BBTN Strong profit despite write-backs - DBS Vickers

At a Glance
• 4Q10 net profit of Rp319bn takes FY10 earnings to Rp916bn, beating our and consensus estimates
• Earnings were driven by provision write backs; NPL ratio improved to 3.2%
• Maintain Buy and Rp2,500 TP

Comment on Results
4Q10 net profit of Rp319bn was driven by provision write-back (adjustments under PSAK 50/55) as well as improved revenues. Expenses rose due to expansion and infrastructure investments, but cost-to-income ratio remained low at 53%. Loans grew 4.8% qoq, taking full year loan growth to 27%, as expected. 4Q10 loan growth was partly boosted by utilisation of the liquidity facility that was disbursed in Oct-10. NIM improved to 5.9% possibly because of BBTN’s efforts to increase its proportion of non-subsidised mortgages, consumer and commercial loans, which is now 40% of total loans (from 37% a year ago), as well as lower cost of funds with interest expenses down 6.3%. Deposits grew 9.5% qoq to take FY10 deposit growth to 13%, thanks to the cash outlets and post office tie-ups. Loan-to-deposit ratio edged down to 114% (3Q10: 117%). Asset quality improved with NPL ratio falling to
3.2%. Despite strong loan growth of 27% in FY10, BBTN’s total CAR remained strong at 16.7%.

BBTN expects to disburse the remaining liquidity facility which it received in Oct-10 for 120,000 housing units. It believes the current land-transfer tax (BPHTB) issues will not impede mortgage loan growth as most cities where BBTN’s major markets are located are able to handle the new tax administration. BBTN is waiting for BI’s review on asset sale, where BBTN would be able to sell mortgage assets to other banks with repo possibilities on the contract.

Recommendation
Maintain Buy and Rp2,500 target price, pegged to 3.1x FY11F BV and 19.1x PE based on the Gordon Growth model with the following assumptions: 18% ROE, 13% long-term growth, and 14.7% cost of equity. BBTN remains an attractive mid-cap stock given its dominance in subsidized-mortgage, coupled with its low cost advantage over its peers as a result of low cost of funds from the liquidity facility granted by the government.