BBNI Slow but steady - DBS Vickers

At a Glance
• 1Q11 earnings within expectations comprising 24% of our and 23% consensus FY11 estimates.
• Loans grew 2% q-o-q while deposits shrank by 3%, a normal 1Q trend experienced by banks.
• BBNI poised for a turnaround story in 2H11.
• Maintain Buy and Rp4,300 TP.

Comment on Results
Net profit of Rp1.25bn was within expectations. Revenue was driven by net interest income. The higher net interest income arose from improved treasury activities with higher government bonds outstanding with average yield of 7.0-7.5%. Although NIM slid marginally, the 2% q-o-q loan growth and yields from the government bonds were sufficient to ensure growth at the net interest income level. Cost of funds continued to decline. Asset quality continued to improve with gross NPL ratio declining to 4.1% largely due to the improved medium segment NPL portfolio.

Meanwhile, the decline in non-interest income for the quarter was due to unrealized forex revaluation losses arising from the stronger Rupiah. Provisions were significantly lower during the quarter. While BBNI only booked 2% loan growth q-o-q, (typically slow in every 1Q), we understand that there is still a strong pipeline ahead for the bank. Our loan growth forecast of 20% should be achievable as loan growth momentum picks up over the next 2-3 quarters. CASA to total deposit remained intact at 60% despite a 3% contraction in deposits. Loan-to-deposit ratio stood at a comfortable 75% in 1Q11. Total CAR remained strong at 18.4% thanks to the rights issue in Dec-10.

Recommendation
Maintain Buy and Rp4,300 TP. Our target price is based on the Gordon Growth Model with the following assumptions: 18% targeted ROE, 13% long term growth and 15.3% cost of equity. It is equivalent to 2.2x FY11 BV and 15.5x FY11 EPS. We see BBNI as
a good turnaround story for 2012. BBNI will continue to improve its asset quality in 2011 for a cleaner platform for growth in 2012.