BBRI (TP Rp7,900) : Lower payout to strengthen capital structure - Deutsche Bank

BRI shareholders have approved a 20% dividend payout, which is below our payout assumptions of 30% throughout our forecast years (2011-13F). This implies a dividend per share of Rp93, which translates to gross yield of 1.4%. Despite lower payout, we view this as positive for BRI.

This will further limit BRI's capital risks. We have adjusted our projection to reflect lower payout. Consequently, BRI CAR would rise by 30bps in 2011F to 13%, and by 60bps in 2012F to 14%. This would also mean increasing the bank's sustainable loan growth level from 22-25% to potentially 25-27% without much risks to capital. The adjusted ROAE remains muted with BRI still delivering ROAE of 28-31% in 2011-12F.

On the back of this, we reiterate BRI as one of our top picks in Indonesian banking sector. Lower dividend payout would alleviate BRI's capital risks. Maintain BUY with a target price of Rp7,900. Despite the stock's strong price performance in the recent month, at 12.5x 11F earnings, BRI is amongst cheapest banks in our Indonesian banking universe.