F EPS growth forecast ranges from 23.8% (BDMN) to 14.8% (BBCA).

 Valuation cycle (since 2006) — BBCA and BBNI are now trading above their mean multiples on both forward PER and PB. BBRI is trading below mean multiples, due to concerns about sustainability of its loan growth and asset quality. BMRI is trading on mean PER multiples while BDMN is +0.5 std.

 Macro Economic Environment — Inflation remains a risk with our economics team who hold the opinion that 1) Indonesia is running loose monetary policy based on Monetary Condition Indices and 2) the economy is less vulnerable to oil price shocks due to a relatively low oil consumption intensity, current account surplus and a net revenue contribution from oil and gas on fiscal side.

 BMRI is our Top Buy and BDMN and BBNI are top Sells — We prefer BMRI due to its attractive valuation, positive sensitivity to rising rates and potential upside surprise from cash write-backs. Our Sells on BBNI and BDMN are based on their higher PER (we have below-consensus EPS growth forecast for 2011F).