BCA 1Q review + Indo banks - CLSA

Banks – Indonesia country visit by regional bank head Daniel Tabbush

Daniel visited banks in Jakarta and remains positive on the Indo banks. He points out that there is no sign of structural margin pressure and that many bank NIM’s may be understated due to low LDR and high liquid assets. Favorable demographic will continue to drive this structural growth. And despite strong loan growth (over 20% CAGR in last five years), Indonesia remains the most underpenetrated with credit/GDP of 28%. OWT Indso banks vs Asian banks.

· Loan growth remains strong with banks indicating 22% to 39% rates of growth
· The micro finance lenders Danamon, BRI and BTPN are seeing the highest rates of growth
· System margins are 6.5% with micro finance lenders at 10-13%, given their high yields of 25% here
· Credit quality is improving, especially for BNI, a turn around story, but Bank Jabor shows rising NPLs
· BNI's NPLs are down from 18% to 4% over the past three years and this year should mark the bottom
· Mortgage NPLs for Indo's banks are exceptionally low at 0.2% on average, and micro finance NPLs are 2-4%
· The BTPN story remains unique, with its pension loans (80% of book) and micro finance loans (20%) and 4% ROA
· Indonesia's banks remain the best performers in absolute terms and are on par with China vs Asian banks YTD (OWT)

Bank Central Asia (BBCA IJ) 1Q review – in line by Bret Ginesky

As can be expected from blue chip BCA, solid results overall. NIM improved to 5.4%. However, Bret is downgrading recs to UPF solely because of valuation. BBCA now trading at 4.7x book.

Key points:
BCA’s 1Q11 reported net profit of Rp2.0tn, up 4% YoY and represent 21% of our FY11 forecast.
BCA’s NIM increased 30bps YoY and 13bps QoQ to 5.42% as funding mix and costs (CoF) continue to improve.
Higher LDR and a stable NIM will drive 11CL earnings growth of 14%. As a result, we are tweaking our 11CL EPS forecast by +1% to Rp395 reflecting a higher net interest income outlook.
Valuations appear stretched at current levels, lower to Underperform as near term upside appears limited. BCA is in a league of its own as the most liquid, well capitalized and premier depository in Indonesia. However, this league does not justify a multiple of nearly 5x PBV and 19x earnings, representing a premium of 34% and 58% to its Indonesian peers.
We continue to think BCA is a phenomenal bank, with ROA and ROE at a 21% and 18% premium to Indo peers, respectively, but we would recommend BMRI or BNI to investors.